Thursday, August 2, 2018

How we lit the fuse on the population bomb


We’ve been here before – concerns about our capacity to house a large population are not new. But lately, hostility to rapid rates of population growth is gaining traction. There have been calls for a population enquiry and former PM Abbott has called for immigration (and hence population growth) to be slashed. He joins a chorus of other voices, from business to community groups. Voters are pushing back against growth and political leaders are feeling the pressure.


But these pressures are confined to mostly two cities: Melbourne and Sydney (and perhaps to a lesser extent Brisbane). There are other capitals and countless regional cities who covet growth but who find it eludes them. Instead, stupidly (it has to be said) we continue to cram accelerating population numbers – mostly driven by immigration – into a couple of urban centres. 

Melbourne was first settled by whites in 1835 and took 165 years to reach 2.5 million people (by the year 2000). Bernard Salt predicts the next 2.5 million will be added in just 21 years with the city reaching five million by 2021. He thinks it will sail past eight million by 2050. Sydney has a similar story.

According to the Productivity Commission’s 2016 Migrant Intake into Australia report, 86% of migrants settled in major capitals, compared with 65% of the Australian born population. More recent information suggests the trend has grown, with only 6% of recent migrants now settling in regions.

The Government has toyed with the idea of insisting that migrants settle regional areas where there are genuine labour shortages but there seems little determination to back the threats with action, which in itself could be difficult (and possibly illegal) to police.

Outsiders observing Australia’s handling of growth must be incredulous to learn that much of the concentration of growth has not occurred by accident, but is widely endorsed policy. Higher urban densities have since the late 1990s been at the core of urban development policy to handle population growth in the very cities now feeling the most resistance to growth. The benefits promised as a result of increased density were many and the public were assured that they would share in an improved quality of life as a result of these policies. Take this example from the 2013 Draft Metropolitan Strategy for Sydney to 2031:

“A home I can afford. Great transport connections. More jobs closer to where I live. Shorter commutes. The right type of home for my family. A park for the kids. Local schools, shops and hospitals. Livable neighbourhoods.”

And the result? For Sydney and Melbourne especially, housing affordability is as bad as the worst in the world with entire generations locked out of housing. Congestion is chronic. Private and public transport systems are under more pressure than ever. Commutes take longer and housing choice has been compromised. Is this livable? Talk about over promise and under deliver. If these promises had been borne out by the day to day experience of average Australians living in these cities, there wouldn’t be the push back politicians are feeling now.

Even more incredulous is that, confronted with the political challenge of an increasingly hostile public, some suggest (from the comfort of their high priced inner urban enclaves no doubt) that what’s needed is not change, but more of the same. The Planning Institute of Australia recently suggested as much, responding to a challenge from ABC interviewer Ellen Fanning on the 7.30 program that we are ill prepared to cope with “stuff(ing) another three and a half million people into Melbourne and Sydney both”.
The PIA responded that “We’ve got a great challenge to ensure that we don’t end with megacities like Lagos or Manila. We want Tokyos, Parises, and New Yorks – and we can do that by planning well.” (emphasis added).
Really? Tokyo, Paris and New York might be on our bucket list of cities to visit, but how many average Melbourne or Sydney residents would live in hope they’d one day see their own city turn into a version of Tokyo or New York? I can think of no public opinion poll where we Aussies have put up our hands to using Tokyo as a business model for urban development. Any politician suggesting as much would last a nano second before being turfed out.
It serves to illustrate how wide the disconnect has become between public policy makers and the wider community. The “we” word is used when the “I” pronoun is what’s really meant.
Maybe it’s time for a genuine reality check? I’ve always held the view Australia can readily support a larger population but in getting there, infrastructure standards need to keep up with growth, not continuously lag it. Housing and lifestyle choices don’t have to be further compromised to serve a model of urban development which is at odds with broader public opinion. The idea that much of this growth should continue to be concentrated in just a handful of cities already feeling considerable strain while other centres with infrastructure capacity and abundant, affordable housing find growth eluding them is plain crazy.
The answer I suspect is not in forcing people to settle cities and regions that are capable of absorbing growth but in making these cities and regions even more attractive as places to settle. Jobs, industry and economic growth lie at the centre of this. Positive economic attraction strategies, reduced tax or red tape burdens, abundant and low cost utilities (power, gas, water), ‘special economic zones’ – all are elements capable of attracting employers and industries, and with them jobs for workers and their families. And if regional employment was further supported by the type of place making and related infrastructure support more typically only on offer in the centres of major capital cities, there’s no reason at all that centres like Mackay, Armidale, Wagga Wagga, Orange, Casino, Bendigo and plenty of others can’t enjoy growth without the accompanying political pain.
Sadly, even this rather obvious policy option isn’t being explored. According to a recent report in the Sydney Morning Herald: “Inner-city centres on the east coast have amassed the greatest share of Australia's new public service jobs under the Coalition government as outer suburbs, bush towns and Canberra took cuts to their ranks of bureaucrats.” So we not only concentrate our population into a few centres but government jobs as well. This is hardly spreading the load or sharing the benefits.
Stopping growth by rapidly closing down immigration would be disastrous for industries which have come to rely on it but this is increasingly looking like it’s possible. But equally, persisting with our current approach will only further aggravate hostile electorates in the major cities, while electorates in centres with little growth could be equally cranky with governments for failing to produce growth where it’s wanted.  
The fuse on the population debate has been lit. And maybe we are the ones that lit it. 

Thursday, July 5, 2018

Why we need more ways to measure CBD health

Above: Brisbane in 1982 - then and now. 

The Property Council’s “Office Market Report” (OMR) has long served as a proxy for the market health of our CBDs. But the nature of CBDs has evolved and changed dramatically over time, and office markets alone are no longer the indicator of city centre economic vitality they once were. Here’s why it’s time to broaden the thinking. 

