IN THE MATTER of the Resource Management Act 1991

AND

IN THE MATTER of Proposed Private Plan Change 2 to the Hamilton City Operative District Plan: Te Awa Lakes Private Plan Change

STATEMENT OF EVIDENCE OF JAMES DOUGLAS MARSHALL FAIRGRAY FOR THE APPLICANT (ECONOMICS) 29 OCTOBER 2019

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EXECUTIVE SUMMARY

In this statement, I have examined the likely effects of PPC2 from an economic perspective.

The proposed change would potentially reduce the land area available for future industrial growth, and enable residential and other business uses on the land. Accordingly, I have considered the implications of PPC2 for industrial capacity and growth in the Hamilton-FPP area, as well as the implications for residential growth, and Hamilton’s urban form.

For this, I have updated estimates of demand for industrial land in the Hamilton-FPP area over the next three decades, and considered recent take-up of available land, in order to understand the overall demand-supply context into the long term. I examined the quantum of capacity of the PPC2 land, and its location and attractiveness in relation to other industrial areas. I also modelled potential different outcomes, if the PPC2 land were not available for industrial use, and industrial activity located instead on other industrial zoned land.

I find that if the PPC2 land is not available for industrial use, there is considerable vacant capacity elsewhere to accommodate growth, and the absence of the PPC2 land from the mix would not constrain industrial growth in the Hamilton-FPP area. Industrial activity would locate instead within the Te Rapa North – Horotiu node (predominantly) or in other areas including Ruakura.

A pattern of industrial activity which did not include the PPC2 land would likely not be less efficient, nor would it result in lesser agglomeration benefits. That is because the pattern of development would be broadly similar, and see industrial growth still occurring in established, substantial areas of activity.

In regard to residential development, while the PPC2 site does stand out on the northern edge of Hamilton City, in the medium-long term it will lie well within urban Hamilton. The UEPA provides for substantial residential growth to the east of the PPC2 site. The Hamilton-FPP area has substantial capacity for residential growth, and the PPC2 area would add to this, and its availability would affect the rate of residential development in other locations. The provisions in the proposed change for affordable dwellings and

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medium density development would specifically contribute to the availability of lower priced housing.

The PPC2 site lies within the H2A Corridor, and the recently announced joint initiative for development along the Corridor is expected to result in faster economic and population growth for the Hamilton area. As part of this, the Metro Plan, while in its early stages, indicates more urban expansion north of Hamilton, towards Taupiri. On that basis, the PPC2 land may be expected to lie within urban Hamilton in the short-medium term, rather than the medium-long term.

Taking account of these matters, I consider that PPC2 is generally consistent with the growth direction envisaged for the Hamilton-FPP area (and Metro Plan area), from an urban economic perspective.

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2. QUALIFICATIONS AND EXPERIENCE

My full name is James Douglas Marshall Fairgray have a PhD in geography from the University of Auckland, and I am a principal of Market Economics Limited (M.E.), an independent research consultancy.

I have 40 years' of professional consulting and project experience, working for public sector and commercial clients. I specialise in policy and strategy analysis, evaluation of outcomes and effects in relation to statutory objectives and purposes, assessment of demand and markets, urban and rural spatial economies, land use and core economic processes. This research has been within my core disciplines of economic geography / spatial economics, and spatial planning. I have applied these specialties in more than 900 studies throughout New Zealand.

I have qualified as a commissioner, through the Making Good Decisions programme (2017).

I am an Associate Member of the New Zealand Planning Institute (since 2013).

I have wide-ranging research experience in policy evaluation and impact assessment from an economic perspective, from a range of economic assessments in the Resource Management Act 1991 (RMA) context, including evaluation of the benefits and costs of policy options, and economic processes and decision-making. During 2014, I was engaged to prepare the core material for the section 32 guide released by the Ministry for the Environment, and I was the presenter on economic matters for the nationwide series of workshops on the section 32 guidance. I have studied regional and district economies throughout New Zealand, and roles of key sectors in the economy. I have undertaken a wide range of studies into business and residential land demand, across many cities and districts throughout New Zealand. My research and evidence has covered regional and urban economies, business sector studies, business location preferences, residential demand and dwelling and location preferences, and urban development matters generally, within the context of the RMA and regional and district plans.

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Code of Conduct

I confirm that I have read the Code of Conduct for Expert Witnesses contained in the Environment Court Practice Note 2014 and to the extent that I am giving expert evidence, I have complied with it in preparing this evidence. I confirm that the issues addressed in this evidence are within my area of expertise and I have not omitted to consider material facts known to me that might alter or detract from the opinions expressed in my evidence.

Involvement in the proposed Plan Change

In July 2019, I was engaged by Perry Group Ltd (PGL) to undertake an economic assessment of Proposed Plan Change 2 to the Hamilton City District Plan (ODP): Te Awa Lakes (PPC2) which would alter the zoning on land in Te Rapa North from Industrial to a mix of residential and commercial, along with an Adventure Park and visitor accommodation.

For my assessment I examined previous work including the National Policy Statement on Urban Development Capacity (NPSUDC) study undertaken by M.E. for the FutureProof Partners (FPP) in 2017. This was a detailed assessment of future long-term demand for vacant industrial land and parcel level vacant land supply across the FPP area.

I undertook analysis of the geographic context of the PPC2 land, including the latest growth outlook for business and population, and future land needs for industrial activity and residential activity.

I prepared a stage 1 report , titled Te Awa Lakes PPC2 Economic Assessment Stage 1 Report (ME Stage 1 Report) in August 2019. I undertook further evaluation in September- October 2019, including assessment of the recent development patterns on Industrial land in the FPP sub-region. I prepared a second report, titledTe Awa Lakes PPC2 Economic Assessment Stage 2 Report (ME Stage 2 Report) in September 2019. I have drawn from both Reports in preparing this statement.

On the 2nd and 3rd of October 2019, I engaged in expert conferencing on this matter with various parties. I refer to the Joint Witness Statement on Economic/Strategic Issues (JWS), which I signed and which captured the outcome of that caucusing.

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Research relating to the Hamilton-Waikato (Futureproof) area

Over the past 30+ years, I have undertaken a range of studies into economic and social matters in the sub-region, for both private and public sector clients. My work has covered Hamilton City, Waikato District Waipa District and the Waikato Region, as well as studies in other districts and centres in other parts of the Region. My research has typically involved analysis of the growth outlook for business and population, tourism, forestry, farming, housing, retail and service demand, and the implications for business and residential land needs, within cities and towns and generally across the economy.

During 2018 and 2019, I was involved in the study which M.E. undertook for the FPP in order to comply with the requirements of the NPSUDC. I was not one of the lead authors on the NPSUDC reporting. However, as part of my role as a director of M.E., I maintained overall contact with the projects. I was directly involved with workshops on behalf of FPP with MBIE and MfE. In 2018, I prepared a Discussion Paper for FPP and other council clients in which I evaluated the NPSUDC and identified key areas where it needed to be modified. Some of those recommendations are apparent in the proposed National Policy Statement on Urban Development (NPSUD) which will replace the NPSUDC.

3. SCOPE OF EVIDENCE

I have been asked to provide evidence in relation to the likely effects of PPC2 from an economic perspective. This covers the implications of PPC2 for industrial growth in the Hamilton-FPP area, as the proposed change would potentially reduce the land area available for future industrial growth, and implications for residential growth and urban form since the change would increase the area available for residential and commercial activity.

I have covered:

a) The two Reports which I prepared in relation to PPC2 (above);

b) The expert caucusing;

c) Comments on the Section 42A Report as they relate to my evidence;

d) Comments on submissions; and

e) Conclusions.

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In this statement of evidence I do not repeat the description of the plan change and refer to the summary of the application in the evidence of John Olliver for the Applicant.

4. SUMMARY OF REPORTS

Key Issues

PPC2 raises several important economic issues, because it would mean changes in land use and growth capacity from what is envisaged in the Hamilton City District Plan, and therefore affecting the overall development path for northern Hamilton, and the wider FPP urban growth context. The site is on the northern edge of the Te Rapa North Industrial Zone in Hamilton City, and adjacent to the Waikato District’s Horotiu industrial area (Horotiu Industrial Park and the Heavy Industrial zone). The Horotiu interchange of the Waikato Expressway on State Highway 1 (SH1) lies between the two.

One issue from PPC2 is the potential loss of industrial capacity, with the proposed re- zoning from industrial to residential and commercial meaning that around 62 ha of previously zoned land would not be available for industrial activity. The site is adjacent to SH1, near the railway (North Island Main Trunk Line or NIMT) and the Ports of Auckland (POAL) inland port site, and is proximate to other established industrial activities, which means it offers a number of advantages for industrial activity. Hence the importance of understanding the likely effects of less industrial capacity, and the potential for alternative industrial land capacity to adequately provide for expected growth in industrial activity within the Hamilton-FPP area.

