THE EFFECTS OF URBAN LIMITS ON DEVELOPMENT

BACKGROUND DOCUMENT FOR COUNCIL WORKSHOP ON WEDNESDAY, 14 SEPTEMBER 2011

August 2011

PURPOSE AND BACKGROUND

When the Wairakei Development Feasibility Report was presented to elected members, staff were directed to bring back information on the effects of Tauranga’s urban limits policies on development generally within the City.

This was confirmed at the first growth funding workshop. And as a result this workshop was arranged.

It should be noted that the implementation of urban limits are a significant issue for all SmartGrowth partners (TCC, WBOPDC, BOPRC, NZTA and Tangata Whenua) as well as other people and organisations such as Zespri to name but one.

The following issues are addressed in this report:

  1. Urban limits defined and Tauranga’s urban limits (including the rationale for them)
  2. The flexibility of Tauranga’s urban limits
  3. Is Council providing sufficient zoned and serviced land for development?
  4. The relationship between urban limits and intensification
  5. The relationship between urban limits and population growth
  6. The relationship between urban limits and yields
  7. Criticisms of urban limits
  8. Could urban limits be relaxed by allowing non-reticulated development?
  9. Infrastructure servicing and de facto urban limits
  10. The long-term approach to urban limits.

1. URBAN LIMITS DEFINED & TAURANGA’S URBAN LIMITS

Urban limits are a planning tool that is used to delineate where urban development is expected to take place and where it is not expected to take place.

In simplistic terms it is a line drawn on a map. Land within the urban limit line can be developed into urban land uses and land outside this line cannot be developed into urban land uses.

The current urban limits within the Western Bay of Plenty were determined through the development of SmartGrowth. SmartGrowth sets out the urban limits for the period to 2021 and then identifies how these urban limits will be expanded after this date to accommodate growth out to 2051.

The areas of Tauranga currently within the urban limits are:

  • Tauranga & Mt Maunganui infill areas
  • Bethlehem (incl. West and Northwest Bethlehem)
  • Tauriko (industrial)
  • PyesPa West
  • PyesPa
  • Ohauiti
  • WelcomeBay
  • Papamoa
  • Wairakei.

The areas envisaged to come within the urban limits prior to 2051 are listed below and with the indicative date at which they will be brought into the urban limit and available for urban land uses.

  • Te Tumu (2021)
  • Pyes Pa West extension –Keenan Road (2021)
  • Pukemapu Road (2021)
  • Upper Ohauiti (2026)
  • Welcome Bay South – Kaitemako (2026)
  • Neewood Road (2036).

All other areas in and around Tauranga are outside the anticipated urban limits until at least 2051.

Without getting into any detail or discussion about their merits, the following reasons were used to justify the current urban limits:

  1. Ensure infrastructure investment by Council and other parties is not compromised by growth occurring in areas where it was not expected i.e. aligning land use, infrastructure and funding and ensuring logical growth sequencing. This includes the SIF and BIF funded infrastructure that Council provides.

A further example of this is the investment that NZTA is putting into the State Highway network in and around Tauranga. There is a desire within NZTA for development to be located in areas that align with their investment decisions (e.g. TEL) and for urban sprawl not to occur outside the urban limits that would impact on the State Highway network.

  1. Protect of productive, economic capacity of rural land located in the Western Bay of Plenty. Most of this land is located in the WBOP District and is in various rural land uses – kiwifruit being the most predominant.
  1. Protect natural features and landscapes, including the coastline and the harbour. This is a matter of national importance in the RMA 1991 and is also required under the NZ Costal Policy Statement.
  1. Ensure sustainability, particularly in regard to greenhouse gas emissions from transport. These are thought to be reduced through a more compact urban form due to shorter travel distances and greater use of public transport.
  1. Minimise reverse sensitivity issues associated with urban development occurring in areas where incompatible rural land uses also exist.
  1. The planned growth of existing, serviced settlements in the WBOP District e.g. Te Puke, Omokoroa and Katikati.