The collection of data for the Office Market Report dates back to the late 1970s or early 1980s, for what was then BOMA (the Building Owners and Managers Association) but which from 1996 became the Property Council of Australia. The OMR was central to BOMA’s industry interests then – given the focus early on was almost exclusively on the investment and management of CBD office buildings. The OMR provided a catalogue of CBD Office buildings, their lettable areas, quality grades, vacancies and future supply. This was essential for assessing the demand for space and tracking market changes. Excel macros are today vastly superior to the early pen and ink paper calculations, but the OMR methodology and metrics remain largely the same since then. 

In those days, CBDs were primarily for business (the ‘B’ in CBD) and that business was conducted almost exclusively in various office towers. People flooded into work in the mornings and vacated in the afternoons. After hours and on weekends, CBDs were ghost towns. The idea of going to the city for a weeknight restaurant meal was almost laughable. The idea of shopping or entertainment in the city was equally limited in appeal.

Consider Brisbane in 1980. There was no Queen Street Mall (its first stage opened in 1982). The Myer Centre didn’t open until 1988. There was an old McDonnel & East Department Store in George Street but that was about it for retailing. There were almost no restaurants, with a couple of notable exceptions (anyone remember Milanos?) mainly focused on the business lunch trade. They mostly did not open for dinner. The Sofitel Hotel (which opened as a Sheraton) above Central Station didn’t open until the late 1980s, as did the Hilton (opening 1987). Prior to this, we had Lennons (now Next Hotel) and the Crest (now Mercure) and that was about it. The city in this era was all about office buildings and the office workers in them. Studying demand for office space was a suitable proxy for the health of the CBD economy because there wasn’t much else to it.




Above: A lot has changed since the 1980s. Maybe our measures of CBD health need to change too? Pictured is a photo titled "At the pub, Brisbane 1982" by photographer Rennie Ellis. 

How things have changed. In addition to a raft of new office buildings which have doubled the CBD office space stock since then, there have been even more significant changes to the composition of what makes the CBD tick. The Queen Street Mall alone now counts 7 shopping centres and over 40,000 square metres of retail space. In addition, new retail precincts are springing up along spines of the CBD. There are multiple new and recent hotels, adding nearly 2,500 rooms in the 2014-16 period along, with nearly 3,000 more to 2020 and roughly the same again predicted beyond 2020. Brisbane’s CBD and inner city accommodation industry sells more room nights than the Gold Coast. There’s also been an explosion of restaurants, cafes, bistros and eateries, there have been new cinemas and entertainment venues and a raft of luxury apartments added to the CBD as well. 

By now, the CBD was only partly for office workers; it was also a hive of activity for travellers, shopping, dining and recreational pursuits. On weekends when most of the office buildings are empty, the city can still be alive with activity. 

Now think about the new projects currently proposed for the CBD – many of which will further add to the variety of economic activity taking place in the city centre. Office projects, while still important, do not dominate.  

The $3.6 billion Queens Wharf project alone will add 1,000 hotel rooms across five hotels, 2,000 new apartments, a Casino, and multiple retail and dining options. Brisbane Quarter has recently added the W Hotel and will soon add a new residential tower, an office tower and extensive retail space. AEG Ogden’s Brisbane Live is a $2 billion entertainment focused proposal for the Roma Street Railyards which includes redevelopment of the Brisbane Transit Centre. The Howard Smith Wharves redevelopment will add a new 165 room Art Series Hotel, a range of dining, retail and tourism related attractions, meeting rooms and extensive public domain space. And Dexus’ proposal for a redevelopment of the Waterfront Precinct proposes two new towers with a combined 175,000 square metres – where possible uses are hotel and residential along with office space – plus up to 10,000 square metres of new dining and retail space. 

The point is that increasingly our CBDs are diversifying. Relying on an office market index now provides insight into only one aspect of the market. What is potentially needed is a new dashboard of indices to help shed light on the overall vitality and economic performance of a city centre. 

That dashboard would continue to include office market metrics, but in addition it would be good to measure other increasingly important parts of the city centre economy. Logically, such a dashboard would also include measures of hotel performance (occupancies, room rates and future supply), retail performance (vacancies, rents and turnovers), commuter traffic numbers (which should be readily available in real time via key transport corridors and public transport stations), performance of restaurant and catering establishments, and performance of the residential apartment market (vacancies, rentals and sales prices along with new supply). 

Not only do these uses contribute substantially to CBD employment and economic activity, they are also increasingly the focus of considerable public and private investment. There are compelling public policy and private industry reasons why a broader assessment of CBD performance is now timely. Those founding members of BOMA who were once focused on investment in CBD office buildings have evolved over time into institutions and private developers/investors with interests across the spectrum of built form uses now increasingly evident in our CBDs. 

The OMR served us well for 40 years and while an ongoing focus on office markets will remain important, the extent of changes to our CBDs means it alone is no longer sufficient as a measure of city centre economic performance or future prospects. 

Monday, June 11, 2018

Net interstate migration to Queensland is on the rise. Does this mean we are about to boom?


Positive net interstate migration to Queensland has in the past been a driver of growth for the Queensland economy. This is mainly because (contrary to popular opinion at the time) interstate migrants were not retirees but the average age was in fact around 35 – prime family stage of life, which is where household spending peaks. Many also arrived with ‘surplus’ capital (the arbitrage between higher house prices in places like Sydney and Melbourne compared with many Queensland locations) and they had well paid full time jobs to come to in Queensland. They were cashed up, fully employed and at peak spending stage of life. Happy days.

So is this about to happen again? Let’s hope so but before we get too carried away with some of the real estate marketing hype, here are some things to keep in mind...

The actual numbers are relative. 

Net interstate migration is now close to 20,000 per annum, almost double the prior year. That’s big growth in the short term. But it’s also a long way from the peak. In 1989 and again in 1993, that number nudged close to 50,000 per annum – or close to 1,000 people a week. Our population ticked over to 3 million in the early 1990s, so interstate migration back then was adding some 1.7% per annum to our population. 