A second potential issue relates to establishing significant residential capacity (900 or more dwellings) in a location which prima facie is some distance from Hamilton’s current residential areas, although in the vicinity of Horotiu settlement (in Waikato District) and rural residential dwellings across the River. An obvious question is whether an “outlying” location is considered to not be consistent with the FPP strategy for a relatively compact urban form for Hamilton. That potential issue should be viewed in the context of the future development pattern for surrounding land implied by the ‘Urban Expansion Policy Area’ (UEPA) in the Waikato Operative District Plan and included as Growth Cell HT1 in the Hamilton City Council/Waikato District Council Strategic Agreement, an area that is agreed to eventually become part of Hamilton City. The location is relevant to Waikato District’s Proposed District Plan (PDP) objectives to centralise and consolidate growth in

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this area. The northern edge of the Growth Cell would – when developed – lie to the north of the PPC2 site – in effect placing the site well within the future urban area. This is shown in Figure 4.1, with the industrial zoning to the west and south, residential to the north, and future residential (HT1) to the east.

Figure 4.1 : Plan Context for PPC2 site.

A related consideration is the nature of future population growth to the north of Hamilton. There is considerable potential for peri-urban development to occur – especially east of the Waikato River – through the establishment of more countryside living properties across the currently rural setting. That would place PPC2 as a residential area in a peri- urban setting in the short-medium term, before the northward advance of Hamilton sees urban development overtaking the area.

A third issue is where PPC2 would sit in the local development context. In the medium and long term, urban development is intended adjacent to the Waikato River as an axis, extending northward to Ngāruawāhia, and south from that town to Cambridge and Te Awamutu. The ownership structure here is highly relevant, with land on this axis held by

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a small number of entities. It is equally relevant to understand the place of Te Awa Lakes as one development within an integrated urban development pattern in Hamilton’s north.

4.6 A fourth issue is placing PPC2 within a wider integrated growth pattern for northern Hamilton. The FPP strategy currently sets out the growth path. However, the Urban Growth Agenda’s Hamilton to Auckland Corridor project (the H2A), has been promoted by the Ministry for Housing and Urban Development (MHUD), MBIE and others and this is a wider co-operation between central Government and the FPP. Currently, the Hamilton-Waikato Metro Spatial Plan (Metro Plan) is being developed through an extensive co-operative and consultative process, with initial indications that urbanisation would occur to the north and east of PPC2 (see below, Section 8). While the Metro Plan is not expected to be public within the time frame of this project, it is expected to come into effect in the short-medium term, and it currently indicates that the spatial extent of urban Hamilton would extend at least a limited way north.

4.7 The Hamilton-Auckland Growth Corridor initiative was signed on August 15, 2019 as a collaborative partnership between central Government, councils, iwi and the private sector. The H2A Hei Awarua ki te Oranga Corridor extends from Papakura to Te Awamutu and encompasses the PPC2 site, which lies on all three of the key transport networks of the H2A – the Waikato (and Waipa) Rivers, the NIMT, and the Waikato Expressway. The H2A Initiative includes an early priority to “unlock Hamilton’s growth potential” as an “emerging Hamilton-Waikato metropolitan area”. One part of that wider initiative appears to be encouraging more of the total growth in the Auckland-Hamilton- Tauranga triangle into Hamilton and the Metro Plan area.

The expected substantial growth through the next three decades and beyond would likely see the PPC2 site lie within urban Hamilton in the long term as the urban expansion areas are developed. The prospect of greater volumes of growth through Government initiatives may see the PPC2 site overtaken by Hamilton’s northward growth in the medium-long term – especially given the focus on the three components of the transport network as major growth catalysts. The H2A initiative is also likely to bring Ngaruawahia more clearly into the growth frame, given its place on the confluence of the rivers and the NIMT, and its significance within the existing partnership of iwi, Government and councils. Such a prospect is directly relevant to the PPC2 site.

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These matters highlight the importance of examining PPC2 in the appropriate time frame, and in both the regional as well as the urban growth and development context, since the H2A sets out an extended scope and longer time frame, and indicates that the PPC2 land is a smaller component of the total growth pattern across a potentially major growth corridor.

I have addressed these issues in the remainder of this section, dealing first with housing demand and capacity in the FPP area.

Housing Demand, Capacity and Affordability

PPC2 would enable a quite significant node of housing (900+ dwellings) on the northern edge of Hamilton City, beyond the existing urban edge. This raises the issue of where and how the proposed development fits within the context of Hamilton City and the southern Waikato District’s future projected housing supply and demand. For this, I have examined the proposed development in the context of housing growth in Hamilton and the southern parts of the Waikato District in the SH1 corridor and the area surrounding the northern part of Hamilton City.

As part of the NPSUDC compliance requirements, M.E. conducted detailed modelling on the FPP area housing market between 2017 to 2020. That analysis showed long-term demand for a 56% increase in Hamilton’s existing dwelling stock (+32,000 additional dwellings). A large share of the Waikato District’s demand is also expected to be concentrated into the southern part of the district in the areas surrounding Hamilton City, with a significant portion of this demand likely to be directed towards the urban settlements along the SH1 corridor area relatively close to Hamilton City.

The NPSUDC assessment found a large amount of capacity in Hamilton City’s greenfield and existing urban areas relative to projected demand in the City. It also found significant capacity within the Waikato District, with similar amounts of capacity relative to demand in this broad location.

However, the NPSUDC assessment found that large shares of the southern Waikato District’s capacity sits within land currently zoned Countryside Living (see Table 1). Capacity within this zone is likely to yield patterns of lower density, more dispersed and

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fragmented larger lifestyle property development across these areas rather than being concentrated into the urban settlements themselves.

Table 1: Plan-Enabled Dwelling Capacity by Zone in the Lower Waikato District, 2017

Existing Urban Greenfield ODP ZONE Infill Redevelopment Short-Term Medium-Term Long-Term ADDITIONAL DWELLING CAPACITY Living Zone 330 410 120 120 200 Living Zone - New Residential Areas 570 740 200 280 710 Village - - 10 10 10 Country Living 2,020 2,290 4,710 4,710 4,710 TOTAL 2,930 3,440 5,040 5,120 5,630 SHARE OF ADDITIONAL DWELLING CAPACITY Living Zone 11% 12% 2% 2% 4% Living Zone - New Residential Areas 19% 22% 4% 5% 13% Village 0% 0% 0% 0% 0% Country Living 69% 67% 93% 92% 84% TOTAL 100% 100% 100% 100% 100% Source: M.E Future Proof Area Housing Capacity Assessment, 2018.

These larger properties tend to be characterised by higher dwelling value bands, particularly in areas where there are established patterns of lifestyle property development with higher-end, larger dwellings. The NPSUDC assessment found these are unlikely to meet all demand in this location, given some segments’ demand for dwellings in the lower value bands.

Given the differences between the dwelling capacity (supply) and segment demand profiles, I consider it likely that a share of overall demand would be for smaller, lower priced dwellings in Hamilton, including in the area around SH1 to the north of Hamilton City. I consider the medium density dwellings proposed in PPC2 are likely to be well positioned to cater for a share of the demand for smaller, more urbanised dwellings around this area, assisting to meet the apparent shortfall identified in the NPSUDC residential assessment. Its potential to meet these shortfalls would be reinforced if it is a single ownership, master-planned development, and if it were a high-quality medium density residential housing project as described. This would be further enhanced if a share of dwellings were in the lower price bands. In that regard, the description of PPC2 states that it would provide for 10% of dwellings to be in the “affordable” range1.

1 Evidence of John Olliver at paragraph 5.9.

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Urban Form Context

In relation to the existing urban structure, PPC2 represents a significant node of residential activity somewhat beyond the existing urban edge of Hamilton City. However, as discussed above I consider that the relative positioning of the site will change through time as demand grows in the lower Waikato District and Hamilton’s urban area expands. In my view, it is important to consider the key aspects of scale and timing to understand PPC2’s positing within and effect on the surrounding urban form.

In the short-term, I consider the proposal would represent a significant node of residential activity substantially beyond Hamilton City’s urban edge. However, the site does have dwellings immediately opposite on the eastern side of the River in the rural-residential area, as well as the Horotiu settlement to the north, so it is not separated from urban activities and housing (see Figure 4.1 above). Moreover, in the medium-term, I consider it would function together with and absorb a share of growth projected for the SH1 urban settlements. This would be consistent with the Waikato District PDP objectives to concentrate growth into the urban areas around SH1 and avoid fragmentation, particularly within the adjacent UEPA. It would also be consistent with the adjacent Waikato District PDP expanded residential zoning within Horotiu.

