1. EXECUTIVE SUMMARY
The Problem: Scarcity Rents Remain Intact

1.1 Housing affordability ratios have improved recently through a combination of factors. Government upzoning policies have had demonstrable impact in pockets, but the aggregate supply response remains limited. Meanwhile, weak economic conditions (higher interest rates and rising unemployment) have created a substantial demand shock. Under such conditions (modest supply alongside major demand downturn) artificial scarcity still drives elevated prices to unaffordable levels. This suggests structural supply constraints remain substantial.

1.2 True affordability requires stripping out scarcity rents (price mark-ups caused by planning constraints). We have not achieved that yet. Our planning system still tightly rations development rights. The underpinning structural problems remain unresolved and promise to bite with economic recovery and returning demand. The social cost is enormous.

Our Top Recommendations for Pillar 1

1. Decouple spatial planning from council finance and infrastructure delivery
• Shift from ‘proof of infrastructure readiness’ to ‘confidence in delivery’
• Let Tier 1 planning protect corridors without requiring immediate funding commitments

2. End capacity-based rationing of development rights
• Remove demand forecasting as gating mechanism for zoning permissions
• Use modelling for monitoring only, not to constrain where development occurs

3. Separate spatial planning (Tier 1) from land use regulation (Tier 2)
• Tier 1: Reserve infrastructure corridors 50+ years ahead (the skeleton of the city)
• Tier 2: Template zoning with generous envelopes, not case-by-case discretion

4. Adopt a standardised template zoning system
• Set permissive, maximum envelopes for land use that proxy management of gross externalities (otherwise not efficiently tractable through other mechanisms) and flexible with infrastructure capacity upgrades
• Development permitted by default unless material negative impact on neighbours

5. Legally entrench permissive planning rules with self-corrective triggers
• Include ‘bankable rules’ that automatically upzone when price signals show scarcity
• Enable leapfrogging without adjacency requirements

The Solution: Credible Threat of Entry

1.3 Abundance alone is not enough. Cities can have generous zoning but still suffer high prices if that capacity can't be activated. Real threat of entry requires developers and communities to have both the right and the ability to act when councils will not or cannot.

1.4 Without empowerment, permissions are lip service. Enabling development on paper while denying the finance tools (Pillar 2) and governance rights (Pillar 3) to actually build creates only theoretical supply: options that exist in plans but cannot be exercised in practice.

Why Reform Is Like a Three-Legged Stool

1.5 The Government’s three-pillar structure correctly recognises that all three legs must work together or the whole system collapses:

• Pillar 1 (Planning): Set rules that allow abundant development
• Pillar 2 (Finance): Provide money independent of council budgets
• Pillar 3 (Governance): Give those that benefit power to organise and deliver

1.6 Remove any leg and the system fails:

• Missing Pillar 2: Generous zoning exists but nothing gets built, no money for
infrastructure
• Missing Pillar 3: Permission and money exist, but councils control delivery and resist growth that costs them but benefits others
• Missing Pillar 1: Communities can organise and fund projects, but face prohibitive costs because corridors weren't reserved early

Critical Innovation: Expand Scope of Pillar 3

1.7 Our most important recommendation is that Pillar 3 must go beyond council incentives to create genuine ‘right of assembly’ that enables beneficiaries of growth to bypass council veto.

1.8 This matters because, even with permissive zoning (Pillar 1) and finance tools (Pillar 2), development stalls if councils alone control approvals and resist projects that cost them money but benefit others.

1.9 The solution is to allow communities that benefit from development to form special purpose governance entities with power to:

• Raise finance independently of council budgets
• Deliver infrastructure and capture value increases to pay for it
• Coordinate land assembly and development without council gatekeeping

1.10 This intervention is based on proven governance models. New Zealand operated 453 special purpose entities critical for delivery of infrastructure before 1989 reforms, demonstrating that statutory, boundary-based governance coordinating multiple property owners works.

Key System Innovations – Principle of Congruence (The Foundation)

1.11 The core fix is to align those who benefit from development, those who lose from it, and those who approve it. This principle harnesses natural incentives to create value while internalising social costs.

1.12 A key current problem is that councils bear the costs of accommodating growth while central government captures tax revenue from that growth. This misalignment creates resistance in councils, and makes it harder to overcome neighbourhood reluctance to enable growth.

1.13 Pillar 3 fixes this through special purpose entities that ensure those who gain from development also drive and fund it. When beneficiaries can organise to deliver projects themselves, it eliminates the political mismatch that blocks progress and legitimises infrastructure paying for itself through value uplift.

Key System Innovations – Template Zoning (Reducing System-wide Transaction Costs)

1.14 The purpose of land regulation is to strip out transaction costs across the development system where other mechanisms (like private ordering) is impractical, but not to replace market processes or control outcomes.

1.15 One major problem with the current system is discretionary consent processes that socialise decisions about what we are allowed to do with the land we own. This creates uncertainty, delays, and rent seeking opportunities that increase the cost of development for everyone.

1.16 Template zoning has proven an effective overseas to translate its purpose into practice, if you:

• Set permissive, maximum envelopes for land use that proxy management of gross externalities (otherwise not workable) but flexible with infrastructure capacity upgrades
• Allow any use that does not negatively and materially impact neighbours
• Permit development by default (no queuing or case-by-case justification)
• Eliminate negotiation costs and delays through clear, predictable and upfront rules

Key System Innovations – Mirror Principle (Making Infrastructure Self-Funding)

1.17 When public infrastructure increases land value, that increase helps pay for the infrastructure. Compensation for any land taken can be offset by betterment (land value increases from public investment) to remaining land. Infrastructure can be more or less self-funded rather than a council budget burden. New Zealand has a precedent in road building (Public Works Act 1981 and Local Government Act 1974). There is also unrealised potential for such innovation today: National direction (the NPS-UD) requires upzoning near rapid transit corridors, which a more commercially oriented KiwiRail could take advantage of to fund transit stations, by selling development rights above those stations.

Tier 1 vs Tier 2 Planning (Ending Integrated Management)

1.18 A major barrier to progress is the current problem to conflate distinct planning practices into one process that tries to plan, fund, and regulate everything simultaneously, creating gridlock.

• Tier 1 - Spatial Planning: Reserve space for future infrastructure decades ahead—like drawing the skeleton of a city. Protects options without spending money.
• Tier 2 - Land Use Regulation: Simple, predictable rules for what can be built where. Templates, not discretion.

Bottom Line

1.19 We can choose a planning system that rations development through bureaucratic control, or one that offers abundant choice and real economic value to residents by empowering them to create value (develop) and compete with others on the value (floor space) they provide.

1.20 True affordability comes from eliminating scarcity rents, not from economic downturns that suppress demand.

1.21 New Zealand needs competition in urban land markets to restore housing affordability and economic dynamism. This requires wholesale system replacement that gets all three pillars right, which would provide the platform for sustained, affordable urban growth.