But there are now 5 million Queenslanders. For net interstate migration to have a similar economic impact relative to the existing population, that 1.7% would today need to equate to 85,000 people per annum, or 1,600 people per week. So not only are we a long way from historic records, but to have the same impact, the growth bar has been lifted. The latest numbers that are being sold as good news are in fact less than a quarter of what they’d need to be to have a similar economic impact as it did in the early 1990s. 

The graph below shows the same thing but using the actual quarterly numbers from the ABS. This is what has people excited.



And the graph below shows those same quarterly numbers relative to the population at the time. Somewhat less exciting. 



Jobs. 

Growth in full time employment has a strong correlation with periods of high and growing net interstate migration, and periods of weakness in the full time jobs market has a similar relationship with periods of falling or weak net interstate migration to Queensland. 

The graph below selects periods of rising and high net interstate migration and periods of falling and weak interstate migration, and relates these to what was happening in the full time jobs market. I emphasise full time jobs as these are needed to fund things like mortgages or to have a substantial economic impact. Part time and casual jobs are counted in total employment data but for the purpose of this comparison, excluded. 




As the graph shows, in periods when Queensland’s full time jobs growth was stronger than or equal to rival states NSW and Victoria, net interstate migration was strong. It’s no coincidence that the strongest period of net interstate migration in both raw and relative terms was in that period of broadly 1983 to 1993, when Queensland was powering well ahead of NSW and Victoria on the full time jobs front. The next strongest period of net interstate migration (say 1998 to around 2003) also saw Queensland slightly outperform those states. Likewise, the weakest period of net interstate migration – say from roughly 2007 to now – also coincides with a period when NSW and Victoria have been outgunning Queensland on the full time jobs front. 

This seems to be convincing evidence that the relationship between full time jobs growth and net interstate migration is a strong one.   

What about house prices then?

My suggestion is simple: when you have a growing economy with growing full time jobs you are more likely to witness rising house prices due to demand side pressure (along with many other supply side factors having a bearing). Hence why prices have risen so much faster in places like Sydney and Melbourne in recent years, compared with Brisbane. 

The question is whether this gap in house prices will now become a trigger for large movements in interstate migration? Is the current increase in net interstate migration in response to this widening gap? The gap in median house prices has certainly widened to its widest point in some 15 years. 



It is tempting to think this is the case and for those who have bought into the Queensland property market it is hard to resist the idea that cashed up southerners will begin to flood north, underpinning Queensland markets and driving price growth even when southern markets are softening. 

However, the historic evidence seems to suggest that this is unlikely until Queensland’s relative strength in full time jobs is at least aligned with or ahead of full time jobs growth in NSW and Victoria. When that happens, and if the gap in house prices still remains, then it might be time to get excited. 

Tuesday, May 15, 2018

Why does Mayor Tom Tait have a problem with Disney?


First, a clarification. Mayor Tom Tate (spelled Tate) is Mayor of the Gold Coast. Mayor Tom Tait (spelled Tait) is Mayor of Anaheim, California. I met the Anaheim Mayor over a private dinner in California earlier this year, in connection with an invitation to a launch by MIT’s Alan Berger of Infinite Suburbia at an event organized by Chapman University, where co-author Joel Kotkin teaches.

Meeting a US Mayor with (almost) the same name as a Gold Coast Mayor was a curious experience, and it seems they are well aware of each other. “I get his constituent mail,” Mayor Tait told me, referring to his Gold Coast name-sake. It seems the ratepayers of the Gold Coast are Googling the name of their Mayor and, if they get the spelling wrong, they land on the Anaheim Mayor’s Facebook page - where they proceed to complain about rates, roads, rubbish and development on the Gold Coast. “Can you tell him to set them straight?” Mayor Tait asked, good naturedly.

We got to talking about Anaheim and I commented to Mayor Tait that he had some very famous constituents: a Mr & Mrs M Mouse for example. Having Disney as a constituent business would be a gold mine, I presumed, and something any Mayor would give their eye teeth for. Tom Tate on the Gold Coast would be doing cartwheels if Disney announced it was opening a theme park on the Gold Coast – it’s the sort of global attraction prize that writes its own headlines for years to come.

So, imagine my surprise when Mayor Tait explained that all was not well with having Disney as a constituent, and that far from benefitting from the Disney presence, many felt the company was bleeding the ratepayers of much needed community taxes. Accompanied by his Chief of Staff, Mishal Montgomery, they went on to explain over some classic So-Cal Mexican food that Anaheim City had been locked in a running battle with the global entertainment giant.

Contributing to hostilities was it seems a 10,000 + car park built by the City for Disney at a cost of $108.2 million some 20 years ago. Carpark revenues – even at 50% capacity – generate more than $35 million per annum for Disney. Anaheim City – who own the carpark – evidently receive just $1 per annum for the lease. There’s a lot more to it, and the LA Times have extensively covered the issue. See here and here and also here for example.  This and other deals done in favour of Disney are said to amount to billions in forgiven taxes and other concessions – and some claim this has been at the expense of Anaheim City ratepayers who are shouldering the usual infrastructure and amenity burdens faced by city ratepayers and their Mayors the world over. In this case, they say without the financial support of their wealthiest constituent business.

So Tom Tait took on Disney, which in turn responded by spending over USD $1.2 million on “pro Disney” candidates in the 2016 local elections. It didn’t work, and Tom Tait succeeded in becoming Mayor, no doubt much to Disney’s chagrin.

Adding to Anaheim’s concerns is the reality that many residents aren’t wealthy but housing prices are escalating, pushing many residents out. Disney workers love their jobs but it seems they are paid less than many others in similar roles. Another story also by the LA Times (which is hardly likely to be Disney’s favourite newspaper) claimed that: “Workers at the Anaheim resort are paid so little that more than 1 in 10 report being homeless at some point in the last two years, two-thirds say they don't have enough food to eat three meals a day and three-quarters say they can't afford basic expenses every month. As the largest employer in Orange County, Disneyland's low-wage policy hurts the area's economy, even as the local Anaheim government has subsidized the park's expansion and hotel development. The surrounding community is now contending with weak buying power from workers and growing social safety net costs.”