In the longer-term, I consider that the residential activity at the PPC2 site would likely form part of the expanded urban area of Hamilton City. In addition to the likely residential growth in the adjacent area of Horotiu, it is likely to be surrounded by further residential growth within the UEPA.

Industrial Land Supply and Demand

The PPC2 area covers 62ha of land within Hamilton City’s industrial zoned area. The land is currently zoned Te Rapa North Industrial Zone, including an area of deferred zone status. The Hamilton City ODP allows for up to 7ha of the land within Stage 1B (the PPC area) of the Te Rapa North Industrial Zone to be released before 2021, and up to a further 23ha to be released post 2021. The remaining area is only available to be developed through a zoning status change when infrastructure becomes available, and upon assessment of the supply of industrial land.

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PPC2 seeks to instead use the full extent of the site for non-industrial purposes (including areas of open space and environmental protection). I consider a key issue is therefore whether the reduction in potential industrial land supply will affect the ability of Hamilton City and the surrounding Waikato District land market to meets its future industrial land needs.

I have undertaken recent analysis to examine the industrial land supply across the FPP Area (FPPA) to determine the effect of PPC2 on the ability to meet future industrial needs2. The analysis builds off earlier assessment undertaken by M.E. for the FPP to meet the NPSUDC requirements.

I have undertaken further assessment of industrial development patterns across Hamilton City to replace earlier assumptions within the NPSUDC assessment3. I consider it provides an updated assessment of industrial land demand that more closely reflects patterns of industrial development across the Hamilton City and FPPA.

In particular, I have examined the level of future industrial demand that is likely to get taken up within the existing industrial estate. This provides better information to replace the deliberately conservative approach of the NPSUDC where it was assumed that all industrial demand is met through new industrial development on vacant land.

I consider that the earlier NPSUDC assessment correspondingly generates a conservative estimate of sufficiency when comparing vacant industrial land demand with supply. In my view, a share of future industrial demand is likely to be accommodated through intensification of the existing industrial estate. Intensification of the existing industrial estate typically occurs through:

1. Employment growth within existing industrial buildings where existing floorspace is used more intensively.

2. Further development of underutilised areas or vacant parts of already developed sites.

3. Redevelopment of existing sites to a higher intensity.

2 ME Stage 1 Report, Section 3; 3 ME Stage 2 Report, Section 2.

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If a share of the industrial employment growth were instead accommodated in this way, then, in my view, this would reduce the total amount of employment that would need to be accommodated on vacant industrial land.

The following subsections set out my updated analysis of industrial land demand within the FPPA. I firstly summarise the NPSUDC demand and supply balance. I then analyse likely growth within the existing industrial estate and therefore likely future demand for vacant industrial land. To remain conservative, I have assumed that intensification within the existing industrial estate will only occur within Hamilton City, with industrial growth within the rest of the FPPA occurring entirely through the uptake of vacant industrial land. I use this updated position to generate scenarios of future industrial growth across the FPPA.

NPSUDC Baseline

The 2017 NPSUDC assessment identified 1,190 ha of vacant industrial land capacity within the FPPA. This is summarised by location and type (infill vs. greenfield) in Table 2. Most (85%; 1,013 ha) is located within the strategic industrial nodes, with a sizeable portion (432 ha; 36%) occurring around the northern part of Hamilton City, including 283 ha (23%) within the combined Te Rapa North/Horotiu node.

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Table 2: NPSUDC BDCA Industrial Vacant Land Capacity by Location, 2017

VACANT LAND CAPACITY (HA) SHARE OF TOTAL CAPACITY AREA INFILL GREENFIELD TOTAL INFILL GREENFIELD TOTAL STRATEGIC INDUSTRIAL NODE Rotokauri 107 - 107 9% 0% 9% Ruakura - 325 325 0% 27% 27% Te Rapa North 186 - 186 16% 0% 16% Horotiu 12 85 97 1% 7% 8% Airport 49 89 138 4% 7% 12% Huntly and Rotowaro 3 15 18 0% 1% 2% Hautapu 8 14 22 1% 1% 2% Tuakau - 66 66 0% 6% 6% Pokeno 2 52 54 0% 4% 5% TOTAL STRATEGIC NODES 368 645 1,013 31% 54% 85% OTHER HAMILTON CITY Te Rapa 42 - 42 4% 0% 4% Frankton Junction 14 - 14 1% 0% 1% Hamilton Lake 9 - 9 1% 0% 1% Other 6 - 6 1% 0% 1% TOTAL OTHER HAMILTON 72 - 72 6% 0% 6% OTHER WAIKATO DISTRICT Maramarua 0 40 41 0% 3% 3% Waerenga 1 11 12 0% 1% 1% Te Uku - 7 7 0% 1% 1% Te Kauwhata 2 4 5 0% 0% 0% Ngaruawahia 1 3 4 0% 0% 0% Other 0 3 3 0% 0% 0% TOTAL OTHER WAIKATO 4 68 72 0% 6% 6% OTHER WAIPA DISTRICT Te Rahu - 13 13 0% 1% 1% Te Awamutu 8 1 9 1% 0% 1% Lake Ngaroto 5 3 8 0% 0% 1% Other 4 - 4 0% 0% 0% TOTAL OTHER WAIPA 17 17 33 1% 1% 3% TOTAL FUTURE PROOF AREA 460 730 1,190 39% 61% 100% Source: M.E NPS-UDC Business Demand and Capacity Assessment.

There is an estimated long-term (2017-2047) demand for 881 ha of vacant industrial land across the FPP area. Approximately 60% of this demand (524 ha) is projected to occur within Hamilton City (Table 3).

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Table 3: NPS-UDC BDCA Industrial Vacant Land Demand by Area, 2017

NPS-UDC Vacant Land Demand (Ha) AREA Short-Term Medium-Term Long-Term Hamilton City 110 318 524 Waikato District 23 77 209 Waipa District 22 59 147 TOTAL FUTURE PROOF AREA 155 454 881 Source: M.E NPS-UDC Business Demand and Capacity Assessment.

The NPSUDC assessment found there was sufficient vacant industrial land within Hamilton City and the FPP area to meet long-term demand. The projected demand (including a margin) amounts to 86% of the supply within Hamilton City and 85% of the supply across the FPP area overall. I consider this is a conservative estimate of the sufficiency due to the assumptions used for the purposes of the NPSUDC. It is likely that the surplus is considerably larger, which is outlined in paragraph 4.25 of my evidence.

Existing Industrial Estate

I supervised analysis to identify the spatial extent of the existing industrial estate in Hamilton City. This analysis spatially integrated zoning, aerial photography and NPSUDC parcel information datasets within the GIS to determine the coverage of the already-developed industrial area. I then overlaid LINZ building footprints and city block employment data to calculate the intensity of land use within the existing estate, specifically the level of site building coverage, the floorspace per employee, and the total numbers of employees in each industrial location.

I summarised the outputs by industrial location in Table 4. The existing estate covers an estimated 811 ha of industrial zoned area within Hamilton City. Around two-thirds (68%; 553 ha) is located within Hamilton City’s existing industrial estate outside of the strategic nodes. The largest areas include Te Rapa (26%; 210 ha) and Frankton Junction (21%; 171 ha). The remaining 258 ha of the existing industrial estate falls within the strategic industrial nodes, with the largest share (201 ha) in Rotokauri.

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Table 4: Existing Employment Base in Hamilton City’s Existing Industrial Estate

EXISTING INDUSTRIAL ESTATE NON- ESTIMATED EXISTING VACANT BUILDING SITE COVERAGE FLOORSPACE PER EMPLOYMENT LAND AREA COVERAGE % EMPLOYEE (M2) (2017) HAMILTON CITY INDUSTRIAL AREA (Ha) (M2) STRATEGIC INDUSTRIAL NODE Rotokauri 201 291,500 14% 2,020 144 Ruakura 9 13,300 15% 100 133 Te Rapa North 48 83,400 17% 790 106 TOTAL STRATEGIC NODES 258 388,200 15% 2,910 133 OTHER HCC INDUSTRIAL CAUS Ngahinapouri(1) 29 79,600 28% - - Bryant 2 12,000 57% 490 24 Pukete West 3 9,300 36% 30 310 Te Rapa 210 715,400 34% 12,930 55 Nawton 3 11,700 36% 100 117 Grandview - - 0% - - Beerescourt 0 2,000 50% 40 50 Maeroa 1 4,300 48% 200 22 Frankton Junction 171 586,500 34% 10,480 56 Swarbrick 5 13,100 28% 340 39 Hamilton Lake 28 66,900 24% 1,530 44 Melville 3 13,400 39% 220 61 Enderley 0 - 0% - - Peachgrove 9 18,400 20% 660 28 University(2) 64 90,500 14% 2,200 41 Riverlea 24 44,700 19% 590 76 TOTAL OTHER INDUSTRIAL 553 1,667,800 30% 29,810 56 TOTAL 811 2,056,000 25% 32,720 63 Source: M.E Industrial Growth Model, 2019. (1) Ngahinapouri CAU is outside HCC. A small area of industrial parcels are included from this CAU that are located directly adjacent to the HCC boundary. (2) Potential additional employment capacity within the University CAU has been later excluded from the analysis.

