Urban densification: Auckland’s lessons for Sydney to tackle the housing crisis

The Transport Oriented Development State Environmental Planning Policy (TOD SEPP) has commenced. NSW Department of Planning, Housing and Infrastructure recently finalised the planning controls within 400 metres of 18 train stations. These are the first tranche of 37 stations identified for higher density housing. Higher density housing (up to 6 storeys) will be enabled in locations deemed suitable. (i.e. within 400 metres of identified stations and town centres).

Whilst a novel approach for Sydney, it follows the example set by Auckland. Who enacted major planning changes over the last decade to boost housing supply and address affordability. To understand how things may evolve here, let’s consider the New Zealand experience.

Permitting wide-scale medium density

2016 was a big year for New Zealand. Their National Olympic team achieved a record medal haul at the Summer Olympics in Rio. Parliament also legislated to upzone three-quarters of Auckland’s residential land. Under the Auckland Unitary Plan (AUP) this created permits for medium density housing.

New housing completions rose, and housing typologies diversified in favour of the ‘missing middle’. This included medium density housing (terraced houses and small unit blocks). In the five years to 2016, new Auckland dwelling starts averaged 6,300 per annum. With less than half (22%) being units or townhouses. In the five years post-2016, dwelling starts averaged 13,100 per annum. With 46% being units or townhouses (Figure 1).

‍

‍Figure 1: New Dwelling Starts, Auckland Region (2004-2024)

Permitting high density opportunities in TODs

In 2020, there was an even better showing from New Zealand’s Olympic team in Tokyo. And like 2016, NZ Govt put the National Policy Statement on Urban Development (NPSUD) in place. A direct response to a Productivity Commission report on ‘Upzoning Land for Housing’. The Govt’s Urban Growth Agenda program was to improve housing affordability. As well as dismantling barriers towards improving land and infrastructure supply.

This moves prioritised TOD by requiring Auckland and other large cities to zone land for high density residential developments. This included a minimum of 6 storeys within 800 metres of rapid transit stations. This pushed the residential supply pipeline to even greater heights. With new dwelling starts peaking at over 21,000 dwellings in 2022. Of which 74% were townhouses and apartments (Figure 1). Since then dwellings starts have been impacted by inflationary cost pressures.

Sydney’s TOD SEPP resembles this Auckland initiative as it faces similar issues. Residential prices levelled off after the AUP changes. And whilst prices rose rapidly post-Covid, they have subsequently fallen again (Figure 2). This is in stark contrast to the experience in other western cities like Sydney.

Rental prices in Auckland have continued to rise. But the rate of growth in the five-years post-2016 was a third lower (19%) than that in the five years pre-2016 (28%). Since 2023 rental price growth has accelerated again. This suggests other structural trends at play.

Permitting high density opportunities in TODs

In 2020, there was an even better showing from New Zealand’s Olympic team in Tokyo. And like 2016, NZ Govt put the National Policy Statement on Urban Development (NPSUD) in place. A direct response to a Productivity Commission report on ‘Upzoning Land for Housing’. The Govt’s Urban Growth Agenda program was to improve housing affordability. As well as dismantling barriers towards improving land and infrastructure supply.

This moves prioritised TOD by requiring Auckland and other large cities to zone land for high density residential developments. This included a minimum of 6 storeys within 800 metres of rapid transit stations. This pushed the residential supply pipeline to even greater heights. With new dwelling starts peaking at over 21,000 dwellings in 2022. Of which 74% were townhouses and apartments (Figure 1). Since then dwellings starts have been impacted by inflationary cost pressures.

Sydney’s TOD SEPP resembles this Auckland initiative as it faces similar issues. Residential prices levelled off after the AUP changes. And whilst prices rose rapidly post-Covid, they have subsequently fallen again (Figure 2). This is in stark contrast to the experience in other western cities like Sydney.

Rental prices in Auckland have continued to rise. But the rate of growth in the five-years post-2016 was a third lower (19%) than that in the five years pre-2016 (28%). Since 2023 rental price growth has accelerated again. This suggests other structural trends at play.

‍

‍Figure 2. Median Aggregated Rent & Sale Prices, Auckland Region (2004-2024) (NZ$)

Putting downward pressure on the Cost of Production

Another outcome of Auckland’s planning changes has been to shift the housing building focus from Auckland’s fringes to central and inner suburbs. The proportion of new permits in these areas rising from 65% (2015) to 85% (2020)¹. This follows the changes in AUP and NPSUD. Both of which enabled the permissibility of higher densities. But this has placed downward pressure on land costs (Figure 3).

‍

Figure 3. Price Cost Ratio*, Auckland Region (1993-2023)

What could Sydney expect?

Sydney could draw some lessons from Auckland’s experience. TODs concentrates dense new housing supply in locations with spare infrastructure capacity. TODs deliver compact development and reduce energy consumption. Which enables greater use of public transport and cycling/walking infrastructure.

The NSW Productivity Commissioner released twin reports in February. These focused on how best to address widening housing unaffordability. The reports emphasised the importance of building homes where people want to live. Especially where there is already infrastructure. (See here and here).

Large scale rezoning of land contributes to asserting downward pressure on land cost. This becomes a broader issue than enabling development where people want to live. And where servicing costs are lowest due to the existing infrastructure. The impact of planning restrictions on the underlying cost of land is not in dispute. Countless studies over the years have proven this. That is, if we restrict supply of a certain good, demand will cause the price of its limited supply to rise.

An important part of the TOD initiative is to remove the influence of local politics from densification decisions. NIMBYISM has been a key factor in preventing higher volumes of new residential supply in urban areas globally. Auckland has been no exception. It is a low-rise city with strict height limits imposed to maintain views of nearby mountains. Many homeowners were (and remain) anti-development. Local politicians represent these views by stifling denser housing proposals. This critical issue was raised above local opposition by ratifying radically new land use zonings. Using bipartisan support to achieve this at a city level. In finalising the TOD SEPP – the NSW government is doing exactly that.

Conclusion: Assertive densification  

Auckland’s approach has yielded some results. It has enabled greater housing supply in a compact development form. It has benefited homeowners, renters and the construction industry alike. It represents taxpayer value-for-money by concentrating development where it is cheapest to service. It has prompted better environmental outcomes by lowering energy consumption. As well as facilitating non-fossil fuel powered transport options. Auckland’s housing costs are still too high and more action is needed. But the government’s bold approach to unlock wide-scale supply has helped.

Sydney’s acute housing crisis demands similar assertive action to fill the missing middle. Densifying existing urban areas close to public transport makes sense. As existing infrastructure has spare capacity and household demand is at its strongest. Densification decisions must be protected from the vested interests of local NIMBYs. Especially when Housing affordability is of strategic importance to all city residents.

It is not a panacea but the finalisation of the 18 stations is Sydney’s first step in the right direction.

‍

1. Work in Progress. (2023). “Upzoning New Zealand”. Accessible from: Upzoning New Zealand – Works in Progress