Ouch. The median house price in Anaheim is USD $578,600 (or $770,000 in Aussie dollars) which puts it in the top 6% US wide.

So what’s the relevance for Australia? Or for our own Tom Tate and the many other Australian Mayors who are actively and constantly courting major global attractions to our shores?

For me (and it’s opinion only after all) it was a reminder of being careful who you invite into your tent, and on what terms. If it’s an especially big corporate gorilla, we need to be mindful that they didn’t get to be big through charity. They will negotiate hard and seek to extract every ounce of benefit – as they should for their shareholders. In turn, our own investment attraction efforts need to keep in mind that concessions granted now in order to secure or support major investment by global players can come back to bite us – as Tom Tait (Anaheim) is claiming.

Once inside the tent, they can be hard to control and very hard to kick out.


(PS: Astute readers might recall an article which reported that Australia might be getting its own Disneyland. That article is here.  Take note of the date. April 1st). 

Friday, November 17, 2017

Shooting ourselves in the foot?

It is fashionable in some circles to think of Australia’s economy as one in full transition from primary production and resources into a services based economy. This goes does well in inner urban circles where white collar professionals, many of them removed from connections to life beyond a comfy three-kilometre ring around our CBDs, tend to dominate. However, it’s a mistake to ignore the economic reality which is that Australia’s export earnings continue to rely almost entirely on stuff we dig up from the under the ground or grow on top of it.

Take coal for example. In 2016 coal was Australia’s number 2 export earner, second to iron ore. The value of coal exports, for context, were nearly eight times the value of professional services exports. In a top ten league ladder of export earning industries, professional services finished 10th in size. The importance of a single commodity (coal) as an export earner makes the relentless attacks on the proposed Adani mine and related infrastructure harder to understand.

Whatever your position on renewable energy for our domestic needs might be, trying to scuttle our second biggest export earner is reckless economics and irresponsible politics. The commodity earns us all valuable foreign exchange dollars which help keep our national economy afloat. The industries around the search for, extraction of, site remediation and transport of that commodity also employ many thousands of people – which keeps a large number of regional communities alive, as well as city based professionals engaged in industries like engineering, environmental science, transport and infrastructure.

Ironically, many of the coordinated and highly emotive attacks on the coal industry and Adani in particular have come from its beneficiaries: urban residents who enjoy the benefits of Australia’s trade balance in the form of social and physical infrastructure standards which remain the envy of many countries. The evidence is incontestable: without coal exports, our economy would plunge into a massive hole, unemployment would rise, credit would be squeezed, and infrastructure projects clamoured for by the very chattering classes so vehemently opposed to coal, would cease. We all lose.

Queensland’s real gross state income surged recently, and it was down to an improvement in coal prices – as Gene Tunny from Adept Economics has noted: “To illustrate, coal royalties in 2016-17 ended up being an estimated $3.4 billion compared with $1.7 billion in 2015-16.”

Sadly, the economic reality is now lost in a debate about coal, energy and the environment where truth was an early casualty. Facebook and other social media channels carry and then amplify alarmist and simply false claims to a wider and increasingly gullible audience. The suggestion that we could have an informed discussion about the importance of coal exports to our standards of living is hard to hear above the cacophony of anti-coal protests. 

None of this should be taken to suggest I’m not supportive of the growth in professional services. As a professional service person myself, I’d be mad not to be. But I equally appreciate that our economy – even for those in inner urban circles that are far removed from coal or iron ore mines, or from manufacturing plants or farms or heavy industry – desperately needs these industries for our collective benefit. 

Being able to afford eye wateringly expensive infrastructure projects or schools or hospitals in the hearts of our city centres owes much to what we can continue to dig up or grow and sell overseas. We basically can’t have one without the other and suggesting this is possible is akin to taking a gun, pointing it at your foot, and pulling the trigger.


Monday, October 16, 2017

A new geography of urban wealth?



US based urbanist Richard Florida - once described as an “intellectual Rockstar” – shot to fame with his 2002 book The Creative Class. He was on a global speaking tour that took in many Australian cities, arguing that the secrets to economic development lay in attracting legions of creatively motivated progressives working in new economy professions. This was best done by enhancing inner urban “hipsterness” measured by a “bohemian index” with investments in public space, recreation, culture, and various other “urban chic” accoutrements. Many city leaders rushed for the Florida gospel, applying its preaching in the hope of out-hipping competing urban centres for precious jobs in the new economy. 

But Florida has since re-canted, admitting that the focus on inner urban “cool” may have worked for the wealthy and privileged but at the same time created city wide disadvantage. His latest book The New Urban Crisis suggests an alarming wealth divide is opening up between inner urban and suburban landscapes.

“Across nearly every metro area, middle-class neighborhoods are disappearing. Our cities and suburbs are being replaced by a patchwork metropolis, in which small areas of privilege are surrounded by vast swaths of poverty and disadvantage.  The rise of a winner-take-all-urbanism, with a small group of winners and a much larger span of losers, signals a profound crisis of today’s urbanized knowledge economy that threatens our economic future and way of life,” he now says. Talk about a change of heart.

While much of this may be true for major cities in the USA (where hipster havens like San Francisco or New York are losing millennials to lower cost of living centres in flyover country) is it also true for Australian cities? Are we seeing a concentration of wealth in inner urban suburbs while suburban areas languish? Certainly, the infrastructure and policy focus in most Australian cities has, for the past 15 years, been very much on enhanced inner urban amenity. But has this been enough to draw more high-income residents to the inner city and cause professionals to abandon the suburbs?

The evidence is revealing. Here’s a quick wrap of the picture across Australia’s capitals as of the 2016 Census.

Brisbane.



The household income difference between inner urban residents of Brisbane and those of the wider metro area have widened in the 2006-2016 period. Over that ten years, inner city residents (roughly within a 5 kilometre radius) have gone from enjoying incomes that were on average 13% higher than the wider metro average to now 23% more than the metro average. In dollar terms, inner Brisbane households earn on average $357 a week more than the metro average for the city.

