The economic costs and benefits of the pNRP stream piping provisions Before the Hearing Stream 5 Panel Dave Grimmond

Aim of study To assess the relative magnitude of different economic forces associated with proposed stream piping proposals Study uses geographical information about the Northern Growth Area of Porirua City to provide context But the analysis is hypothetical rather than focussed on any definite or specific developments To provide a plausible sense of the potential scale of natural capital consequences and thus provide a better sense of the costs imposed on society associated with stream piping.

Method Compares estimated costs and benefits between two scenarios: The development of 3,007 sections of 500m2 which entails the piping of 14.5 km of streams The imposition of 15m exclusion corridors around the streams reducing the number of sections developed by 435 to 2,572 Note: Scenario 2 equivalent to 3,007 sections of 428m2

Stream corridors expected to Reduce the revenue to developers due to fewer (or smaller) sections sold Increase section prices due to amenity value of retained natural streams Reduce costs to developers from lower earthwork requirements Retain a higher level of natural capital due to retention of streams in their natural form

Value of natural capital Related to the flow of ecosystem services Millennium Ecosystem Assessment Framework components: Provisioning – the direct provisions of goods and services by an ecosystem (eg food, fibre, water) Regulating – the regulation of biophysical and ecology processes (eg climate, flood control) Cultural – the support of human values (eg spiritual, aesthetic) Supporting – ecological and biophysical processes like nutrient cycling and soil provision that support the provision and regulating ecosystem services

Key data assumptions Restoration costs represents the opportunity cost of stream piping. It is the price of returning (or attempting to return) the location to its previous state

Use distribution analysis Assumed amenity value impact of 2.7% quite conservative cf 20% variation in high/low BAU section prices Considerable uncertainty about the valuation of ecosystem services and the associated value of natural capital. De Groot et al (2012) meta analysis using 665 value estimates, value of ecosystem service from wetlands translated into 2017 New Zealand prices and capitalising using a 4% discount rate imply a value per metre of stream: $300 to $10,200, with a mean of $2,500.

Results – Market impact Reduced number of sections Reduced earthwork costs Amenity price premium Net Market impact -$107m $ 21m $ 18m -$ 69m Distribution analysis: 95% probability that private costs (reduced land development) will exceed private benefits (lower earthwork costs, price premium)  Market very unlikely to deliver stream protection without policy intervention

Accounting for environment Net market impact Value of natural capital Net social impact -$ 69m (5% positive) +$ 48m -$ 21m (31% positive) $800 $3,300 $4,900 $9,800 A 50/50 result would require a natural capital value of $4,900 per metre of stream (cf $3,300)

Implications The results are not sufficient to support the prohibition of stream piping But a market failure still exists leading to excessive use of stream piping by developers Developers (and section buyers) benefit from the higher profits (lower section prices) that stream piping provides but they obtain this benefit by ignoring the cost to the rest of society from a reduction in ecosystem services provided by the piped streams. These environmental costs are not trivial, probably in the thousands of dollars per metre of stream Providing some regulatory or pricing mechanism that encourages developers to better account for the environmental impacts imposed on the rest of society would encourage a more socially optimal level of piping (eg lower levels of piping in greenfield developments and/or more brown field urban developments).

Protecting streams need not be at the cost of housing Would still allow 2,572 new houses on 500m2 sections (2020-2032) Or 3,007 houses on 428m2 sections Or on 460m2 section if 25% less land devoted to roads Likely impact is to encourage more intensive housing and lower impact design

Making it win-win The way I modelled the impact was that we started with 150 ha of land

Making it win-win With piping this was converted into 3007 500m2 sections

Making it win-win With a stream corridor this removed 435 of these sections, and we assumed that this all came from the developers land allocation

Making it win-win However, the Northern Growth Area has a further 50ha of land that is reserved for roading and urban open space

Making it win-win Thus the land used for stream corridors need not come at the expense of housing, but rather from the land already reserved for open space and for roading .

Better planning means: Plus avoiding $21m of earthworks => ≈5% higher yield These properties gain $18m in amenity value The $39m improvement in yield from less earthworks and amenity benefits is equivalent to 158 500m2 sections. Thus the developer can retain the same or better yield so long as 2/3 of the land requirement for stream corridors can come from the 25% of land already reserved for open space and roading. In our example , this would require 7% of the total development area (or 28% of the land reserved for open space and roading). Note also , the 500m2 section size is large compared with inner city section sizes and the Auckland experience. More housing capacity could also come from more dense housing rates And society retains $48m worth of natural capital A total net benefit of $87m ≈12% better than BAU