Wednesday, December 2, 2009

What price a roof over their heads?

If you’re a Baby Boomer or Gen X, talk of the problems of housing affordability might be of limited personal relevance. But for the following generations of Australians, the cost of housing - both rented and ownership - has escalated to a point that our society in the future may be significantly altered. For Families like the Kerrigans of the future, things will be very different.

Is there a problem?

No matter which measure you use (there are many published) it’s clear that housing costs relative to incomes have soared, especially since the late 1990s. As a multiple of average incomes, the median house price has escalated from around 4 to 5 times incomes for almost all of the post war period (or since records began) climbing rapidly in the late 1990s and continuing to climb now, reaching seven or even eight times average incomes for many capital cities.

Historic low interest rates have had only marginal impact on the affordability issue, because the size of mortgages are now so much larger, especially for first home buyers entering the market. In other words, housing was on average more affordable when interest rates were above 10 per cent or 15 per cent for the 1970s, 80s and early 90s, than when interest rates fell below 7 per cent - because houses were cheaper relative to incomes and mortgages easier to service.

Home ownership rates, especially in the generation of under 35s, are falling to historic lows, from 44 per cent a decade ago to just a third now (see here for example). This leaves many in the rental market, where rental costs relative to incomes have also climbed and eat up much higher proportions of the household budget, making saving in turn harder and the idea of building a deposit that much more elusive.

Causes now undisputed

The causes of the decline in housing affordability are now better understood. Many economists, not trained in the mechanics of supply-side housing delivery, wrongly assumed Australians’ “love affair with housing” and growing demand fed by falling interest rates was the primary cause of rising prices. But now the price pressures on the supply side created by state and local government planning policies are better understood for their role in increasing house prices. Limited new land supply (the result of artificially imposed growth boundaries), compounded by new and exorbitant levies on new housing (the combination of which can readily exceed $100,000 per dwelling), plus the high compliance costs created by labyrinthine and uncertain planning regulations, have combined to create a generational price pressure on supply that simply did not exist prior to the late 1990s (after which point, unsurprisingly, prices began to escalate relative to incomes).

As much has been acknowledged by the Reserve Bank Governor,27753,25847312-462,00.html himself, who has publicly complained that our inability to create new housing supply at such a time in our economy, while house prices continue to rise, is a cause of concern that policy makers need to address.

The consequences

If the extent of the problem and the causes are now widely understood (though there remain some in denial), it’s the consequences of this generational change that are worthwhile thinking about. Home ownership has been a cornerstone of Australian economic, social and family life for generations. What happens if an entire generation finds ownership so much more costly, or entirely elusive?

The first consequence is already apparent. Our parents, and for many of us aged 40 or more, probably coped with a mortgage on a single income. Today, young couples or families entering the housing market need to rely on two incomes to service the debt. Even then, the combination of two incomes allows little comfort room - a loss of work by one member of the family can lead to immediate financial distress. This places additional pressures on young families. It’s also hardly a coincidence that the rapid escalation of child care in Australia can be roughly traced to the point where house prices started to escalate out of proportion to incomes (roughly a decade ago). What the long term social impacts of dual income families with children in child care from an early age - and pre- and post-school care for their school years - will be, only time will tell.

Deferrment of children by an entire generation is already being observed (PDF 1.88MB). To some this is a sign of a selfish generation, splurging on the here and now. To others, it’s a sign that the prospects of starting a family, and buying a home, have become financially too remote for people in their 20s, so they defer these plans until their 30s. The health risks rise in proportion to the age at which women have their first child: what consequences will this create for health care costs and prenatal care, given the supposed ideal age for having a first child is in the 20s?

At the other end of the scale, project this current generation forwards in time. The family home and real estate generally has proven the single biggest form of savings for Australians for generations. It’s been relied on to help fund retirement, and even to help fund people into aged care. If rates of home ownership decline substantially for a generation, this form of retirement savings is no longer there. Superannuation has been a revolution but for average wage and salary earners, remains largely insufficient to fund a generation of workers into retirement. Will this mean greater dependence on social welfare for the aged as a higher proportion of the current generation moves to retirement age?