However, the traditional patchwork quilt of high and low income suburbs remains a dominant feature. The suburb you live in still tends to define your household wealth status – be it high or low. Brisbane’s western suburbs (Fig Tree Pocket, Pinjarra Hills, Brookfield etc) are still among the highest income earners. South eastern suburbs (Carindale, Wakerley, Rochedale) are fast catching up. There are inner suburbs on the high income list (Bardon, Paddington, Bulimba etc) but there are others (like Kelvin Grove or Herston) which are well below the city wide average.

So while it is true the inner city is gentrifying, the preference among many high income households still appears to be for traditional suburban neighborhoods, many in middle to outer urban areas.

Sydney



Sydney is different. In 2006, household incomes in the Sydney city and inner south region were roughly the same as the wider metro average. By 2016 they were only 8% more. The North Sydney-Mossman inner city region actually went from being 56% more than the metro average to 37% more by 2016, while the Eastern suburbs north region stayed roughly the same – from 37% more to 38% more ten years later.

In dollar terms however, the differences are more stark: the average North Sydney-Mossman household in 2016 was pulling in $642 a week more than the metro average; and it was $667 a week more in the Eastern suburbs North.

So inner city residents of Sydney earn a lot more than the metro average in both dollar and percentage terms but it’s been that way for some time – hardly any surprise. This is entirely consistent with Sydney’s long term role as financial and business centre for Australia, which has arguably been the case for some decades now. Research would need to look back to the 1990s or earlier to find a turning point where inner urban income disparity began to widen significantly from the metro wide average – if indeed it did (or has it been so since the 1960s?)

However, proximity to the core does not preclude a number of middle and outer suburbs from joining the high income household list. Rouse Hill to the north west or Port Hacking to the south are two of several examples. In Sydney’s case, proximity to the core appears to have a significant relationship to high income households, but this has probably been the case since long before Florida published his first book.

Melbourne.



The household income gap in inner Melbourne compared with the greater Melbourne average widened from 5% more in 2006 to 10% more in 2016. The difference was greater in the Melbourne inner east area (14% more in 2016) but this was unchanged since 2006 (when it was 15%). In dollar terms, inner Melbourne households earn $155 more than the metro wide average and this rises to $213 a week more for the smaller Melbourne inner east area.

Overall, despite a widely reported acceleration of urban density programs in inner Melbourne over the past decade, this appears to have little impact on widening income disparity. In fact, it is possible to argue that Melbourne is more equitable in terms of inner urban versus wider metro household incomes than any other capital.

Melbourne also continues to exhibit a preference among high income households for a large number of middle and outer suburban areas. Any suggestion that high income professionals in Melbourne have abandoned the burbs for the inner city is not supported by the evidence.

Adelaide.



Households in Adelaide’s inner city (essentially its CBD) earned roughly 1% less than the metro average for the city in 2016 – which was down from 11% more in 2006. However, inner urban pockets such as Burnside inner (36% more in 2016) or Prospect-Walkerville (27% more in 2016) showed more disparity - but these differences seem for the most part unchanged since 2006 (when Burnside inner was 32% higher than the metro average and Prospect-Walkerville 19%).

So suburbs immediately adjoining the inner urban core of Adelaide appear to show more income differential compared with the metro average than the core itself, and these differences – 36% more in the case of Burnside – are substantial. But like Sydney, it would seem that this has been the case for at least the period since 2006 and there is no strong evidence of a widening income gap between inner and broader metro Adelaide - where the Adelaide Hills and foothills continue to be the preferred (suburban) environment for higher income households.

Perth



The gap between inner city household incomes and the wider metro area in Perth are widening – rising from 13% more in inner Perth in 2006 to 24% more in 2016. In dollar terms, inner city Perth households are now earning on average $386 a week more than the metro average for the city. At the time of the Census (August 2016) Perth was in the midst of a downturn in economic fortunes linked to the slowing resources sector.

You could speculate whether this had greater financial impact on inner urban or middle and outer urban households but without further study, this remains a topic of conjecture. For now at least, it remains the beachside suburbs north of the city that are home to the higher income households, much as it has long been.

So, what’s this all mean?

First, the Australian evidence runs contrary to suggestions that higher income professionals are abandoning the suburbs for “cooler, inner urban hipster” markets. Indeed, middle and suburban locations are where you are just as likely to find pockets of high income earning households (with the possible exception of Sydney where wealth does some more concentrated). The same, of course also applies to low income households but the point being that proximity to the core is not yet a key determinant for most cities – at least on the evidence. Larger homes and leafier environs remain for many a more powerful lure than higher density inner urban environments. There is evidence this may be changing and the gap widening, but the pace of change is not what some boosters have suggested. The suburbs have certainly not fallen from favour and remain very much desirable in the eyes of the higher income households that many inner urban markets covet.

It’s also fair to suggest that the income and wealth disparity Florida is now alerted to in cities like San Francisco and New York is of a scale that we are yet to see in Australian cities (again with the possible exception of Sydney). The enhancement of urban cores in many Australian city centres as so far mostly been insufficient to lure legions of high income creative class workers into those cores as places to live. Some will argue by pointing to anecdotal evidence (much of it owed to gushy headlines manufactured by eager boosters) but on the whole, Australian cities have avoided the problems that Florida now warns about.

For the time being at least.

Footnote: The maps used in this story came from a handy online tool published by The Guardian. You can have your own fun via this link.


Monday, September 11, 2017

Are our Universities holding back our education export potential?

Education is one of the fastest growing industries in Australia, soon to reach number four spot as an employer – ahead of the traditional retail employment machine. Not only this, but education is a spectacular export earner – now worth more than $20 billion to the Australian economy, and most of this is in higher (ie tertiary) education. Education is now worth more in exports than even tourism, and is ranked only behind coal and iron ore as an industry that earns the foreign exchange dollars needed to keep us economically afloat.

