How can Wellington improve its economic wellbeing?

Dr Eric Crampton
The Dominion Post
2 May, 2022

Reading through Wellington council’s draft economic wellbeing strategy isn’t great for an economist’s mental wellbeing.

Our capital city faces a lot of challenges. Wellington’s housing has not been particularly affordable for a long time. But when our family moved to Wellington from Christchurch in 2014, the median house sold for about 5.5 times the median household income. Now, it’s over nine times median household income.

The city’s infrastructure is crumbling. Wastewater pipes break regularly, sending sewage into the harbour.

Council has been keen on encouraging more apartments and townhouses downtown, rather than more houses further afield. Enabling a lot more development where people want to live makes sense. But making Wellington’s downtown a place where more people want to live may require a few safety improvements. Shootings at Te Aro Park are not the best advertisement for downtown-living.

If you live in Wellington, or pay even the slightest attention to the newspaper headlines, an economic wellbeing strategy for the city almost writes itself.

First and foremost, housing costs have to be brought under control. Unaffordable housing directly affects wellbeing. Housing shortages drive up rents and housing costs, leaving people with too little money for anything else.

Unaffordable housing is also bad for business. If your business needs to expand, attracting staff may require convincing them to move to Wellington – or to stay here rather than leave. Median rent for a 3 bedroom apartment in downtown Christchurch is $520. In Auckland, it’s $750. But in Wellington, the median rent for a 3-bedroom downtown apartment is $888.

You would have to offer a worker over $19,000 more in salary, after-tax, just to make up the difference between rent in Wellington and rent in Christchurch. A Christchurch employer could offer your staff a pay cut, but better wellbeing. Christchurch employers will have another advantage: the city’s commercial sector covers only 16% of the city’s general rates bill, while Wellington’s commercial sector covers 29%.

Fixing housing affordability requires easing zoning so more housing can be built – including revisiting some of the downtown height limits that make building impracticable. And it requires improving infrastructure to support housing growth.

That isn’t the focus of Wellington’s Draft Economic Wellbeing Strategy.

Submissions on the draft Strategy closed late Sunday night.

The Strategy proposes building sustainable business and career pathways, “to enable Wellingtonians to work within their passions and strengths”, including establishing a City Skills and Education forum. But it is entirely unclear that there is any substantial problem here in need of solving, or the Council would be the one best placed to do it.

It aspires to transition to a circular economy and a “zero carbon and zero waste” city. Councils have important work to do in ensuring they are ready to deliver the infrastructure and services residents will want as carbon prices rise. But it’s the Emissions Trading Scheme that determines the country’s net greenhouse gas emissions, not council zero-carbon circular economy strategies. Local zero-carbon measures do as much good in reducing greenhouse gas emissions as local wage and price controls might in fighting the 6.9% inflation rate. And “identifying and measuring progress against the doughnut economics model”, a model described by Victoria University of Wellington’s Professor Arthur Grimes as “contentless”, may not be the best idea.

The plan’s business-friendly city objective is undermined by too many of the plan’s other objectives. Proposals like one-stop-shops for consenting, and progress measures like reduced urban travel time and reduced frequency of water supply interruptions, are laudable. But the Strategy does not recognise Wellington’s rather high business ratings differential. Supporting smaller businesses to connect to the circular economy may be less helpful than ensuring businesses can afford to operate here in the first place.

Next, the Strategy suggests that Wellington become a centre of creativity and digital innovation. One proposed measure would have the council “advocate to central government for tax incentives” for films, and urges training to develop more film workers. But international film companies play countries and regions against each other, setting an arms race in subsidies. An economic wellbeing strategy that depends on central government’s continued willingness to play that destructive subsidy game may not be the most sustainable sort of economic development.

Success measures for a more dynamic city centre are more encouraging: tracking city safety, business survival rates, and retail activity could help provide a signal about whether things are going well.

But a dynamic city heart and thriving suburban centres require that housing be affordable. The Strategy does note the importance of affordable housing, but only as one of dozens of outcomes – and some of those other outcomes will make it harder, rather than easier, to get more housing built.

Until Wellington is able to get things right in the core traditional areas of council responsibility, improving economic wellbeing is going to be a tough job.

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