There is over 2 million m2 of ground level floorspace within Hamilton City’s existing industrial estate. Non-vacant parcels within the existing urban areas are developed more intensively than those within the strategic industrial nodes, with significant differences in the development intensity between locations. From this, I consider that there is significant potential for further floorspace and employment to be accommodated within a number of areas of the existing industrial estate. This is reflected in the large differences in land and employment use intensities between different areas, with patterns broadly observable by location.

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Changes in Intensity within the Existing Industrial Estate4

Spatially detailed employment data within Hamilton City’s existing industrial estate shows changes in the intensity of land use and floorspace use through time. I consider this provides useful context for the potential future changes within the current estate.

Table 5 shows the change in employment on industrial meshblocks (aggregated up to CAUs) between 20085 and 2017 in Hamilton City. Overall, total employment has increased by 17% (2% p.a.) within these areas across the time period, with industrial employment increasing by 7% (1% p.a.). I consider this analysis shows patterns of further development and intensification within the existing industrial area. The overall rate of industrial employment growth translates to a similar land use productivity increase of around 1% p.a..

Table 5: Employment Change in Industrial Areas in Hamilton City, 2008-2017

EMPLOYMENT CHANGE 2008-2017 AREA NET CHANGE % CHANGE ANNUAL GROWTH RATE CAU CODE CAU NAME INDUSTRIAL TOTAL INDUSTRIAL TOTAL INDUSTRIAL TOTAL 527916 Horotiu - - 0% 0% 0% 0% 528402 Pukete West 4 20 64% 258% 6% 15% 529200 Melville - 7 148 -50% 200% -7% 13% 527914 Ngahinapouri - - 0% 0% 0% 0% 528700 Beerescourt 6 - 37 26% -31% 3% -4% 528403 Te Rapa 245 3,407 3% 24% 0% 2% 528900 Frankton Junction - 239 676 -4% 7% 0% 1% 530000 Enderley 62 366 252% 379% 15% 19% 530800 Riverlea 0 98 0% 20% 0% 2% 530500 University - 9 - 169 -45% -7% -6% -1% 530100 Peachgrove 11 238 13% 56% 1% 5% 528310 Bryant 28 110 10% 29% 1% 3% 528800 Maeroa 11 129 30% 173% 3% 12% 528501 Nawton - 7 - 78 -31% -45% -4% -6% 528504 Grandview 23 - 131 213% -55% 14% -8% 528406 Rotokauri - 293 - 581 -21% -25% -3% -3% 529000 Swarbrick 5 45 5% 15% 1% 2% 529100 Hamilton Lake 447 911 115% 143% 9% 10% 527124 Newstead 86 - 467 40% -42% 4% -6% 527917 Te Rapa North 743 819 1409% 744% 35% 27% 528405 Burbush 73 114 64% 63% 6% 6% TOTAL INDUSTRIAL AREA 1,190 5,618 7% 17% 1% 2% Source: Statistics New Zealand, Business Demographic dataset and M.E Industrial Model, 2019.

4 CAU is Census Area Unit, a basic geographical structure used by StatisticsNZ. New Zealand is dividided into 2020 CAUs, and Hamilton City is divided into 46 CAUs, Waikato District has 33, Waipa District 29. At Census 2018, SNZ changed to SA2 areas. 5 2008 was selected as a base year due to the availability of aerial imagery for this year. Aerial imagery enables potential further investigation to identify whether change has occurred as a result of additional floorspace and/or through intensification within existing floorpace.

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In my view, the Hamilton rates of increase in land use productivity are consistent with those in other high growth areas across New Zealand. Over the last decade, M.E. has conducted many land use studies across the country that have typically shown that land use intensity tends to increase in high growth areas. As an example, comparing M.E. studies of Auckland region Business Land from 20156 and 20187, the land area required per worker in the industrial zones decreased by more than 1% per annum. While there is no long term data set collected in New Zealand, there are data sets in Australia which shows a long term trend of increasing intensity in industrial zones of over 3% per annum8. Based on our own studies, Australian data and economic theory, I consider that an increase in intensity of less than 1% per annum would be conservative for a high growth area like Hamilton.

Hamilton City Built Industrial Development, 2017-2019

Hamilton City Council Certificate of Code of Compliance (CCC) data shows industrial development occurred on vacant parcels with a combined land area of 38ha over the 16 months since the NPSUDC assessment completion (see Table 6). However, this does not indicate an annual rate of take-up of land as CCCs are issued for buildings on a parcel that may not take up the whole parcel area. It can be the case that development occurs incrementally on parcels, with multiple CCCs issued on the same parcel over a period of time as the parcel is gradually developed. This is especially likely to occur in the case of a number of these larger parcels within the strategic industrial nodes where only parts of sites are initially developed, with further development occurring through time.

6 M.E (2016) PAUP Business Land - Land Demand by Activity and PAUP Supply. 7 M.E (2017) Auckland Business Land Demand and Supply NPS-UDC Methodology and Key Findings 8 City of Melbourne Council (2019) Census of Land Use and Employment

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Table 6: Land Parcel Area (ha) of Hamilton City Industrial Parcels with CCCs Issued between June 2017 and September 2019.

Already Vacant Industrial Developed Uptake Industrial Uptake AREA Industrial Node Rotokauri 19.2 25.4 Ruakura 0.0 0.0 Te Rapa North 4.7 39.3 TOTAL INDUSTRIAL NODES 23.9 64.7 Other CAUs 528403 Te Rapa 6.6 11.5 529000 Swarbrick 0.0 0.1 528900 Frankton Junction 0.9 7.8 529100 Hamilton Lake 6.3 8.2 528501 Nawton 0.0 0.1 529200 Melville 0.3 0.0 TOTAL OTHER CAUS 14.1 27.6 TOTAL NODES AND CAUS 38.0 92.3 Source: Hamilton City Council CCC data, 2017-2019; LINZ Primary Land Parcel Information.

4.38 Over the same time period, CCCs were issued on already developed industrial parcels with a combined 92ha land area. This is nearly two and a half times the size of the vacant parcel land area. This shows that there is a significant amount of further development occurring within the existing industrial estate within Hamilton City.

Future Take-Up in Hamilton’s Existing Industrial Estate

I have estimated the potential future take-up of industrial employment within the existing industrial estate through time by applying gradual increases in land use intensity across the existing estate. This indicates the share of future industrial demand that may be met within the existing estate rather than through the take-up of new vacant industrial land.

I have assumed the level of site cover within the existing estate gradually increases through time. This occurs through a combination of further development on underutilised/undeveloped portions of existing parts of industrial parcels, or through the

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redevelopment of parcels to higher intensity uses. I have also applied gradual increases to the productivity of floorspace through time where the rates of floorspace per employee gradually decreases.

Two scenarios have been applied to generate a range of potential future employment take-up within the existing industrial estate – a ‘low’ take-up and a ‘low to moderate’ take- up scenario. These are set out as follows: a) The ‘low’ take-up scenario assumes a 0.1% annual average increase in the rate of site coverage, resulting in an average increase of 3% in the level site cover over a 30-year period. It then similarly assumes a 0.1% annual average increase in the floorspace productivity, which reduces the floorspace per employee by approximately 3% over a 30-year period. In combination, these assumptions increase the number of employees per hectare (of zoned land) by approximately 6% over the 30-year period. b) The ‘low to medium’ take-up scenario assumes a 0.2% annual average increase in the rate of site coverage, resulting in an average increase of 6% in the level site cover over a 30-year period. It then similarly assumes a 0.2% annual average increase in the floorspace productivity, which reduces the floorspace per employee by approximately 6% over a 30-year period. In combination, these assumptions increase the number of employees per hectare (of zoned land) by approximately 13% over the 30-year period.

I consider the applied rates of growth within the existing industrial estate are conservative within the context of this assessment.

The potential future employment take-up within the existing estate is displayed in Table 7. In total, under these scenarios, it is estimated that between 1,800 and 3,700 employees of the total industrial employment growth may occur within the existing industrial estate. Nearly all (91%) is likely to occur outside of the strategic nodes as the nodes predominantly represent greenfield areas for future industrial development instead.