This is potentially only the beginning. Our close economic relationship with trading partners like China, India, Indonesia and other rapidly expanding Asian economies, along with the US and Europe, should logically mean the potential of our education exports has barely scratched the surface.

Many of our Universities are already highly geared to the full fee paying international student market. This is a good thing, as the evidence is that it is full fee paying foreign students that are in effect subsidising the costs of tertiary education for Aussie kids (and mature aged students). Universities need to maintain a balance between foreign and domestic student numbers and also need to maintain their academic standards: it’s not simply a case of rapid expansion to meet international demand or this could throw things out of kilter. Many Universities are also at capacity due to physical constraints on their campus or have already expanded by adding additional campuses. 

Some, like RMIT (Melbourne) have seized the opportunity to explore the international demand by opening overseas campuses. Since the year 2000, RMIT has had a presence in Vietnam and has now grown that to a 7,000 strong student body in two campuses – one (the main one) in Ho Chi Minh City and a smaller campus in Hanoi. 

I learned this visiting Vietnam a couple of years ago and it struck me as a terrific idea. RMIT is not the only Australian University to expand overseas. For example, Townsville’s JCU has - since 2003 –had a campus in Singapore. “Bringing programs direct from Australia and resident senior academic staff from JCU to ensure academic quality, students studying at JCU Singapore can be assured of the same enriching university education as our students in Queensland Australia” it says on its website. 

Many local government areas in Australia are keen to explore development of the tertiary education sector as an employment generator and as a ‘clean’, knowledge based industry. Which is also a terrific idea. Moreton Bay Regional Council to Brisbane’s north recently announced a deal to secure a new campus of Sunshine Coast University on a former paper mill industrial site, in what was widely (and rightly) regarded as quite a coup. 

But in investigating this further it also became clear that many Australian Universities just didn’t want further campus expansion: they have enough sites already. So there are regions with impeccable sites and a supportive policy infrastructure which are unlikely to get a shiny new campus of an Australian University, no matter how compelling the case. “That’s OK,” I thought to myself, “let’s just do what RMIT did but in reverse: let’s bring some international Universities here with a new campus.” 

This could mean bringing campus expansion of some leading international names with an already big appetite for education in Australia. Imagine a University of Fudan (Shanghai) or Hong Kong Polytechnic, or a University of Delhi (with an astonishing 400,000 strong student body) or Universitas Terbuka (Jakarta – and with an even bigger student body of 650,000) having a campus here? Students, teachers and researchers from overseas would be exposed to western culture and language, and Australian students would also have the opportunity to study at an overseas University without having to leave the country. Our export potential could go exponential.  We create more high value jobs in a fast growing, clean industry, we grow our export dollars and we cement valuable trading and cultural relationships within the region and elsewhere. 

But alas, this is Australia; if only it were that simple. I soon learned that this was largely an unrealistic dream. Without the full support and cooperation of our existing Universities, this can’t happen. Universities are governed (mostly) by State Legislation and are, in effect, granted a license to operate. The existing Universities would first need to agree to allow foreign competition into “their” market before anything could happen and they are – in the main – largely opposed to allowing that competition in, even though they themselves might be expanding overseas. There are only a couple of exceptions as I understand it, and both are in Adelaide - Carnegie Mellon University and University College London.

Why is it that Australian students and their International compatriots have such limited exposure to International University campuses on Australian soil? Is it just fundamentally unrealistic or is it a strategic blocking force from our own Public Administrators and Higher Education providers? The expansion of Australian Universities off shore is well supported strategy while the limited number of offshore Universities in Australia is an underwhelming frustration. 

Some developers and investment attraction agencies I have spoken with concede their interest to attract international education providers to our shores. As international investment continues to deliver the core funding for future developments it is quite logical that their home based education providers will see the opportunities missed if they don’t leverage their home based capital to support their global expansion. 

There may well be legitimate concerns by our tertiary institutions: erosion of existing fee incomes through foreign competition could jeopardise standards; foreign Universities may mean less foreign student incomes for existing Universities – pushing up fees for domestic students. No doubt there are countless more “reasons why not” – arguments which, at the end of the day, are largely designed to protect a regulated industry from further competition, even if the potential economic value to the country is limited because of it.

But would it really do that much harm? Consider the huge number of Universities in the USA for example: the competition there doesn’t seem to affect the position of the leading institutions which continue to build strong global brands with small student numbers. MIT has 11,500 students. Harvard some 22,000. Though small and despite swimming in the same sea as legions of others, they remain brands of global repute. There is no reason our own institutions should fear competition if their standards of excellence in research and teaching were such that competition was not a threat but an opportunity to elevate their reputations further. 

Australia is at the end of the day a small country with desirable education qualities in a region of mega nations with a matching appetite for the education opportunities we could potentially offer. Is shutting the door to international institutions in this way really to our best advantage?

Footnote:

For more on the value of education exports see:

http://monitor.icef.com/2016/11/australias-education-exports-surpass-aus20-billion/

Also this handy but dated RBA report: 
https://www.rba.gov.au/publications/bulletin/2008/jun/pdf/bu-0608-2.pdf

Tuesday, August 22, 2017

Why we need more Springfields

Australia’s worsening housing affordability problem is a largely self-inflicted: we first restrict and then tax the supply of new land needed to accommodate people, while at the same time accelerating population growth and then compounding the problem by applauding as most of that growth is focussed on just two or three cities. There are official policies in many States that encourage a concentration of both jobs and housing in finite inner city areas – which can only exacerbate an already chronic problem.

It’s not just housing affordability that is the problem, although this gets much of the attention. The entire point of inner urban renewal in the first place – dating back to the Better Cities program of the Hawke-Keating Government – was to harness spare capacity in inner urban areas through selective infrastructure upgrades.  We wanted to avoid the ‘donut effect’ common in US cities at the time, where inner urban areas were hollowed out leaving behind empty schools and other underutilized community assets. The opposite is now the reality: urban infrastructure is not keeping pace with population growth. We are in the throes of committing tens of billions more of taxpayer dollars to invest in inner urban infrastructure from schools to public transport in the Sisyphean belief that this can be fixed, while we continue to pump yet more people into limited spaces.

