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This guest post from Dr. Stuart Donovan analyzes how Strengthening the urban core can turn passive into assets. The image of the RangiWhakaoma header is the author.
I recently traveled to the remarkably picturesque coastal settlement known as RangiWhakaoma (Castlepoint), which vaguely translates into “where the sky runs.”
Precariously perched on the east coast of Wairarapa about 60 km by Masterrton road, RangiWhakaoma has a resident population of approximately 60 people. While driving, I reflected on the infrastructure that connects RangiWhakaoma to the world. The road, for example, crosses slippery hills and flooded rivers and is difficult to keep open.
MASTERTON CASTLEPOINT RD floods.
To understand the costs incurred in the supply of infrastructure for remote settlements such as RangiWhakaoma, I performed some quick sums in the relatives involved. New Zealand’s road network is about 90,000 km for a population of 5.3 million people, which is 17m of road per person. Similarly, there are about 170,000 km of electricity transmission and distribution lines in the country, which operate about 32m per person. Thus, in a professional base, the 60 residents of RangiWhakaoma are entitled to a “fair part” of about 1 km of road infrastructure and 2 km of power lines. Unfortunately, this is not enough to get out of their own settlement, much less 60 km for Masterrton.
And places like RangiWhakaoma are not exactly uncommon. From Kawhia to Wharariki, New Zealand is spread with minor settlements at the end of long infrastructure connections that are vulnerable to extreme climate events and other natural disasters.
Is this really a problem? Well, it depends. To understand why, I find it useful to use some basic economic concepts. To begin with, we will share the costs of providing infrastructure into fixed and variable costs. Fixed costs are incurred to ensure that the infrastructure is available regardless of how much is used, while variable costs These are those incurred in the use or consumption of the infrastructure.
For places like RangiWhakaoma, it is the fixed costs that dominate the equation due to its small size.
And in my experience, people regularly underestimate the fixed costs involved in the supply of infrastructure. Take a look, for example, on the “fixed daily charges” in your public service account, which capture the costs of renewing and maintaining transmission and distribution networks. For example, we currently pay $ 1.20 and $ 1.76 per day for electricity and gas, respectively, that together makeup approximately one third of our account (NB: our fixed daily charge of electricity should increase significantly over time).
These daily charges, however, are calculated on average throughout the network: the costs of supplying infrastructure to small and remote places will be much higher. Based on the above relatives, for example, the fixed costs of providing electricity to RangiWhakaoma can be 15 times the average throughout the network or a cross allowance of US $ 5,000 per housing per year (15 x 365 x $ 1.20-365 x $ 1.20). And this is only for electricity-to transport and communications, it can well increase the crossed subsidies to $ 10,000 to $ 20,000 per housing per year. This represents a very large and continuous financial liability.
So what should we do about managing this responsibility? Well, I see two main ways to reduce the impacts of this responsibility. The first way is to strengthen price signs by allocating fixed infrastructure costs for those who benefit from it. This would probably result in lower fixed loads in more urban areas and much higher fixed loads in remote areas. Stronger price signs are good in theory, but in practice for three main reasons:
- First, people have already made decisions about where to live based on current charges, so drastic changes in accusations seem a little “unfair.”
- Second, many small and remote places are relatively disadvantaged, so the increase in fixed loads will be regressive or “unequal”.
- Third, higher fixed loads can cause populations (already small) to decrease even more, triggering a “doom loop” that does not increase the recipe.
Unless we are willing to cut the infrastructure for some of these places, the strongest price signals seem to incur considerable pain for little gain (NB: I see more room to strengthen price signals for variable costs and new enterprises).
This leads us to the second and, in my opinion, a more viable way to manage fixed costs: Increased scale. Simply put, increased scale allows us to spread the fixed costs of infrastructure provision in more people, reducing costs per person. Am I suggesting that we should significantly increase the population of remote places like RangiWhakaoma? Not necessarily, and – even if we wanted to – this result seems unlikely, given the historical trajectory of population growth in recent centuries.