The economic consequences of high housing costs are also apparent. With greater proportions of total household incomes being devoted to mortgage payments than ever before, this also means less is available for other forms of consumption, or saving. The paradox of thrift shows that reducing consumption in favour of saving has economy wide effects by decreasing demand and putting a brake on economic activity. The same surely happens if thrift occurs because housing mortgages are consuming so much economic energy that consumption elsewhere suffers.

Australians, the reports tell us, are working harder, longer and taking fewer holidays. Is that because of necessity, triggered mainly by the single biggest impact on household finances - the mortgage? The economy-wide consequences of less consumption generally, mean reduced leisure travel, less non-housing or business investment, and so on, simply because for a generation the cost of servicing the debt on the family home has become financially all consuming.

Consider this: if the combination of supply shortages, up front levies and red tape have conservatively added $100,000 to the cost of a new home, that additional cost by way of a larger mortgage is worth an extra $675 per month alone! ($100,000 at 6.5 per cent variable over 25 years). The total interest bill is over $100,000, plus the principal, over the life of the loan. If that money was directed instead into domestic consumption, would the economy be stronger and Australians more prosperous?

Limited economic growth is a further consequence that could derive from needlessly high house prices. For states like Queensland, for example, population growth has been driven not just by lifestyle seekers, but also by the lure of relatively lower cost housing and costs of living. That relative advantage has now eroded, interstate migration numbers have slowed (topped up for the present by international migrants) and - due to the slowdown in the building industry as public policy chokes new supply - new job creation has also slowed. Ironically, Queensland now trails the (more affordable) states of Tasmania and South Australia in terms of economic performance, according to this report,23739,26198157-952,00.html by Commsec. (West Australia is also concerned - see here

You could speculate forever on other possible consequences of maintaining this high price regime for housing via current public policy settings, but among the most worrying is that we are witnessing the creation of a new landed class structure in Australia. For Gen X and Baby Boomers, rising house prices have added equity to family balance sheets - which have been leveraged to acquire additional investment housing, often more than one. While this generation is building wealth through house price growth, the other generation is being denied that opportunity. They are becoming the rental generation, whose economic efforts will go in rents to the landed generation, whose wealth will rise further.

Australia has long held dear the ideal of a classless society, of equality of opportunity and ‘a fair go’. But are we now witnessing a new class structure, defined by those who own property (and quite a bit of it) and those who don’t? That this is occurring largely at the hands of Labor state governments who claim a charter of social equality, is just as worrying. And if we fail to remedy the problem now, what are the possible consequences of that new social division as we move forwards in time?

The demise of evidence

Has evidence-based planning fallen from grace in favour of catchy slogans and untested assumptions? Has ‘must – debating’ replaced the search for factual examination leading to workable strategies for our urban future? In the case of urban planning, arguably that is just what’s happened. The evidence, in Australia at least, is worrying.

“We must get people out of cars and onto public transport.” “We must stop urban sprawl and the consumption of valuable land.” “We must build higher density communities to achieve sustainable environmental outcomes.” Phrases like this are now de rigueur across many discussions about urban planning in the media, in politics and in regulatory circles in Australia. They have become defacto international statements of fact, rarely challenged on the basis of what the actual social, economic or scientific evidence is really saying. So chronic has the march of the ‘must-debaters’ become that attempts to question the assumptions on factual grounds can produce Animal Farm like dogma in response: ‘Four legs good, two legs bad.’ Or ‘Napoleon is always right.’ Denial, followed by ‘pass the buck’ and ultimately ‘shoot the messenger’ are responses to legitimate questions.

But given the far reaching social and economic changes which will invariably flow from some of the regulatory planning schemes now legislated, it does seem valid to ask whether the various policies will actually achieve what they say they will. After all, these regulatory planning schemes are intended to govern our urban growth over the next 20 years. It would be a shame to get it badly wrong, simply because assumptions weren’t tested.

The rise of the big plan

In Australia, there have since the late 1990s been a raft of regional planning schemes dealing with urban growth in our major centres. The common theme has been the creation of urban growth boundaries and increased density in established urban areas, with an emphasis on public transport as opposed to the private vehicle. These schemes have generally passed without considered public scrutiny or challenge, although Tony Powell – a highly respected urban planner – described them as a “sad parade of failing capital city strategic plans [which are] superficial to the point of ridiculousness.” Hardly big raps there but his was largely a voice in the wilderness.

