The failure of the Breathe urban village project

  • By Mark Tammett
  • 03 Dec, 2015

It was recently reported that the government sponsored ‘Breathe’ residential development project, which aimed to provide an example of how the Christchurch central city should be rebuilt post-quake, has been abandoned. The project started as a design competition with the likes of Kevin McLeod (Grand Designs TV fame) being one of the judges. A winning consortium was announced by the CCDU with great fanfare in 2013, but the developers have failed to obtain the backing of financiers, and after 2 years of waiting the government has finally called it quits. Rival bidders for the project are naturally feeling aggrieved, given the time and money they put into their proposal; only to lose to a bid that was presumably not commercially viable.

This provides a perfect example of the folly of mixing business with government, and how a government that tries to ‘pick winners’ and back commercial projects leads to inefficiency and distortions. In the real commercial world without government interference, price signals provide a discipline that must be adhered to, and you have real competition at every step of the process. For example:

  1. Firstly land prices fall or rise to their natural level. One of the stated aims of the gov’t acquisition of so much land after the quake was to reduce the effective size of the CBD and maintain the values of the areas left open to development. In other words create an artificial shortage of land to prop up prices. In terms of their stated aims they have certainly succeeded, to the point where sale prices of land seem to be higher than they were pre-quake. But this is a bizarre situation given the huge expanse of bare and dusty land left in the city, that there is no longer any strong demand for office space, and the relative unattractiveness of this location compared to pre-quake. There’s an oversupply of land but still the prices are high, and that can only happen where there’s gov’t interference. Without that interference land prices would have dropped to their natural level, offsetting the rise in construction costs that has made post-quake development in the CBD so costly.
  2.   A variety of competing developers engage different architects and designers, each with different ideas and outlooks.
  3. Those who can deliver a good result AND get the costs down sufficiently tend to get the work. Those who can't do both tend to not get the work. 
  4. The developer then risks his (and the bank's) money to build something he thinks the market wants and can afford. If his judgment is good he makes money, and does another similar development, giving more work to his architects and designers. If his judgement is out he loses money and the mistake is not repeated.

At every step there are price signals that tell the market what is and isn’t viable. Government by its nature however is immune to these price signals. Private developers can fail of course too, but they can't do it at taxpayer expense, and they're less likely to spend a lot of money up front on somethings that not commercially viable.

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