You wonder why we are so slow to identify problems and grasp solutions in this country. As Donald Horne wryly observed way back in 1964, “'Australia is a lucky country, run by second-rate people who share its luck." Those second rate people are still there driving public policy but our luck may be running out in terms of housing affordability and urban infrastructure unless there is some change of direction.

Part of the answer is, as always, under our noses even if we refuse to acknowledge it. The Springfield master planned community in South East Queensland this year celebrates a 25 year anniversary since its first humble housing lots were released. Occupying over 7,000 acres (2,860 hectares) it has clocked up some $13.6 billion in project investment to date, from housing for some 34,000 residents to education (including a University) to health (including a new hospital) to recreation, shops, aged care, industrial, offices, private and public transport connections.  That $13.6 billion investment to date is predicted to reach $85 billion on completion, by which stage there will be over 2 million square metres of mixed use space in its town centre and a population of 138,000 people.

Of critical importance is that the $13.6 billion investment to date is a multiple of many times the amount of Government support the project has received. In an era where ‘nation building’ or ‘city transforming’ infrastructure projects struggle to achieve much better than a 1:1 cost benefit ratio (and where massive leaps of faith in expert predictions are usually required to get them there) the Springfield example needs no such empirical gymnastics. The evidence in this project is that every dollar of government support spent there generates many multiples in private investment, and builds a complete community in the process. This is not just a dormitory development, but one which aims at generating its own employment from trades to highly skilled technical workers and everything in between.

Springfield is also a model of community development that has been quietly (and sometimes publicly) derided by advocates of increasing inner urban concentration.  It fits what some would pejoratively denounce as ‘sprawl’.  Everything here is new. Though obviously very popular with residents (otherwise they wouldn’t be living here) it doesn’t conform with the approved group-think which attaches great virtue to old world urban models reliant on foreign cities like Copenhagen or Paris for their inspiration – many of them first laid out in the medieval period.  Being new and suburban is heresy to much of the new urbanist and smart growth faiths that seek to recycle established communities into ever higher density communities.

Density for some has become the end in itself, not the means to an end. Despite the mounting evidence of worsening affordability, increasing congestion, a growing wealth divide between inner urban residents and the rest, the problems of lagging and prohibitively expensive infrastructure to support higher inner urban densities, mounting lists of projects which struggle to achieve even a marginally credible 1:1 cost benefit ratio – proponents continue to defy the evidence in pursuit of their faith.

Yet Springfield offers more than a solution to our emerging urban crisis: it also offers the business model. The experience gained in developing this community to this stage should, logically, be embraced by policy makers the country over. We should apply our minds to how this was achieved with only equivocal public policy support (at the time) and limited public funds, and imagine what could be achieved with just a little more of both. Interpreting, studying and then applying this model of urban development as part of a solution designed to alleviate excess pressure on just a few urban centres isn’t just an idea, it’s a hugely compelling one.


Much of what has been achieved in the name of “urban renewal” in Australia has been exemplary but increasingly the signs are that excessive concentrations of employment and housing in narrowly demarcated inner city areas are counterproductive. The opportunity to use the Springfield model of urban development to house an increasingly bigger Australia is one that deserves to be explored, and sites identified for many more Springfields to emerge in the future. The peripheries of those cities where worsening affordability and excessive congestion are just two painfully obvious signs of policy and market lag are the places to start looking. 

Tuesday, August 15, 2017

Is investment attraction an economic distraction?


In Australia we invest a good deal of taxpayers money and public sector energy into what is known as “investment attraction.”  Designed to secure new economic opportunities for particular regions, investment attraction strategies frequently resort to a menu of features designed – it is hoped – to catch the attention of businesses looking for places to invest or expand or open new facilities.

All too often, these become cliches and are stretched to incredulity. Take this effort from the hapless South Australians (with my comments in parentheses):

“South Australia offers a range of cost advantages that no other state in Australia can match, improving your company’s bottom line. (So why are so many businesses there reportedly struggling?) … Private sector labour costs in South Australia are 10 per cent below the Australian average making our state a great place to expand your workforce. (With so many unemployed, you’d hope so) The Adelaide market continues to be one of the most cost-competitive CBD markets nationally when it comes to setting up business and leasing office space. (Because so much of it is vacant, and has been for a long time) South Australia has a range of office space and industrial land available in, or close to, the CBD at rates lower than other mainland Australian states. (They’re worth less for a reason) With a well-planned supply of affordable industrial land, linked to strategic infrastructure and transport corridors the cost of doing business here is highly competitive. (Until you try turn on a power point)”

“South Australia’s central location provides the ideal gateway into Australia and out to Asian markets and beyond through our modern air, sea and rail freight channels. (Central to what? The Southern Ocean?) Our international airport is only six kilometres from the CBD (so is Bogota’s, so what? New York’s JFK is around 25 klm from Manhattan, do they feel threatened by Adelaide because of this?) … Flights to Sydney and Melbourne also depart, on average, every 20 minutes during operating hours. (So you can escape at short notice?).”

Apologies to my South Australian friends for picking on them for this example, but the point is that any potential business looking at investment locations in Australia would likely find these heroic claims equally amusing. Being in denial is not a strategy. Propaganda is not a strategy.

South Australia has some very real, deep seated and widely publicised economic problems that stretch back for decades. Overcoming these cannot be easy. Denying they exist at all is far from achieving anything.

It’s worth noting that they – like many other regions trying to attract new investment - have resorted to the oldest investment attraction trick in the book: the bribe. They’ve set up an Economic Investment Fund and a Future Jobs Fund, which are aimed at “investment projects (that) deliver significant strategic and economic benefits for the state.”