One of the most recent of these schemes was ‘The South East Queensland Regional Plan 2009-2031’. It is the State Government’s ‘plan to manage growth and protect the region’s lifestyle and environment. The plan responds to issues such as continued high population growth, traffic congestion, koala protection, climate change and employment generation. The plan balances population growth with the need to protect the lifestyle residents of South East Queensland value and enjoy.’

Because it bears much in common with similar schemes around the country, the SEQRP serves as a reasonable model with which we can examine some of the underlying assumptions, and test them against the evidence.

First, some context.

Australia’s total population is currently around 24 million people, in a land mass roughly the size of continental USA. This puts us below Nepal and Uzbekistan but ahead of Madagascar in population rankings. Reports that Australia’s population may reach 35 million in another 40 years (the current population of Canada) have raised domestic fears that we might become over populated. (See my blog post ‘Australia Explodes’ for more on this).

The State of Queensland is the second largest state by area, but contains only 4.4 million people in total. Its population growth rates have in the past been amongst the highest of any region in Australia, growing at up to 1500 people per week (close to 80,000 per annum). Much of this growth has occurred in the south east corner of the state, surrounding the capital city – Brisbane. While modest by global standards, this rate of growth has thrown governments and some sections of the community into apoplexy. How will we ever cope? South east Queensland (population 3 million) has been compared to California (population 38 million) in terms of its growth rates and population pressures.

Against this context, the SEQRP identifies the need to provide a further 750,000 dwellings in the period to 2031, with roughly 50% to be developed in established urban areas via infill, and the balance through new detached housing development on land within an urban growth boundary. The challenge for infill is greater in Brisbane, where 138,000 new dwellings are expected to be developed in established urban areas, especially around transit centres (typically rail).

Against this context, it’s time to examine some of the many assumptions that underpin the core strategy of the SEQRP.

Assumption: We’re at risk of sprawl.

This is the ‘Mouse that roared’ assumption, somehow suggesting that modest and manageable growth rates of 1500 people per week are somehow tipping the big end of the global scale. The region’s current population of 3 million shows obvious signs of urban expansion as a result of growth to date, but if sprawl is defined as the unplanned and unserviced expansion of land for housing, there is no evidence of that. Growth to date has been orderly and regulated. With some notable exceptions in recent years, infrastructure has generally kept pace with the growth. Even at the urban fringe, new housing development has been at higher rates of dwelling density than in years past (lot sizes are shrinking). The region is largely auto-dependent, but there are reasons for that (we’ll discuss later).

Assumption: We are running out of land.

South east Queensland has vast tracts of land suitable for urban expansion. Established regional centres at the edges of the urban fringe (from Kilcoy in the north to Beaudesert in the south) are readily capable of servicing new housing development to varying degrees as the infrastructure and town centres are largely in place, and capable of upscaling. Any quick examination of the region via Google Earth will reveal swathes of land suitable for urban development. The urban growth boundary imposed by the SEQRP is approximately 300 kilometres in length as it curtains the urban area. An expansion of this boundary by as little as a kilometer (under a mile) would create a notional land supply suitable for an additional 500,000 detached homes at 15 to the hectare (or six to the acre). No, we are not running out of land.

Assumption: We can no longer afford the dream of the quarter acre block.

Australians have a folklorish attachment to the notion of a house on a quatre acre block. The evidence, however, suggests this is now ancient history: lot sizes have not been anywhere near a quarter acre since the 1960s. The typical lot size now is 400 square metres, or around one tenth of an acre. Hardly an irresponsible over-consumption of land for housing. As for the dream of a quarter acre block, that’s been long dead.

Assumption: Broadacre growth will consume valuable farmland.

This assumption seems to be most favoured by latte lovers in inner city coffee shops, with only a vaguely remote understanding of farming practices. In the south east corner of Queensland, typically two types of land have been conserved for this reason. The first is land devoted to growing sugar cane. The farming of sugar cane in the south east is no longer economically efficient. Farmers are given government subsidies to continue, despite the local sugar mill having closed years ago. Sugar is efficiently farmed in the state’s tropical north but for some reason, the biodiversity desert that is a sugar cane farm needs preservation in the sub-tropical south east corner. The second type of land conserved under this rationale is land historically devoted to cattle grazing. This was always marginal grazing land in the main – dry, shallow soils that struggle to hold moisture or grow pasture. As technology improved and transport economics developed, more efficient grazing country has been opened up further from city markets. But as farmers are prevented from selling their land for housing, despite its logical location for that purpose, herds of bony cattle continue to roam the urban fringes of the metropolis.

