Comment

Hard numbers needed before ‘blue sky’ Port talk

Getting some numbers on what the waterfront might be worth under alternative uses should be one of the first things done when figuring out whether it makes sense to move Auckland's port, says Eric Crampton.

Moving Auckland’s port might make sense – someday.

But I do wonder about some of the talk of moving Auckland’s port to put in a waterfront stadium, or museum, or other large, iconic, and expensive facility.

Stadium maths are almost invariably bad. Rather than revitalising cities, stadiums more typically become white elephants needing ongoing financial support. Putting one on some of the city’s most valuable property would not only ensure it could never cover its own real costs, but would also forego far better uses for prime commercial and residential land.

If you owned a quarter-acre section in Epsom, with a sprawling ramshackle workshop and shed in the back yard, rising property prices might eventually convince you to make some changes. Clearing the workshop out could be a bit expensive – and especially if you needed to find some other facilities for your projects. But subdividing could let you clear the mortgage and pay off a few other bills.

Unless you had money to burn, deciding to take on all the expense of clearing out the shed and finding another place to work might be a bit silly if you decided instead to put in a swimming pool. It could be nice on a warm evening, but it certainly would not help with the problem of covering the mortgage. And the bank might have something to say about it.

As downtown property values rise, eventually the Council-owned Port’s fifty-five hectares of land and wharves will be valuable enough in other uses to cover the cost of clearing the land and building new facilities elsewhere. Those costs will not be small, with consultancy reports battling over just how close to $10 billion the bill might wind up being. But the value of the underlying property will not be small either. The Final Report of the Upper North Island Supply Chain Strategy Working Group, released late last year, valued the Port’s land at $6 billion, but with figures ranging from just under $4 billion to almost $21 billion.

The value of the Port’s land will depend a lot on the purpose to which the Port’s land might be put, and that will depend on what zoning will allow.

Commercial land in downtown Auckland, by 2017 valuations, can range from about $5,000 per square metre to over $16,000. A fifty-five hectare (550,000 square metre) downtown waterfront site, encumbered with physical constraints on what wharves and reclaimed land might support but otherwise a potentially blank slate, is just a bit harder to value.

I wish then to advance three propositions.

First, Auckland Council might have a better idea about the actual value at stake were it to put up a serious request for proposals and invite bids.

Second, the high downtown land values that could make the case for moving the port also make the case against using the site for a stadium. Stadium maths are worse than Pythonesque – they firmly reach into Douglas Adams territory.

Finally, decisions to move the port should be contingent on just what alternative uses might be found for the port land. Deciding to move the port first, and only subsequently exploring the options for the vacated waterfront, would be a mistake.

We should take these in reverse order.

It is not hard to imagine central government and Auckland Council coming to an accommodation about moving the Port to Northland, or elsewhere, with the future of the Port’s land being left to later decisions.

But whether it makes sense to move the Port in the first place will depend, at least in part, on the value that can be unlocked by putting the site to potentially better use. The case for moving the Port would be rather simple if the Port could really recoup $20 billion by selling the land on which it sits. It would have more than enough money in that case to buy and develop a site elsewhere. The case would be far more difficult if the underlying land were only worth about a billion dollars, as the Port’s CEO has suggested it might be. Deciding to move the Port before finding out what the underlying site is actually worth could lead to regret.

... if the stadium had zero running cost and zero construction cost, it would still need to generate revenues of almost $50 million per year to cover the capital cost of the land alone.

Worse, where decisions to move the Port come before decisions about how the site might be used, it is too easy for political support for the move to depend on visions for the site’s future that might not easily be fulfilled – like visions of waterfront stadiums.

In the Hitchhiker’s Guide to the Galaxy, Douglas Adams wrote of how numbers written on restaurant bills within the confines of restaurants do not follow the laws of normal mathematics but instead follow Bistromathics. He imagined spaceships powered by this new math. Numbers used in economic impact assessments of stadiums are even stranger than bistromaths. To put the academic economic consensus simply, public investments in stadiums do not deliver the promised benefits.

A waterfront stadium the size of Eden Park would sit on about $600 million dollars’ worth of property, if that waterfront land winds up being worth about $10,000 per square metre; construction and running costs of a stadium would be additional. If the stadium had zero running cost and zero construction cost, it would still need to generate revenues of almost $50 million per year to cover the capital cost of the land alone.

Council could invite indicative tenders for the site, under the broadest possible zoning to allow for highly mixed-use neighbourhoods.

And Eden Park’s total operating income last year was just short of $16 million. A stadium might not be the best possible use of waterfront land. It is just too easy to imagine combined governments spending billions of dollars to move the port based on business cases involving selling the port’s land, only to then spend easily over a billion dollars on a new stadium for the site instead.

Knowing just what would be the most valuable use of the land is rather difficult outside of a market discovery process. Downtown land is highly valuable in residential and commercial use; waterfront walking spaces and public places are also highly desirable. Council could invite indicative tenders for the site, under the broadest possible zoning to allow for highly mixed-use neighbourhoods. Auckland is desperately short of housing. Commercial property is also scarce. And large downtown sites for redevelopment can prove interesting propositions – like Sidewalk Labs’ coming redevelopment of a five-hectare underused part of Toronto’s waterfront.

Getting a harder number on just what the waterfront might be worth under alternative uses could be rather important in figuring out whether it makes sense to move the port. Where the case for a very expensive move is based on getting the most value possible from prime waterfront real estate, it’s important that that opportunity not be wasted. You wouldn’t base a case for putting a new swimming pool in the back yard on the money you might have gotten by selling the land in which it sits.

Get it early – This article was first published on Newsroom Pro and/or included in Bernard Hickey’s ‘8 Things’ morning email of the latest in-depth business and political analysis. Get it early by subscribing now or starting a 28-day free trial.

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