2.THE FLEXIBILITY OF TAURANGA’S URBAN LIMITS

The urban limits that were agreed in SmartGrowth are given statutory effect in the Regional Policy Statement (RPS). As elected members are aware, TCC is required to give effect to the RPS. This is done primarily through its City Plan and TYP.

While there are criteria in the RPS that would allow development to take place outside the urban limits or for growth areas within the urban limits to be developed ahead of their indicative timings, these criteria appear reasonably difficult to satisfy. As such, there is currently little flexibility in Tauranga’s current urban limits i.e. it would be difficult for a developer to have the urban limit line shifted or to have land zoned for urban development outside the existing urban limits.

The relevant section of the RPS is attached to this report, with the criteria for amendment to the urban limits and other key provisions highlighted grey.

3. IS COUNCIL PROVIDING SUFFICENT ZONED AND SERVICED LAND FOR DEVELOPMENT?

One argument that is levelled against urban limits is that it can result in too little land being made available for development. It is worth briefly exploring whether this is the case in Tauranga.

Firstly it is noted that there are well over 1,000 vacant residential sections currently in Tauranga. Given that demand is currently at very low levels this equates to a significant over supply of residential sections. This over supply has had a number of effects:

  1. Very little new subdivision development is taking place
  2. It has led to significant price discounting in some subdivisions e.g. BallintoyPark (now from $85,000) and UtopiaPark (now $110,000-$150,000)
  3. Receivership of The Lakes and other subdivisions such as UtopiaPark and Ascot Downs.

While there is a significant over supply of residential sections in the current market, if the market improves significantly this over supply could disappear reasonably quickly (18 months – 2 years). As such, it is important to look at how much land is currently available for development in the city. It should be noted that if the market doesn’t improve sufficient stock exists to meet demand for 5+ years.

The SmartGrowth Development Trends Report identifies how much development capacity is currently available in the city. That report identifies that there is capacity for a further 8,650 residential lots in the urban growth areas of Bethlehem, PyesPa, Pyes Pa West, Ohauiti, WelcomeBay and Papamoa. These areas are appropriately zoned for urban development and are within the urban limits.

It should be noted that the latest Development Trends Report was completed prior to Northwest Bethlehem and Wairakei being rezoned for urban development. In addition to the 8,650 residential lots identified above, Northwest Bethlehem provides capacity for a further 200 lots and Wairakei provides capacity for a further 3,200 lots. This increases the remaining capacity within Tauranga’s zoned greenfield development areas to 12,050 lots.

The majority of these lots are currently serviced or could be serviced with only a small amount of additional infrastructure investment on the part of Council. The major exception to this is Wairakei in which only 1,000 of the 3,200 lots can be developed with minimal additional Council investment. It should also be noted that a moderate amount of infrastructure investment is required for the remainder of stage 2 and all of stage 3 of The Lakes subdivision to be completed.

The amount of development capacity available in the city demonstrates that Council’s land release and infrastructure servicing programmes ensure not only that sufficient land is available to meet demand, but that a large amount of excess land supply is available at any point in time. This means that the current urban limits are not a significant binding constraint on development and that competition should exist within the urban limits due to the excess land supply that Council has made available for development.

4. THE RELATIONSHIP BETWEEN URBAN LIMITS AND INTENSIFICATION

The current Settlement Pattern in SmartGrowth is based on a significant amount of growth being delivered through infill and intensification in the established part of the city. Currently there is little in the way of this type of development occurring (especially intensification) and there is a real risk that the amount of infill/intensification currently envisaged will not be delivered in the long-term. Challenges associated with delivering this type of development include:

  1. The lack of any large scale redevelopment sites (brownfield sites). Because of this there is a need for site amalgamation and for the destruction of significant capital improvements (e.g. existing houses). This is a significant financial hurdle for intensification projects. Capital improvements are lowest in lower decile suburbs but there is little demand for intensive living in these suburbs and it would necessitate the removal of some of Tauranga’s lowest pricedand therefore most affordable houses.
  1. More intensive residential development often involves building upwards. The cost of doing so compared with building single level dwellings is much higher. This is especially true for medium to high rise development with concrete and steel construction and underground car parking.
  1. The final cost of intensive housing product often means that it is only affordable to the upper / luxury end of the market and even then it may not compare favourably with the cost of alternatives offered to this market e.g. detached dwellings.
  1. Development finance is relatively expensive and difficult to obtain for this type of housing product.
  1. Mortgage lending criteria is substantially tighter for this type of residential product. In particular, minimum deposit requirements are much greater. This reduces the pool of people who can afford this type of product compared to a detached dwelling at the same price.
  1. TCC has experienced significant community resistance to proposals for large scale intensification projects in existing suburbs which envisaged the replacement of existing dwellings with much more intensive residential housing typologies.

To balance this there are some examples of successful intensification projects in Tauranga such as Urban Ridge and ExcelsaVillage. A future option to facilitate further intensification projects might be for Council to enter into joint ventures with developers through the use of surplus Council-owned land holdings.

If infill and intensification targets are not met there will be more pressure on greenfield areas to accommodate the city’s growth. This in turn may put pressure on the urban limits. This demonstrates the importance of having realistic infill/intensification growth assumptions when setting urban limits as well as the importance of the on-going monitoring of the amount of infill/intensification development that is taking place.

5.THE RELATIONSHIP BETWEEN URBAN LIMITS AND POPULATION GROWTH

The rate of population growth is likely to have significant bearing on the effects of the current urban limits on urban development. If the growth rate remain low the urban limits are likely to have little impact because there is unlikely to be significant pressure from developers to develop land outside the urban limits. However, if the population growth rate increases their may be more pressure from developers to develop land that sits outside the current urban limits.

6. THE RELATIONSHIP BETWEEN URBAN LIMITS AND YIELDS

The current SmartGrowth urban limits are based on yields of 15 lots per hectare being achieved in new urban growth areas. These new urban growth areas include Pyes Pa West, Wairakei and Northwest Bethlehem but do not include the older urban growth areas of Bethlehem, West Bethlehem, PyesPa, Ohauiti, WelcomeBay and Papamoa.

The table below shows much additional land would be required as the result of various scenarios of lower yields. The additional land requirement is shown as a percentage of the total amount of land within the new residential growth areas.

Average yield achieved / Additional land required
15 lots / ha / 0%
14 lots / ha / 7.1%
13 lots / ha / 15.4%
12 lots / ha / 25%

This shows that the urban limits would have to be expanded to accommodate the current growth projections, if the yields that were delivered were less than 15 lots per ha and the growth projections were proved to be accurate.

7. CRITISIMS OF URBAN LIMITS

Some argue that urban limits are the primary reason why new housing is so unaffordable, orthat urban limits are at least a significant factor that contributes to the high cost of new housing.

The argument goes that urban limits constrain the amount of available land for development and this in turn gives market power to the owners of this land who are able to extract high prices when selling to developers.

In addition, it is argued that developers who own land within the urban limits have increased market power because competition (or the threat of competition) from other developers is limited. Because of this it is argued that developers may be able to sell sections at prices significantly above what would exist in a more competitive market (i.e. they are able to make profits that are higher than would be sufficient for development to occur).

It is conceivable that the arguments above have at least some merit, especially in situations where the market demand for sections exceeds supply within the urban limits, i.e. in circumstances where urban limits are a binding constraint onthe total amount of development that can occur (which is not the case in Tauranga).

However development viability and housing affordability considerations constrain to some extent the amount in which developable land prices can rise as the result of constrained supply.