This assumption also seems to hold dear the notion that, for sustainability reasons, regions should source their food needs from within a nearby catchment, minimizing transport costs (and hence saving the planet). Were that the case however, Queenslanders would not enjoy apples (grown in southern temperate zones) and neither would Tasmanians (our cool climate southern state residents) ever enjoy bananas (two thirds of Australia’s crop of which are grown in Queensland). It would also mean our agricultural industries, which rely heavily on export, would fail.

Assumption: infrastructure is more economically deployed in established urban areas.

The cost of infrastructure provision is a subject that preoccupies governments in growth regions. Perhaps for this reason, the suggestion that infrastructure is more economically deployed in established urban areas, as opposed to newly provided in outer growth areas, found much support in treasury corridors. However, the evidence suggests otherwise. In established urban areas, underground services (water, sewerage, stormwater) can be approaching 50 or 100 years since built. These were not initially designed for higher usage levels based on higher urban densities, and anyway are approaching the end of their shelf life. The replacement and upgrade cost of retrofitting these services is demonstrably higher than the cost of installing new services in new growth areas. The same applies to roads, rail systems, schools, hospitals. Ironically, as if to counter their own arguments about the alleged efficiency of exploiting existing infrastructure capacity in established areas, local councils and state authorities still charge very high per-dwelling infrastructure levies in infill areas (levies which can now total more than double the cost of the land for an infill unit housing project).

Related to this assumption has been a concern that migration away from the inner core would deplete population numbers, rendering existing infrastructure (from schools to hospitals to transit and so on) under-utilised. That may have been the experience in a number of US cities, but here the evidence in Australian cities is to the contrary: school class sizes in inner areas remain high, hospital beds in short supply, and infrastructure generally reported as over whelmed by demand.

Assumption: Outer suburban growth will mean worsening urban congestion.

If it was true that residents of new outer suburban growth areas were predominantly employed in inner city areas, this might follow. But according to the Census and other official government data, most jobs are in suburban locations – 90% of all jobs in fact. Teachers, nurses, shop workers, manufacturing and transport, professional and personal services – all are predominantly suburban by nature. The CBD (our downtown) is a high density focus for many headquarter operations, but at 2 million square metres of office office, it cannot by any stretch of the imagination provide sufficient space for the majority of the region’s workers. Congestion has worsened in the south east corner, but arguably this has been from under investment in transport infrastructure – public and private - in the past 20 years (including the absence of ring roads such that the historic hub and spoke arterial road pattern continues to direct traffic into the city, even though more than half of it is trying to get to the other side). The private vehicle is for most not a modal choice of transport but an essential requirement of daily life.

Assumption: infill and higher density will get more people using public transport.

Perhaps this is true to an extent. Current public transport usage represents under 15% of all trips. With higher density housing in established areas, especially in and around transit nodes (TODs), that figure could theoretically increase. But even the most heroic of assumptions would put the future rate at little more than 30%. Meaning that 70% of future trips by the new residents of inner city locations would continue to be by private vehicle. Based on the infill targets for the city of Brisbane, that could mean another 150,000 people using cars on already congested inner city roads. This is hardly likely to diminish congestion. There is also an unanswered question on the capacity of existing rail and bus services to cope with additional demand (frequent reports mention chronic overcrowding) combined with the high level of public transit subsidies per passenger, which will somehow have to be funded.

Assumption: Higher density in established areas is better for the environment.

Again, the evidence here tends to suggest the opposite to what is assumed. Unit and townhouse dwellings, based on several University studies, actually consume more energy than equivalent detached dwellings. Common area lighting, lifts, clothes driers and airconditioning are all more commonplace in high density dwellings than detached (where natural light, cross flow ventilation and solar power for drying clothes are the norm). Factor in the higher number of persons per dwelling in detached housing, and the per person energy consumption of inner city, high density housing looks ordinary.

No less an authority than the Australian Conservation Foundation actually proved this in their Consumption Atlas which revealed that inner city high density residents had much larger carbon footprints than their suburban cousins. Built form was part of the explanation – the rest was explained by wealth (inner city residents tend to be wealthier, buying the privilege of inner city real estate prices, and thereby able to consume more). Wealth also tended to mean that these people eschewed public transport, despite its ready availability.