However, we can seek to increase the population in other less remote parts of New Zealand. That is, strengthen our urban core.
To provide an example, let’s assume that the fixed costs of providing road access to RangiWhakaoma Caam only on Masterrton district taxpayers. According to some recent analyzes, the widest district population of Master’s is expected to grow about 50% over the next three decades. All other things are equal, we can expect this growth to reduce fixed costs per person by one third (1.0/1.5).
*Of course this requires us to efficiently manage infrastructure costs caused by urban growth, but I think this is within our abilities and is a somewhat distinct topic that deserves its own discussion.
However, this example highlights how growth in an urban center, such as Masterton, can benefit people in rural areas such as RangiWhakaoma, helping to spread the fixed costs of providing infrastructure about more people, thus reducing costs per person.
So what is the massage? To summarize my hypotheses:
- New Zealand houses many small and remote communities located at the end of relatively long and fragile infrastructure connections.
- This geography usually leads to quite high fixed costs in the provision, renewal and maintenance of our infrastructure networks.
- The fixed costs of sustaining infrastructure in these places are being crossed by more densely populated parts of New Zealand (“The Urban Nucleus”).
- For reasons of justice and equity, it is difficult to see a viable path, whereby prices signal home the fixed costs of infrastructure in remote areas. In this case, the best way to mitigate fixed costs is to try to spread them for more people and companies, usually strengthening the urban core.
Of course, the last hypothesis raises the question of what we can do to strengthen our urban core? Although the answers to this question are best addressed in an independent post, I think recent speeches by the Minister of Housing and Urban Development, Chris Bishop, point to possible ways to follow. Specifically, the minister asked:
So the question is: are we making the most of the cities of New Zealand?
If we are honest with us, the answer is no.
Often, Housing Utopia Whiplash Experiment – An article says, “Don’t put the intensification here, we need to protect the wooden villages,” another says “don’t develop Greenfield, this contributes to more emissions.”
But if you can’t go up or out, you can’t go anywhere.
To make housing more accessible, our cities need to grow, we need larger cities and we need more houses.
In this speech, I think the minister correctly recognizes many of the benefits of allowing our cities to grow, for example, through better planning and infrastructure policies. At the same time, I would argue that, allowing New Zealand cities to also grow to benefit peripheral rural areas, spreading the fixed costs of infrastructure over more people.
This is why a small part of me dies every time people raise insignificant objections to urban development, such as these recent examples of Auckland and Wellington.
It is not only that these developments offer very necessary space in our cities, but also because Strengthening the urban core helps to provide infrastructure in the periphery. The extension where the New Zealand urban core supports the supply of infrastructure in more peripheral locations is, I think, deserving more attention and support.
Truth be told, places like RangiWhakaoma are obscenely beautiful. And I suggest that traveling through winding and innocent roads to reach beautiful places is part of what makes life in New Zealand so special. In this broader sense, places like RangiWhakaoma, Kawhia, Wharariki, Anawhata, Matakana, Mimiwhangata, Waikawau, Okain Bay and Aramoana etc. They are not responsibilities. Instead, they are tangible natural actives that serve to complement life in the urban areas of New Zealand. By adopting policies to strengthen New Zealand’s urban core, we can effectively reduce the costs of providing decent infrastructure to smaller, remote and OH, very special places.
About the author: Dr. Stuart Donovan is a senior member of Motu Research. Stuart is a doctorate in urban economy and has two decades of experience working as a researcher and consultant for land use infrastructure and policy.
Having recently returned to Aotearoa after a decade living in Brisbane and Amsterdam, Stuart likes to spend his free time passing through New Zealand and watching cultural meetings between his sassy Australian family and generally more reserved and restrained places.
If you want to know more about the spatial and urban economic concepts discussed in this post, consider registering in a short course that Stuart is being executed later this year.
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