Gauging the appeal

BY ARTHUR GRIMES, SENIOR FELLOW, MOTU ECONOMIC AND PUBLIC POLICY RESEARCH

A National Science Challenge study has looked at why some places are better to live and do business in. Lessons from this could help other towns and cities improve their economic viability and liveability.

WHICH ARE New Zealand’s best settlements to live in? Where are the best places in which to do business? Both of these are important when considering local development opportunities since a successful town will have both attractive work opportunities – quality of business – and be an attractive place for families to live – quality of life.

Study examined New Zealand cities

These issues are addressed in a new study, Amenities and the attractiveness of New Zealand cities, from Motu Economic and Public Policy Research for the Building Better Homes, Towns and Cities National Science Challenge.

Adopting methods tested in studies for the US and elsewhere, Census rent and wage data was used to compile quality of life and quality of business measures for 130 towns and cities in New Zealand from 1976 through to 2013. The measures are derived from economic theory that reflects the value of local amenities of a place, as perceived by households and firms.

Households and firms prefer different amenities

A place with relatively high rents and low wages must have compensating amenities that make it a nice place to live, otherwise people would not be willing to live there at those prices. Colloquially, these places are sometimes referred to as having sunshine wages. Less-attractive places require higher wages and lower rents to entice people to live there. Therefore, rents and wages can be used to rank places according to those places’ quality of life.

Firms that choose to locate in places that have high rents and high wages must regard those places as having offsetting productivity benefits, otherwise they would choose to move elsewhere. Thus, we can also rank settlements according to their quality of business, again using local rents and wages.

We analysed the relationship between each of these measures and various local natural and social amenities.

Households and firms prefer different amenities, which means places with high quality of life often have low quality of business. Households appear to prefer sunny, dry locations near water, while firms appear to prefer to locate in larger cities.

Top settlements for quality of life

Our analysis shows that quality of life is generally seen by people to be higher in coastal and lakeside cities and in places with less rain and more sun.

This is illustrated by the top five settlements for quality of life in 2013 – Whitianga, Motueka, Coromandel, Queenstown and Katikati.

More jobs in education and health seen

While the natural environment enjoyed in these places is undoubtedly high, social factors are also important for residents.

Since the mid-1990s, places with increasing shares of their workforce engaged in education have risen in perceived quality of life. This could reflect the increasing importance of tertiary education, particularly university education, as a drawcard for settlements over time.

Over the same period, places with increasing shares of their workforce engaged in health have also risen in perceived quality of life. Conceivably, this reflects nearby health services being a drawcard for older people.

Places that are nice to live in are generally rich in employment, accommodation, food, arts and recreational services and include many tourist towns. When the major cities – Auckland, Wellington and Christchurch – are included in our analysis, we detect a positive relationship between quality of life and changes in the employment share in accommodation, food, arts and recreational services over recent years (1996–2013).

This relationship disappears when we exclude the three large cities. This difference in results may reflect the relatively cosmopolitan nature of the populations in these cities.

Higher wellbeing in small towns, but changing

We found evidence that quality of life is negatively associated with population growth within cities. One possible explanation is that the congestion and crowding that comes with growth are viewed negatively by consumers. This finding is consistent with prior New Zealand research showing that people in rural areas and small towns have higher wellbeing than people in larger cities.

It is notable that this negative effect of population growth is smaller in the second than the first half of our sample. Again, perhaps New Zealand’s cities are becoming more cosmopolitan and people value these aspects more so that cities are seen as increasingly attractive places to live.

Quality of business higher in cities

In 2013, all of the top eight towns for firms – and hence work opportunities – were in or around Auckland, Wellington and Christchurch. Thus, quality of business tends to be higher in larger settlements and especially in cities with growing populations.

This finding reflects trends in many countries in which economic activity and opportunities are increasingly being concentrated in large cities. New Zealand is no exception, and it is not surprising that our largest city – Auckland – is both a good place to do business and a city that attracts strong employment growth as a result.

Best places to live and do business

In many cases, amenities that are positively associated with quality of life are negatively associated with quality of business and vice versa.

However, there are some places that were pretty good for both quality of life and quality of business over most of the period that we examined. Examples included Tauranga, Queenstown and Christchurch.

In addition, some smaller towns experienced a trend improvement in their quality of business over recent years while still enjoying a good quality of life. Examples include Oamaru, Blenheim and Martinborough. This suggests that local policy makers can seek to improve both the business climate and the attractiveness of their towns to residents.

Each of these three towns appear to have leveraged their local strengths to make the town attractive to both firms and people. Accordingly, they may be exemplars for other towns that wish to improve both their economic viability and their liveability.

Originally published in build magazine, issue 170, February 2019.