Assumption: it works in Europe, it will work here too!

This is my favourite assumption, especially when trotted out by a new convert to the density matra, recently returned from an overseas ‘study tour’ which took in all the sights of various European downtowns. The reality of course is that European cities were largely designed (in their inner areas) during the middle ages. Walking was not a choice but an economic necessity, and density was a by-product of both this and the prevailing economic systems (such as they were) and also the climate. Studying the downtowns and inner urban areas of European cities and applying those observations to the Australian context is patently silly. If more study tours instead took in the middle and outer areas even of European cities, where the majority of the ‘workers’ (as opposed to elites) live, they might return with different conclusions. (Wendell Cox has produced a series of ‘rental car’ tours which are worth reviewing in this context).

And so the evidence says?

On balance, many of the assumptions that underpin the central strategic intent of regulatory planning schemes such as The South East Queensland Regional Plan, just don’t stand the test of evidence. Indeed in many cases, the evidence suggests the opposite of what is assumed. But evidence, it seems, is out of favour and slogans are in.

The consequence of this demise of evidence based rigour though is becoming immediately clear. Despite the global economic downturn, policy induced housing shortages due to land supply constraints, accentuated by high and extortionate infrastructure levies, layered on deficient and largely incomprehensible local planning laws, are seeing house prices rise even further. In Brisbane, the median house price is now around $450,000 – or close to 7 times average incomes. Dual income households are now the norm, and minor fluctuations in mortgage rates are enough to send shudders through the entire economy as household budgets are tightened. Even recent warnings by the Reserve Bank Governor (see this for a summary) that we are failing to produce new supply at a time when it is most needed, have so far fallen on deaf regulatory ears.

Four legs good, two legs bad. Napoleon is always right. Why consult the facts when mantra will do?

Wednesday, November 4, 2009

The train the train!

Regular users of Coronation Drive may have felt a temporary sense of relief at news that “more trains would be scheduled to help with gridlock on Coronation Drive” as a result of the roadworks for the new Go Betweens bridge. But the reality is that the train is simply not a viable alternative for many of the commuters sitting in congestion on Coronation Drive. Why? Because they aren’t going where the trains are going.

This point seems often lost on transport planners and rail enthusiasts, who credit the train network with powers to resolve congestion well beyond its potential.

Have a look at this comment from Rail Back on Track spokesman Robert Dow:

"In the longer term increased train service frequency will attract more commuters to move from the roads onto public transport and save the community significant costs by reducing congestion, lowering environmental impacts and reduced impacts on the health care sector.”

Great expectations

I’m not sure I understand the public health benefits of waiting for crowded trains as opposed to sitting in a car in road congestion, but implicit in the claim that commuters will move from cars to public transport (trains) is the assumption that this is a choice they can freely make. That same assumption seems to be widespread amongst a variety of urban growth plans, and is also implicit in the enormous reliance our planning schemes are placing on ‘transit oriented development.’

In short, the thinking seems to be that if you let more people live near train stations (under TOD schemes) they will catch the train to work. If roads are congested (like Coronation Drive) commuters can catch the train – if more services are scheduled.

Former NSW State Treasurer Michael Costa turned the blow torch onto advocates of the ‘build it and they will use it’ school of public transport, in a telling article in The Australian a year ago:

“There is a tendency among the more extreme public transport ideologues to adopt a "Field of Dreams" approach to public infrastructure projects: build it and they will come. It is also true that many of these people are urban planners. The availability of appropriate public transport in dense urban environments is a logistical necessity. The real debate is about what type of public transport, where it should be provided and at what price. In an ideal world of unlimited resources, everybody would have access to public transport. in reality, resources are limited, it is crucial that they are used wisely. Too many projects have wildly optimistic patronage projections and costing.”

He was writing in part to respond to suggestions by public transport advocate Professor Peter Newman that Costa had been partly to blame for poor public transport patronage in Sydney. According to Costa: “I do think that expensive projects funded by taxpayers should be scrutinised intensely. I don't believe in wasting taxpayer's money on any project, including public transport projects”:

“Unfortunately, Newman's approach to urban planning and public transport provision is ideologically based... Newman is not unique in his desire to shape the urban environment around his personal worldview. Most urban planners have an elitist disdain for market-based land use outcomes. They are particularly hostile to the lifestyle preferences of Rudd's "working families", witness their hostility to the McMansion,” he wrote.