It should also be noted that the price paid by developers for land is only one of the costs associated with developing a subdivision. There are a number of other costs and these other costs tend to outweigh the land input costs. These other costs include:

  • Development setup costs (plan changes, master planning)
  • Lot development costs (earthworks, water, wastewater, stormwater, roading, electricity, gas, telecommunications)
  • Development contributions
  • Other Council costs (resource consents, rates)
  • Indirect costs (utilities, insurance, site office, office expenses, project management, administration, legal, consultants, valuations, accounting, marketing etc)
  • Direct sales costs (real estate commissions, sale and purchase agreements, transfer of title)
  • Project finance costs (interest costs, cost to set up lending facilities)
  • Sufficient profit to secure project finance (gross margin of at least 25%, appropriate internal rates of return)
  • GST (to the purchaser).

The Wairakei Development Viability Report concluded that the land input cost would be between about 10 and 25% of the total subdivision development costs in that area depending on how/when the land was purchased. On this basis, the effect of reducing the land input cost would only have a limited impact on how much developers could reduce section prices.

Lot development costs were expected to be between 40 and 45% of the total subdivision development costs and development contributions were expected to be between about 20 and 25% of the total costs.

None of the other costs were greater than 5% of the total subdivision development costs.

8. COULD URBAN LIMITS BE RELAXED BY ALLOWING NON-RETICULATED DEVELOPMENT?

Some elected members have expressed the view that TCC should consider allowing urban development that is serviced by on-site water and wastewater systems rather than reticulated systems to occur outside the present urban limits as a way of possibly:

  • Reducing the land component of development costs
  • Delivering more affordable housing
  • Not having to invest in expensive reticulated water and wastewater infrastructure.

There was also suggestion that other costs could be reduced by allowing narrower roads and by dealing with roading related stormwater through grass swales as opposed to kerb and channel. In other words, it has been suggested that it might be appropriate to reduce the level of service (LOS) to something akin to the LOS provided in subdivisions back in the 1950’s and 1960’s.

This matter is addressed now because it effects the validity of the staff view (explained in more detail later) that even if the urban limit lines were removed, infrastructure servicing constraints would act as de facto urban limits i.e. that the removal of the urban limit lines would have little, if any, impact on the amount of land available for urban development unless Council invested in more infrastructure.

If this non-reticulated development option was viable it would overcome the problem of the availability of reticulated infrastructure services acting as a de facto urban limit. The question is whether it would be a viable form of development.

History in Tauranga associated with the need to provide reticulated infrastructure to the Papamoa township after amalgamation suggests that it is not a viable long-term form of development. This came at a significant financial cost to the whole community.

The Council Utilities Planner has looked into the cost of septic tanks and has found the following:

  • Normal septic tanks cost around $7,500 however if a two stage tank is required in a sensitive area (around harbor or lake edges) the cost could be up to $20,000. As such the initial capital cost is high.
  • The tanks need servicing every 3 - 4 years depending on loadings. This costs around $450.
  • The maximum density for septic tanks is 1/1500m² which really means a minimum lot size of 1500m². This means that sections would need to be much larger than section sizes in reticulated areas.
  • The BOPRC, through its On-site Effluent Treatment Plan, regulates further matters in relation to septic tanks such as location with regard to water supplies, location with regard to land stability, water table depths etc.
  • The BOPRC "On Site Effluent Treatment Regional Plan" also refers to the need for future plans to reticulate residential areas. As such, it is unlikely that the BOPRC would approve consents for non-reticulated urban developments of a significant scale unless a strategy existed for the future reticulation of these areas. This would lead to inefficiencies in the sense that the initial septic tank would become redundant in the future when reticulation took place. Obviously the high cost of providing reticulated wastewater infrastructure would also have to be funded in the future.

The cost of an appropriate sized water tank for domestic use (15,000 litres) is approximately $3,500. However significantly larger and more expensive water tanks may be needed to meet the fire fighting requirements.