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Table 7: Estimated Potential Additional Employment Growth within Hamilton City’s Existing Industrial Estate (2017-2047)

EXISTING INDUSTRIAL ESTATE POTENTIAL ADDITIONAL EMPLOYMENT ESTIMATED EXISTING NON-VACANT LOW TO MODERATE BUILDING EMPLOYMENT LOW SCENARIO LAND AREA (Ha) SCENARIO HAMILTON CITY INDUSTRIAL AREA COVERAGE (M2) (2017) STRATEGIC INDUSTRIAL NODE Rotokauri 201 291,500 2,020 130 260 Ruakura 9 13,300 100 10 10 Te Rapa North 48 83,400 790 50 100 TOTAL STRATEGIC NODES 258 388,200 2,910 190 370 OTHER HCC INDUSTRIAL CAUS Ngahinapouri(1) 29 79,600 - - - Bryant 2 12,000 490 - - Pukete West 3 9,300 30 - - Te Rapa 210 715,400 12,930 800 1,650 Nawton 3 11,700 100 10 10 Grandview - - - - - Beerescourt 0 2,000 40 - - Maeroa 1 4,300 200 - - Frankton Junction 171 586,500 10,480 650 1,340 Swarbrick 5 13,100 340 20 40 Hamilton Lake 28 66,900 1,530 90 190 Melville 3 13,400 220 10 30 Enderley 0 - - - - Peachgrove 9 18,400 660 40 80 University(2) 64 90,500 2,200 140 280 Riverlea 24 44,700 590 40 80 TOTAL OTHER INDUSTRIAL 553 1,667,800 29,810 1,800 3,700 TOTAL 811 2,056,000 32,720 1,990 4,070 Source: M.E Industrial Growth Model, 2019. (1) Ngahinapouri CAU is outside HCC. A small area of industrial parcels are included from this CAU that are located directly adjacent to the HCC boundary. (2) Potential additional employment capacity within the University CAU has been later excluded from the analysis.

Demand for Future Industrial Land

I have summarised the recalculated demand for vacant industrial land in Table 8. The first column shows the vacant land demand as calculated under the NPSUDC where all employment growth was assumed to occur on vacant land. This equates to 524 ha within Hamilton City, and 881 ha for the FPP area overall.

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Table 8: Estimated Long-Term Demand for Vacant Industrial Land, 2017-2047

Remaining Demand for Vacant Land (ha) Demand for Vacant Land (Productivity Increase) (ha) Low-Moderate NPS-UDC Vacant Low Existing Estate Low Existing Estate Low-Moderate Existing Existing Estate Land Demand Scenario Scenario Estate Scenario AREA Scenario Hamilton City 524 393 253 381 239 Waikato District 209 209 209 203 197 Waipa District 147 147 147 143 139 TOTAL 881 750 610 727 574 Source: M.E Industrial Growth Model, 2019.

The middle block of columns show the adjusted vacant land demand where it is instead assumed that a share of the Hamilton City future industrial employment growth occurs within the existing industrial estate. Under the ‘low’ scenario, the vacant land demand within Hamilton City becomes 393 ha, and under the ‘low to moderate’ scenario, 253 ha (and 610 ha to 750 ha for the FPP area overall).

The final two columns show the adjusted vacant land demand once the gradual future efficiency increases have been taken into account (which are also applied to Waikato and Waipa districts). This amounts to a long-term (2017 to 2047) vacant industrial land demand of 239 ha to 381 ha within Hamilton City, and between 574 ha to 727 ha across the FPP area overall.

Spatial Patterns of Future Industrial Growth

In my view, establishing the likely future patterns of growth (in terms of vacant industrial land take-up) across the industrial nodes and other areas without PPC2 is important to understanding the likely effects of PPC2 on the future patterns of industrial growth. The approach identifies a counterfactual baseline position of the growth patterns that are likely to occur in the absence of PPC2. That provides the baseline from which to measure the effects of PPC2.

The demand estimates established within the previous section have been allocated as growth (vacant land uptake) across the different strategic industrial nodes and other industrial areas. It takes into account the propensity for growth to occur in response especially to the available capacity (land supply) within each location and the relative attractiveness of each area, including its location within the FPP area economy. The

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NPSUDC multicriteria analysis (MCA) scores (shown in the left of Table 9 below) of the industrial nodes indicate the relative attractiveness of each area.

The modelling is run across two supply-side (capacity) scenarios – with and without the PPC2 area in the Te Rapa North node. This is to understand how any industrial development that may have otherwise occurred within the PPC2 site is likely to be redistributed instead across other industrial areas. This allows the effect of the PPC2 site to be tested irrespective of the feasibility of development on the site (as outlined within the feasibility assessment undertaken by Essentia Consulting Group). Remodelling of the redistribution of any industrial development within the PPC2 area also takes into account the location of other nodes together with their MCA scores and overall scale of capacity.

Table 9 shows the modelled counterfactual take-up of vacant industrial land (i.e. without PPC2) under the ‘low’ and ‘low-moderate’ scenarios of industrial growth within the existing estate. There is a modelled take-up of 574 ha to 727 ha of vacant land, with most (87%) occurring within the strategic nodes.

Table 9: Modelled Distribution of Vacant Industrial Land Long-Term Take-Up by Location: Without PPC2 Modelled Take-Up (ha) % Capacity Take-Up Remaining Capacity (ha) Total Low- Low- Low- Low NPS-UDC Vacant Moderate Low Existing Moderate Low Existing Moderate Existing MCA Score Capacity Existing Estate Existing Estate Existing Estate (ha) Estate Scenario Estate Scenario Estate Scenario AREA Scenario Scenario Scenario STRATEGIC INDUSTRIAL NODE Rotokauri 89 107 79 62 74% 58% 28 45 Ruakura 80 325 214 169 66% 52% 111 156 Te Rapa North - PPC2 Area 85 62 43 34 70% 55% 19 28 Te Rapa North - Remainder 85 124 87 69 70% 55% 37 56 Horotiu 72 97 57 45 59% 47% 39 51 Airport 58 138 66 52 48% 38% 71 85 Huntly and Rotowaro 73 18 11 9 61% 48% 7 9 Hautapu 70 22 13 10 58% 46% 9 12 Tuakau 59 66 32 25 49% 39% 34 40 Pokeno 66 54 29 23 55% 43% 24 31 TOTAL STRATEGIC INDUSTRIAL NODES 1,013 633 500 62% 49% 380 513 OTHER INDUSTRIAL AREAS Other Hamilton City 81 72 48 38 67% 53% 24 34 Other Waikato District 48 72 28 22 39% 31% 44 50 Other Waipa District 65 33 18 14 54% 42% 15 19 TOTAL OTHER 177 95 75 53% 42% 83 102 TOTAL 1,190 727 574 61% 48% 463 615 Source: M.E Industrial Growth Model, 2019.

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Within the region wide range of take up identified in paragraph 4.50 above, the modelled results show an uptake of 149 ha in the combined Te Rapa North/Horotiu node under the low to moderate scenario, and an uptake of 188 ha under the low scenario. Within the node, the modelling estimates an uptake of between 34 ha and 43 ha within the PPC2 area. As indicated above, this comes from a baseline scenario that assumes no feasibility issues with the site for industrial development – i.e. the site is treated equally to other sites within the Te Rapa North node for industrial development.

Under the counterfactual (i.e. no PPC2) situation, the modelling estimates there will be between 95 ha and 135 ha of vacant industrial capacity still remaining within the Te Rapa North/Horotiu node following the long-term take-up of industrial land. It is of noted that this range of remaining vacant capacity exceeds the size of the PPC2 area.

The modelled total take-up without PPC2 is the same (574 ha to 727 ha) as industrial development that would have otherwise occurred within the PPC2 area is redirected to occur elsewhere within the FPP area (see Table 10). The net difference in take-up by area with and without PPC2 is shown in Table 10. There is a modelled net reduction of 34.3 ha to 43.5 ha within the PPC2 site, showing the portion of the site that would otherwise be taken up. However, the modelling shows that nearly half (46%) of the development that would otherwise occur within the PPC2 site (assuming equal uptake to the rest of the Te Rapa North node) would instead occur within other parts of the Te Rapa North node. This means that in combination, the net effect of development within this node is around 13.6 ha to 17.2 ha.

The modelling shows that most of the PPC2 uptake would be redistributed to the surrounding industrial areas around the northern part of Hamilton. That outcome is what I would expect because the characteristics of other industrial zoned land in the Te Rapa North – Horotiu area are very similar to the PPC2 land, so that demand no longer able to be met on the PPC2 land would most likely re-direct to industrial land nearby, rather than to another location entirely.