If the antithesis of an ideologically based urban planning and public transport policy approach is to rely on evidence, what’s the evidence got to say about rail use?

Where the jobs are

The first problem with encouraging more people onto trains is simply that the train network relies mainly on a hub and spoke distribution. The hub is the CBD. And the spokes are the lines running north, south, east and west. The design works well for commuters who live in the suburbs, near a train station, and who work in the CBD.

But only around 10% of jobs throughout the Brisbane region are in the CBD. So 90% of the jobs that people need to get to are based in the suburbs.

The evidence here is helpful. According to the Federal Government’s official Regional Labour Profile for Brisbane (you can find it online here), the biggest industry by far in Brisbane (in terms of people employed) is the retail industry. That’s followed by property and business services, then health, then manufacturing, then education and so on. Even with property and business services, where there would be a high proportion of those jobs in the CBD and thus capable of being serviced by the train network, there are still an awful lot of suburban accountants, solicitors, financial planners, surveyors, town planners, architects and so on.

And according to the same report, the top 20 specific industries by employment are led by teachers, the government administration, then food retailing, business services, grocery and supermarket stores, construction, cafes and restaurants and so on.

Where the commuters are going

These are typically suburban jobs in suburban locations. They are not CBD centric. And given most of the jobs people go to every day – even those that don’t require employees to be on the road during the day – are based in the suburbs, the chances of getting them to convert from car to train or bus are slim. In truth, closer to impossible.

The traffic that congests Coronation Drive, or Kingsford Smith Drive, or the western freeway, or the Gateway, the M1 or any number of other major arterials each day is not all headed for the CBD. Much of it is channelled through the CBD to get to the other side (more than half according to various studies) because, bizarrely, our road network in the past mirrored the hub and spoke nature of the rail network.

Have a look one afternoon at the Captain Cook Bridge, inbound, at 4pm. Traffic will be typically banked back to Juliette street – some kilometres away. Are all these people the city night shift trying to get to their CBD work places at 4pm? Obviously not. They’re going home – leaving their suburban workplaces and heading for their suburban homes.

Suburban employment and social transit

The reality of life then for most people with jobs in the Brisbane region is that their jobs are overwhelmingly based in the suburbs. Most of us live in suburban locations, so that means a commute from a suburban home to a suburban (that is, non CBD) workplace.

Because housing costs are very high, many of use live in two income households. That can mean, for those with school age children, dropping them off at school and picking them up after school (there are some figures that suggest as much as 20% of peak hour traffic is due to the school run – which explains why traffic is so much better during school holidays). We also tend to shop more often, and may pick up groceries on the way home. None of that social pattern nor the spatial pattern of home and work, is terribly conducive to train or bus patronage.

TODs, infill and congestion

The South East Queensland regional plan is going to encourage more transit friendly development, in and around train stations. And while there are sure to be a sufficient number of workers with jobs based in the CBD or near city, for whom living close to a train station would be a preferable life style choice, that number is finite – and represents the minority of workers in the marketplace.

That’s also unlikely to change, unless there are plans to create vastly more office space in the CBD. (It’s hard to know, available sites may be occupied by residential towers under the same SEQ Regional Plan that encourages infill. In which case, we’ll run short of office tower sites and commerce will inevitably push into fringe and decentralised locations).

Broader infill strategies too are heavily reliant on the assumption that people want to be, or need to be, near the city centre. For most workers, that’s simply not the case. But if we do proceed with a massive infill housing strategy, on the basis that it will mean ‘more people catching public transport’ then it will also inevitably mean ‘many more people will be driving cars in the inner city.’ Why? Because even the most heroic public transport assumptions under infill would evisage no more than double the current patronage numbers (stuck resolutely at around 10-12%). Which means some 70% or 80% of people living new in infill locations will still be reliant on their cars.

They may in the future have little choice but to live near a train station. But even that won’t mean they can use the train if their jobs aren’t also near a station.

Then there’s the cost.