The bribe attracts all sorts of interest, often for the wrong reasons. It can be counter productive – costing taxpayers more in upfront cash grants and foregone taxes than the benefits to the region. Elon Musk of Tesla fame is a big believer in the bribe. He played off several US states vying for the privilege of being home to his Tesla Gigafactory, finally settling on a remote site in the Nevada Desert in exchange for a reported USD$1.3 billion in up-front cash, free land and forgiven future taxes. It turns out that’s just a part of the nearly USD$5 billion in total grants and tax relief his business has managed to talk out of the hands of US taxpayers. (See my article on the Gigafactory story).  Is it any coincidence that Musk is now praising the wisdom of the SA Government, promising to work together on energy ‘solutions’?

The bribe isn’t confined to South Australia. It is immensely popular Australia wide. Competing and even neighbouring regions often get locked into bidding wars in the name of “investment attraction.” Also known as ‘the pork barrel’ the bribe is used with great political effect, and can easily run into billions of taxpayer dollars with little or no business case justification. It helps explain why, for example, Australian taxpayers are spending $50 billion on building new submarines in South Australia rather than buying them ready to go for much less. If you’re a fan of the TV series ‘Utopia’ you’ll be familiar with how ‘nation building’ and the bribe are rarely separated by much. It’s practically essential viewing to understand how this country works today.

The sad part of all the effort and money directed at “investment attraction” is that so little attention is paid to investment retention. Identifying the problems faced by existing industries and business, and ensuring we don’t make things worse for them, might be a step in the right direction. Lumbering innovative businesses in a rebounding manufacturing sector with excessive electricity costs while talking up “innovation agendas” or being in hot pursuit of technology “start-ups” is just one example of neglecting the needs of existing business while efforts are focused on attracting new ones. South Australians might find this a depressing but familiar story but they can take some comfort in knowing it’s a problem that is Australia wide.


Too often, tackling the problems faced by existing businesses are glossed over in favour of the much more glamourous role of chasing shiny new investment bling. For every new business opportunity secured, how many others receive little support or are allowed to fail?

Monday, July 17, 2017

Why it’s way too early to write off retail


The bears are out in force again, this time predicting the demise of bricks and mortar retail centres due largely to the forecast impact of online retailer Amazon. How’s this for an example: “We think the magnitude of this short could be bigger than subprime," says Stephen Ketchum, the head of Sound Point Capital, a US hedge fund that manages more than $13bn in assets. That was from a story run in the AFR (17 July).

The US retail property market has been affected both by overbuilding and the accelerating impact of online. But to suggest the same impacts in Australia might be taking things too far.

There’s one very telling difference between ourselves and most US markets: overbuilding here is virtually impossible due to the “blue dot” factor. What’s the blue dot? For decades, planning schemes have enshrined restrictive land uses through rigid zoning laws. In the case of retail centres, these extended to creating a legislated “retail hierarchy” of centres with various overlaps of trade areas (based mostly but not exclusively on centre size and nature of retail offer). The hierarchy, happily supported by shopping centre owners and major retail tenants, had to be protected to avoid overbuilding or encroachment of retail uses into residential areas (so the official line went). This meant that prospects of developing a competing retail centre within the trade area of an existing centre, were very limited if not impossible.

This also led to the delicious irony of the generally pro-free enterprise shopping centre and major retail industry campaigning for more competition when it suited them (less restrictive trading hours, for example) but opposing competition when it didn’t (objecting to any new retail centres and frequently even objecting to tenancy changes or extensions in competing centres). The anti-competitive nature of our retail planning was wryly observed by retailer Gerry Harvey as posing a significant barrier to entry for the likes of Amazon. According to Harvey, quoted in Fairfax media: "Let's assume I buy a block of land tomorrow. I've got to buy it, pay for it, put in a development application. If that happens within three years, that's very quick… And I read that Amazon is going to be fully operational in late 2018."

Amazon will need more than one major distribution centre to service Australia. Finding the sites and getting the approvals will not be as easy as it might in the US. Plus, we have a particular tyranny of distance which any online retailer must confront when it comes to delivery: as customers, we are more spread out than in major US population centres.

The same hurdles faced the arrival of other retail competitors like Aldi and Costco. Both faced difficulties in finding enough sites to build a viable network – Aldi is getting there but Costco has a way to go. Both faced legal and planning objections from those invested in existing “blue dots” who did not want more blue dots on their trade area maps.

The downside of this has been that some parts of Australia’s retail property sector are vulnerable to competition not mostly because of online retailers like Amazon, but due to the lack of competition which has encouraged a laziness towards the asset. Many centres (too many to name) are little changed from their original design which could be 30 years old: a big box containing a supermarket, supported with a mix of specialty stores and a large on-grade (rarely shaded) car park. The enshrined lack of competition, described as a virtue of the planning system, has shielded these assets from the need to remain competitive and denied consumers access to a higher quality retail offer in the process.

The opportunity to anticipate some fairly obvious changes in consumer appetites and redesign these centres seems, to date, to have been largely overlooked. Leading centres are ahead of the curve, reinventing themselves as food, entertainment and community centres while other retail centres languish. The leading centres that are getting prepared for the future are typically held in institutional hands or in REIT structures so it’s ironic that these are the funds being shorted.  But the opportunities for the sector as a whole are significant, irrespective of private or institutional ownership. Health and social welfare will be the fastest growing industry by employment by a country mile in coming decades. Education is not far behind. A suburbanizing economy, enabled by advances in digital technology, means workplaces closer to home will become much more feasible. The advent of driverless cars (probably some time off) also has the potential to liberate a lot of on grade carparking from occasional to more permanent use (for something else besides a carpark). 

These and other factors present a host of mixed use offers that many shopping centres are well suited for. Nestled in amongst established urban communities with usually good transport connections, the opportunity is there to transition the land use from a purely retail use to one that combines retail with office, professional and medical suites, training and education facilities, health and wellness centres, short term accommodation, retirement living, and community uses. 

But first, the planning system has to allow it and centre owners need to want it. In the meantime, no doubt market analysts who don’t appreciate the significance of our “blue dots” and our various other barriers to entry will exaggerate the short term impact of Amazon, while the real problem – outmoded design and strategy  – poses greater long term risks (or opportunities for those smart enough to identify them).