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Table 10: Modelled Distribution of Vacant Industrial Land Long-Term Take-Up by Location: With PPC2

Modelled Take-Up (ha) % Capacity Take-Up Remaining Capacity (ha) Total Low- Low- Low- Low NPS-UDC Vacant Moderate Low Existing Moderate Low Existing Moderate Existing MCA Score Capacity Existing Estate Existing Estate Existing Estate (ha) Estate Scenario Estate Scenario Estate Scenario AREA Scenario Scenario Scenario STRATEGIC INDUSTRIAL NODE Rotokauri 89 107 87 69 82% 64% 20 38 Ruakura 80 325 216 170 66% 52% 109 155 Te Rapa North - PPC2 Area 85 - - - 0% 0% - - Te Rapa North - Remainder 85 124 107 85 86% 68% 17 40 Horotiu 72 97 64 50 66% 52% 33 47 Airport 58 138 67 53 49% 38% 71 85 Huntly and Rotowaro 73 18 11 9 61% 48% 7 9 Hautapu 70 22 13 10 58% 46% 9 12 Tuakau 59 66 32 26 49% 39% 33 40 Pokeno 66 54 30 23 55% 44% 24 30 TOTAL STRATEGIC INDUSTRIAL NODES 951 627 495 66% 52% 324 455 OTHER INDUSTRIAL AREAS Other Hamilton City 81 72 54 42 75% 59% 18 30 Other Waikato District 48 72 29 23 40% 31% 43 49 Other Waipa District 65 33 18 14 54% 43% 15 19 TOTAL OTHER 177 100 79 57% 45% 77 98 TOTAL 1,128 727 574 64% 51% 401 553 Source: M.E Industrial Growth Model, 2019.

Table 11: Modelled Effect of Removing PPC2 Capacity on Long-Term Vacant Industrial Land Take-Up

Difference in Take-Up (ha) % of Redistributed Take-Up NPS-UDC Low-Moderate Low-Moderate Low Existing Low Existing MCA Score Existing Estate Existing Estate Estate Scenario Estate Scenario AREA Scenario Scenario STRATEGIC INDUSTRIAL NODE Rotokauri 89 8.4 6.7 19% 19% Ruakura 80 1.8 1.4 4% 4% Te Rapa North - PPC2 Area 85 - 43.5 - 34.3 Te Rapa North - Remainder 85 20.1 15.9 46% 46% Horotiu 72 6.2 4.9 14% 14% Airport 58 0.6 0.4 1% 1% Huntly and Rotowaro 73 0.1 0.1 0% 0% Hautapu 70 0.1 0.1 0% 0% Tuakau 59 0.3 0.2 1% 1% Pokeno 66 0.2 0.2 1% 1% TOTAL STRATEGIC INDUSTRIAL NODES - 5.7 - 4.5 -13% -13% OTHER INDUSTRIAL AREAS Other Hamilton City 81 5.3 4.2 12% 12% Other Waikato District 48 0.2 0.2 1% 1% Other Waipa District 65 0.2 0.1 0% 0% TOTAL OTHER 5.7 4.5 13% 13% TOTAL 0.0 - 0.0 0% 0% Source: M.E Industrial Growth Model, 2019.

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I consider that it is important to observe the modelling does not take into account any issues of development feasibility on the PPC2 site, and assumes as a starting point that the PPC2 land is feasible to develop for industrial use. This is to remain conservative and provide an estimation of effects without reliance on the feasibility assessment.

If the feasibility assessment is correct and the site is unlikely to be developed for industrial uses into at least the medium-term, then the outcome for industrial growth in the FPP area is likely to be very similar to the “with PPC2” future, and the effects would be similar to the PPC2 modelled scenario. This means that the effects of the capacity on the PPC2 site being unavailable for industrial development are the same, whether that unavailability is the result of the feasibility issues, or whether it is because PPC2 proceeds.

Either way, there would be sufficient capacity for the displaced industrial development to locate instead on other land, predominantly in the Te Rapa North - Horotiu locality.

Effect on Agglomeration Economies

I consider an important issue is whether a different urban development path from PPC2 would have a material effect on agglomeration economies accruing to the Hamilton and FPPA economy. Agglomeration benefits are associated mainly with the scale and intensity of economic activity where entities benefit from accessibility and interaction with other entities, as well as access to labour, infrastructure and technology. I have consequently considered how the difference in the spatial distribution of activity from PPC2 may give rise to changes in the level of agglomeration benefits.

The spatial industrial growth modelling first shows that the agglomeration benefits would not be affected by the scale and speed of economic growth with PPC2. This is because there is substantial opportunity for industrial development elsewhere in locations which are equally attractive to businesses, and where there is already considerable development.

The modelling has also shown the distribution of economic activity, and most particularly the intensity of activity, would not be materially different. A major reason is that, as demonstrated in the previous section, much of the industrial activity which would

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otherwise go to the PPC2 land would instead occur in relatively close proximity, on the Horotiu land or elsewhere in Te Rapa North. Some would accrue to Ruakura.

I have examined the modelled spatial distributions of industrial activity in relation to the MCA scores of the different industrial locations. This approach identifies whether, on balance, there would be any material change in the overall type and value of locations across which industrial activity is distributed.

In terms of the overall distribution of activity within the FPP economy, and particularly the intensity of activity which is a key driver of agglomeration benefits, my assessment shows no material difference between the no-PPC2 and the with-PPC2 futures. Although the pattern of activity on the ground would be different, most would occur instead in locations which would offer no less effect in terms of employment scale or intensity. Any growth diverted to Ruakura would be in a location where business intensity is unlikely to be less than in Te Rapa North.

For these reasons, it is my view that PPC2 would not materially reduce the agglomeration benefits accruing to the FPP economy, in the long term. The agglomeration benefits associated with the business growth which would locate on the PPC2 land (no-PPC2) or on other Te Rapa North and Horotiu land (with-PPC2) would be more or less equal. I also note that if the feasibility issues would preclude industrial development on the PPC2 site, then the combined effect of industrial activity establishing elsewhere in the locality and other types of business activity establishing on the site would make a greater contribution to agglomeration benefits, because in total there would be more business activity in the locality.

This finding is entirely expected, in my view, given the nature of agglomeration benefits, the minor differences in the location of business activity between the futures, and the general similarity of the alternative locations with the PPC2 land.

Effect on Infrastructure Costs

Another important issue is whether PPC2 would result in higher infrastructure costs. This may occur, for example, if there were any additional or earlier infrastructure investment required in other locations where industrial growth has been redirected from the PPC2 site. An opportunity cost could also occur through underutilisation of the existing PPC2

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site infrastructure investment that anticipated future industrial uses, and therefore would limit the HCC’s ability to recoup its costs.

The modelling shows only a small shift in industrial activity out of the node, with industrial activity going to other fully-serviced locations. Therefore, I consider there is not likely to be any additional infrastructure costs required to serve the activity shifted to other locations.

For any cost in over-provision of infrastructure within the node to occur, there would need to be significantly less activity within the node with PPC2 in place than without PPC2. The modelling instead indicates that most of the activity would still occur within other parts of the node due to the large capacity within the node (with the capacity surplus exceeding the size of the PPC2 area). Moreover, any opportunity cost would be lessened through the demands, albeit lower, that the alternative PPC2 residential and commercial activity would have on the infrastructure.

Consequently, the total demand on the existing infrastructure investment within the node with PPC2 would instead equal most of the baseline (i.e. without PPC2) industrial activity demand plus demand from the proposed residential and commercial node of activity within the PPC2 site. I therefore consider there is unlikely to be any significant opportunity cost in terms of underutilised infrastructure capacity on the PPC2 land.

Economic Impacts

4.69 My analysis has also examined the likely economic impacts in relation to the overall effects for the FPP area economy. I consider the main effects would occur through any change to agglomeration economies resulting from the changed spatial distribution of activity. In my view, there is unlikely to be any adverse economic impact through a change in the size of activity within the FPP area as it is redirected elsewhere into other industrial locations.

4.70 The modelling has shown that most of the industrial activity would instead occur within other parts of the node or be redistributed to other equally desirable locations with little effect on agglomeration economies. Therefore, I consider PPC2 is unlikely to generate an adverse economic impact on the economy through its effect on agglomeration economies. Moreover, the small amount of activity that the modelling shows to be

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redistributed out of the node predominantly gets redistributed to other locations with similar agglomeration effects.

4.71 In the same way, I consider there is likely to be no significant adverse economic impact arising from changes in the efficiency of infrastructure use. The small share of activity that is moved out of the node is redistributed to other full-serviced locations. In addition, the alternative uses under PPC2 would also have demand for infrastructure thereby reducing the underutilisation of infrastructure on the PPC2 site.

Conclusions

The assessment of industrial land demand and supply shows that if the PPC2 land is not available for industrial use, there is considerable vacant capacity elsewhere in the Hamilton-FPP area to accommodate growth over the next 30 years and beyond. It also shows that the absence of the PPC2 land from the mix would not constrain industrial growth in the Hamilton-FPP area, as there is opportunity for industrial activity to locate within the Te Rapa North – Horotiu node (predominantly) or in other areas including Ruakura, instead of the PPC2 site.

My analysis also shows that a pattern of industrial activity which did not include the PPC2 land would likely not be less efficient, nor would it result in lesser agglomeration benefits for the Hamilton-FPP area. The key reasons are that the pattern of industrial development is likely to be broadly similar to one in which the PPC2 land were included, and without the PPC2 land industrial growth would still be occurring mainly in established, substantial areas of activity, where agglomeration benefits would be likely realised.

5. EXPERT CAUCUSING

I attended facilitated expert caucusing on Economic and Strategic matters on 2nd and 3rd October 2019, and I signed the JWS at the conclusion of that caucusing. A number of matters were agreed as a result of that caucusing and I do not comment further on them below. I have covered matters which were not specifically agreed in the caucusing in this evidence.

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6. COMMENTS ON THE SECTION 42A REPORT

Industrial Land Supply and Demand

I note that HCC’s Section 42A Report supports the conclusions of my analysis that any loss of industrial land from the PPC will not constrain the FPP area’s ability to meet long- term industrial land demand. The report states that the original NPSUDC assessment, undertaken by M.E., found a surplus of industrial land that exceeded the PPC area. On this basis, it concludes that the PPC is consistent with the NPSUDC.

The Strategic Planning Evidence of Mr O’Dwyer in Appendix F of the Section 42A Report states that the PPC is inconsistent with the long-established strategic intent for industrial uses on the site. This is identified as a serious matter for Hamilton City given the established strategic planning framework and consequent investment decisions. Yet, it concurrently recognises the coarse regional nature of strategic planning tools and the consequent recognition of, and need for flexibility in the policy framework when applied at the individual site level.

Mr O’Dwyer’s evidence states that, given the planning and infrastructure investment significance of the issue for Hamilton City, any changes to the strategic planning direction at the site level must be evidence-based. The high importance and scale of this issue for Hamilton City means that the standard or evidence required is high in this context. Based in large part on the work that M.E. has done, Mr O’Dwyer then goes on to conclude he is satisfied that future industrial growth will not be constrained, thus meeting the high threshold set to support changes to the established strategic planning direction.

Reverse Sensitivities with Industrial Land Uses

HCC’s Section 42A Report recognises that reverse sensitivity effects may potentially occur as a result of the introduction of proposed residential land uses within the PPC in the proximity of surrounding industrial uses. It acknowledges that these need to be considered under the Waikato Regional Policy Statement (WRPS), especially in relation to the Fonterra Te Rapa site due to its classification as ‘regionally significant industry’.

However, the Section 42A Report states that the evidence provided by PGL, together with that commissioned by HCC, finds that any potential reverse sensitivity effects on the

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surrounding industrial uses can be adequately mitigated through the application of appropriate planning controls on the PPC2 site. Therefore, the Section 42A Report concludes that PPC2 would give effect those provisions of the WRPS as reverse sensitivity effects can be appropriately mitigated.

The Section 42A Report further states that no evidence of the potential for reverse sensitivity effects has yet been provided by Fonterra as a submitter. While it has identified these issues conceptually, they have not been substantiated in any evidence. On this basis, the Section 42A Report ascribes little weight to this issue. It states that the absence of information means that it is not a sufficiently strong basis to decline the PPC.

Nothing in the submissions for the industry operators, nor matters raised in caucusing, have changed my view on the economic effects of those perceived reverse sensitivity issues.

While reverse sensitivity has been raised as an issue, I have not seen an assessment to show potential effects on industrial development. I am not aware of, for example, a planned or proposed development path relating to the Fonterra site which would proceed only if there were no residential development on the PPC2 site, and would not proceed if residential development did occur. Similarly, I have not seen an assessment of whether development relating to the Fonterra site would incur costs to mitigate effects which would be over and above those required in any case, for example, in relation to potential effects on housing areas to the north and/or east.

I also consider it relevant that the Section 42A Report identifies that a sizeable portion of the future urban expansion area of Hamilton City (HT1) will also be located within a similar distance to the Fonterra site as the PPC2 area. This may indicate that potential for reverse sensitity effects relating to housing development is not limited to the PPC2 site.

Housing Supply and Demand

The Section 42A Report acknowledges that PPC2 will make a positive contribution to Hamilton City’s housing supply. It considers this in relation to the Hamilton City level capacity surplus calculated in the NPSUDC assessment at the city level. The spatial level of assessment is important because the report concludes that, although a positive

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contribution, it is not required to meet long-term housing demand in the city as a surplus already exists.

The evidence of Mr O’Dwyer further considers this position in relation to the timing and sequencing of Hamilton City’s urban settlement pattern. His assessment models the redistribution of future residential growth across different growth cells with the addition of capacity at PPC2. The modelling shows a slight decrease in take-up at each residential node as growth is instead directed into the PPC area. Mr O’Dwyer concludes that the potential redistribution will not challenge Hamilton City’s residential settlement pattern.

While I concur with the conclusion that PPC2 will make a positive contribution to housing supply, I consider that the city-level assessment, by scope, excludes the potential benefits for the proposal that would be realised with a wider lower Waikato District assessment lens. In my view, the residential node that would be established under the PPC2 needs to also be considered within the context of the lower Waikato District.

My evidence outlines how a residential node within this location would assist in consolidating the lower Waikato District demand around the SH1 corridor. Much of the capacity in this location occurs through the lower density Country Living Zone, which would be more likely to result in more dispersed development patterns, with some rural fragmentation, if it were taken up. This is the type of development that the Waikato District Plan seeks to avoid. I consider that the residential node in PPC2 would be consistent with the objectives of the Waikato PDP to consolidate growth along the SH1 corridor and avoid fragmentation within the surrounding areas.

In addition to the Section 42A Report analysis, I consider that it is important to take into account the likely dwelling value profile of the PPC2 residential component in relation to that of the other potential dwelling capacity elsewhere in the surrounding lower Waikato District area. This is significant because the NPSUDC assessment found that much of the potential capacity in the lower Waikato District occurs as lifestyle properties within the Country Living Zone. hese are typically larger, higher value properties which are unlikely to meet large shares of the demand for dwellings that arises across this area, which is instead concentrated into the lower dwelling value bands. In contrast, PPC2 intends to deliver smaller properties of medium density, including an affordable housing

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component. I consider these are likely to be closer to the dwelling value demand profile than the larger lifestyle properties able to be developed within the Country Living Zone.

Industrial Development Feasibility Study

The Section 42A Report accepts the findings of the Essentia industrial development feasibility report where the PPC2 site would be unlikely to be developed into industrial uses in the absence of PPC2. It therefore considers any effects arising from either a loss of industrial land or a redistribution of industrial activity are theoretical only as the site would not contain industrial activity under either scenario.

The report states that although the site is unable to be used for industrial purposes, this in itself is an insufficient condition upon which to approve PPC2. However, it then considers the counterfactual position of a vacant site in relation to Section 7 of the RMA. It states that “[i]t is not an efficient use of the urban land resource within Hamilton City for the site to lie undeveloped (para 7.7: p27)”.

I generally agree with the conclusions in relation to the feasibility assessment in the Section 42A Report. My technical analysis states that if the feasibility assessment is correct and the site were to remain undeveloped for industrial uses under the counterfactual scenario, then the PPC2 effects in relation to the loss of industrial land, would be relatively the same under the “with PPC2” and “without PPC2” scenarios. In my view, the verification of the Essentia feasibility study through a Hamilton City Council commissioned peer review increases the certainty of the feasibility study’s conclusions.

I also agree with the Section 42A Report where it states the inability to develop the site for industrial uses is not in itself a sufficient condition upon which to approve PPC2. In my view, the assessment also needs to take account of the effects of establishing the alternative land uses on the site, which I cover elsewhere in my evidence.

Finally, I am not aware that the feasibility issue is “fundamental” to the PPC2 proposal, as the section 42A report writer seems to suggest in his Appendix A. I note that I have not relied on the feasibility assessment in my technical assessment, and I have instead undertaken my evaluation on the basis that industrial use is a real alternative to PPC2. I have drawn my conclusions on the same basis. My counterfactual scenario does not include the results of the feasibility assessment and instead assumes that industrial

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development is equally likely on the PPC site as other parts of the Te Rapa North/Horotiu node. If the results of the feasibility assessment are taken into account, then the effects of the loss of industrial land, in my assessment, would be very similar under the counterfactual and “with PPC2” scenarios.

7. COMMENTS ON SUBMISSIONS

In this section I respond to several key economic matters raised by submitters. These are contained within the submissions (and further submission) of Fonterra, the New Zealand Transport Agency (NZTA) and POAL. The key matters I respond to are:

1. The alignment of the PPC with the strategic planning intent.

2. The impact on efficiency of the existing infrastructure investment within the Te Rapa North/Horotiu node.

3. Effects on industrial land supply and adequacy of residential capacity.

4. Potential reverse sensitivities of the proposed non-industrial uses with existing and future industrial activities.

Alignment with Strategic Planning Intent

The submitters oppose PPC2 on the basis that it does not align with the strategic planning intent of the area. Their position is that establishment of a residential node is inconsistent with well-established and agreed strategic planning direction for industrial uses within the node. In summary, their argument is that residential development would potentially undermine the industrial functioning of the strategic node, and could cause residential development out of sequence with Hamilton City’s agreed settlement pattern (which would have effects on the efficiency of infrastructure provision). The submitters state that robust evidence and technical assessment is required to support any movement away from the established strategic direction.

I consider that the modelling work I have undertaken in my technical assessment indicates that PPC2 is not likely to have a large effect on the development and functioning of the area as an industrial node. That is because the updated industrial demand and supply technical assessment identified a large amount of vacant industrial land relative to demand within the node. The demand modelling consequently shows that under PPC2

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most of the industrial development would occur elsewhere within the node or around the northern part of Hamilton City.

On that basis, I consider that PPC2 is unlikely to constrain the level of industrial activity and therefore not undermine the node as an industrial location. The anticipated level of industrial growth is still largely able to occur within the node overall.

Reverse Sensitivity

The issue of possible reverse sensitivity has been raised generally in reporting for Fonterra by Mr Copeland, including at expert conferencing. In respect of the technical aspects of reverse sensitivity effects, I defer to the other technical experts for PGL.

As noted at paragraph 6.8 (above) at this point in time I am not aware of any specific assessment of a likely or planned development path on the Fonterra or other land, including assessment as to the likelihood of reverse sensitivities to planned industrial activity.

As outlined in Section 4 (paragraphs 4.17 to 4.27), I also consider that a residential area at this location is generally consistent with Hamilton City’s urban form over the long-term. The Hamilton-Waikato Metro-Plan – which is currently being developed and not in draft – anticipates long-term urban development significantly northwards beyond Hamilton City, enclosing the Te Rapa North/Horotiu node. In the short to medium-term, I consider that a residential node at this location achieves the objectives of the Waikato PDP to centralise and consolidate residential growth around the SH1 corridor.

I note that the evidence of Mr O’Dwyer tests the effect of the PPC2 potential residential node on the future residential growth patterns in Hamilton City. He concludes that it is unlikely to undermine the settlement pattern.

I note also that Mr O’Dwyer assesses the alignment of the PPC with the strategic intent as outlined, among other documents, in the Waikato Regional Policy Statement (WRPS), HUGs and the Future Proof Strategy. He concludes that the additional technical assessment shows that while the PPC challenges the strategic direction, it does not undermine Hamilton City’s spatial planning framework. I concur with Mr O’Dwyer.

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Impact on Efficiency of Infrastructure Investment

The submitters contend that PPC2 will result in inefficiencies where the existing infrastructure investments, intended to support industrial uses, will be underutilised. Additional inefficiencies may occur through the loss of access to the strategic benefits of infrastructure specific to this location, including the co-location benefits with other firms that also locate within the node to access the infrastructure. They further state that this may create pressure for additional investment in other areas where industrial development occurs instead.

I have considered these issues at paragraphs 4.65 to 4.68 above, and I am not aware of substantive evidence of adverse effects on infrastructure costs and efficiency.

Effects on Industrial Land Supply and Additional Residential Capacity

The submitters identify that the PPC may result in a loss of industrial land and a concurrent increase in residential capacity. They state that a reduction in industrial land is inconsistent with the strategic direction to establish the area as a strategic industrial node. In addition, they claim there is no demonstrated need for an increase in the residential capacity. They consider that robust analysis is required to further investigate these issues to determine the effect on land supply and demand.

I refer to my paras 4.72 to 4.73 above, and in my view they address the submitters’ concerns. I note that Mr O’Dwyer is of the same opinion (at paragraph 144 of his evidence).

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8. HAMILTON-WAIKATO METRO SPATIAL PLAN

8.1 The Metro Plan was not considered in the ME Stage 1 Report, and was briefly addressed in the ME Stage 2 Report as more information became available. Following the completion of the Stage 2 Report and the caucusing, further information is in the public domain. Although the Metro Plan is not yet part of a statutory document, it is nevertheless important to consider its implications for the PPC2 proposal. Because it is still a work in progress, I have examined it here in a separate section.

8.2 The national importance of the SH1 corridor from Auckland to Hamilton is recognised in developing the strategic spatial planning Hamilton-Auckland Corridor for Wellbeing project. The project undertakes strategic spatial planning along the SH1 corridor, integrated across jurisdictional boundaries, to achieve positive inter-regional growth management outcomes. The Hamilton-Waikato sub-region forms focus area 4 within the project where growth is planned collectedly across the main urban centre of Hamilton, extending up to Ngaruawahia in the north and Te Awamutu in the south. The Hamilton- Waikato Metro Spatial Plan forms a key technical workstream within this project that plans for growth across this expanded urban area.

8.3 I consider there are key features of the Metro Plan that provide important context for PPC2. Firstly, the Metro Plan anticipates urban expansion significantly beyond the existing urban edge over the long-term. This is shown primarily in HT1, a FPP-identified growth area, which, when developed, would mean that any residential node in the PPC area would sit within Hamilton City’s urban edge rather than being an isolated node beyond other urban development.

8.4 Secondly, the Metro Plan also identifies the area between Te Rapa and Horotiu as a ‘potential development area for further testing’. If developed, this would fully encompass the PPC2 area within the expanded urban area of Hamilton City.

8.5 Thirdly, I consider it is relevant that Horotiu is identified as an enhanced employment area. This is connected along a regional commuter rail ling running from Hamilton City through the main urban settlements northwards along SH1. I consider that the PPC2 residential node may form part of the labour pool accessible to the establishing enhanced employment area at Horotiu.

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http://futureproof.org.nz/assets/FutureProof/2019-Agendas/Future-Proof-Implementation-Committee-Agenda-15-August-2019-Final.pdf

Figure 8.1 : Hamilton-Waikato Metro Spatial Plan (draft)

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Figure 8.2 : Greater Hamilton Transit Network

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Figure 8.3 : Hamilton-Waikato Metro Spatial Plan – Emerging Metropolitan Form

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9. CONCLUSION

I have examined the likely effects of PPC2 from an economic perspective.

Since the proposed change would potentially reduce the land area available for future industrial growth, and enable residential and other business uses on the land, I examined the implications for industrial capacity and growth in the Hamilton-FPP area.

I updated estimates of demand for industrial land in the Hamilton-FPP area over the 2018-2048 period, and examined recent take-up of available land. This provides the basis to assess the overall demand-supply context into the long term, to examine the quantum of capacity of the PPC2 land, and its location and attractiveness in relation to other industrial areas.

I also modelled potential different outcomes, if the PPC2 land were not available for industrial use, and industrial activity located instead on other industrial zoned land.

The analysis shows that if the PPC2 land is not available for industrial use, there is considerable vacant capacity elsewhere in the Hamilton-FPP area to accommodate growth. Further, that the absence of the PPC2 land from the mix would not constrain industrial growth in the Hamilton-FPP area. Industrial activity would locate instead within the Te Rapa North – Horotiu node (predominantly) or in other areas including Ruakura.

My analysis also shows that a pattern of industrial activity which did not include the PPC2 land would likely not be less efficient, nor would it result in lesser agglomeration benefits. That is because the pattern of development would be broadly similar, and it would see industrial growth still occurring in established, substantial areas of activity.

Use of the land for residential activity instead has implications for overall residential growth, and Hamilton’s urban form into the long term. Currently the PPC2 site does stand out on the northern edge of Hamilton City. However, in the medium-long term (possibly earlier) it will lie well within urban Hamilton, certainly “Metropolitan Hamilton”, and the UEPA provides for substantial residential growth to the east of the PPC2 site. The Hamilton-FPP area has substantial capacity for residential growth, and the PPC2 area would add to this, and its availability would affect the rate of residential development in other locations.

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The provisions in the proposed change for affordable dwellings and medium density development would specifically contribute to the availability of lower priced housing.

The recently announced joint initiative for development along the H2A Corridor is expected to result in faster economic and population growth for the Hamilton area. The PPC2 site lies within that H2A Corridor. The Metro Plan is part of this, and is in early stages. It has not yet been brought into the Hamilton DP. Nevertheless, the Metro Plan, indicates more urban expansion north of Hamilton, towards Taupiri. On that basis, the PPC2 land may be expected to lie within urban Hamilton in the short-medium term, rather than the medium-long term.

Taking account of these matters, I consider that PPC2 is generally consistent with the growth direction envisaged for the Hamilton-FPP area (and Metro Plan area), from an urban economic perspective.

J D M Fairgray 29 October 2019

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