There is an important role for public transport in the life of this city. But along with Michael Costa, we need a few more economic hard heads to call for the evidence and do the numbers, before potentially huge sums are invested in a field of dreams proposal.

Then there’s the running cost side of things. The State Government currently provides a $500 million annual subsidy for the passenger rail network in the south east corner. According to this Courier Mail story, that works out to a subsidy of $8.25 for every trip by every passenger for every day. Each way. Yikes.

If we’re about encouraging (or forcing) more people to catch trains than use cars, you’d like to think the economics of public transport are worked out first. Otherwise, each new rail passenger is going to prove a very expensive burden for the majority of taxpayers who don’t use the rail service.

Plus a couple of other things.

It’s common for elitists who drive their cars to work to lecture others on the need to catch public transport. As Mike O’Connor nicely put it in this article:

“It's an article of faith held dear by our elected representatives that the grubby masses must get back on the buses, trains and ferries.”

But it would also help if the trains ran on time (too frequently, they don’t). Plus commuters are finding themselves using a service that on some routes resembles a Tokyo subway for overcrowding (the Robina line is dubbed the Bombay express for good reason). Recent reports suggest that commuters will be asked to stand in queues for 20 minutes in the hot sun on train platforms before boarding crowded trains. Hardly appealing. And other reports still reveal that violence on inner city train stations is a significant problem.

The future.

Public transport will work for a proportion of the community, but not all. In the future, it would be helpful to take public transport down from its pedestal and understand its limitations, the drivers of demand, the costs of operation and recapitalisation costs, for it to be a more effective transit option in the south east corner. It would also be helpful to consider the evidence of our spatial patterns of employment before looking to trains and buses as a ‘silver bullet’ modal choice which commuters are shunning, simply because - we are told - ‘we’re in love with our cars.’

Saturday, September 19, 2009

Australia “explodes”

“THE Australian population will explode to 35 million people in a generation” went the headline. Bloody hell, I’m gripped with a sense of panic before I read any further.

But there is no need to panic. The figures reported with such explosive rhetoric in the mainstream media (see here) came from some revised population forecasts released by Treasurer Wayne Swann. The numbers referred to the 3rd Intergenerational Report which will be released soon.

The prediction now is for an upward revision of future population numbers. Our present population is 22 million people (a handy population clock can be found here). The new forecast is for a population of 35 million by the year 2049 – some forty years in the future.

That’s an increase of 13 million people or 325,000 people per annum. Hardly an explosion on global terms and not even an explosion in Australian terms.

In 1969 (forty years ago) our population was 12 million people. John Gorton was Prime Minister, the Rock musical Hair opened in Sydney and Apollo 11 was keeping us all enthralled with the moon landing. We weren’t gripped then with a sense of panic that Australia’s population would almost double in the next forty years to reach 22 million. In fact, the rate of growth in the forty years to 2009 was more than 80%, compared to the 59% predicted for the next forty years (not the 65% reported in the media).

So we’re actually slowing down! Maybe the headlines could equally have read “Australia’s population growth rate slows” but I suspect that’s unlikely to grab reader attention. Nor would it have inflamed Greens leader Bob Brown who was moved by the headlines to pronounce that “"This population boom is not economic wisdom, it is a recipe for planetary exhaustion and great human tragedy.” (Story here)

Calm down Bob, it’s not a boom. We haven’t run out of food, we haven’t run out of space, and we’re arguably more prosperous and more environmentally responsible than we were in 1969 or at any time since then.

The global population is, granted, growing to dizzying numbers but that growth is taking place largely in nations and continents where the term ‘sustainable practice’ is even more unheard of than it might have been in Australia in 1969. The point here is that growth in Australia can’t by any conceivable stretch of the imagination be compared with the sort of growth occurring elsewhere in the world. To call growth of 325,000 people per annum in Australia a “boom” is almost irresponsible in that context.

It might be handy also to calm the jittery nerves of the Malthusians and provide some global benchmarks. (Malthusians subscribe to a school of thought developed by Thomas Malthus in 1798, which predicted that food supply could only grow arithmetically while population grew exponentially, meaning a population disaster was inevitable. Much to the disappointment of the Malthusians, it hasn’t - after more than 200 years - happened yet).

Australia’s current population of 22 million compares with today’s estimated populations of the following countries: nations I have tended to think of a rather ‘small’ in geographic size and population:

Madagascar 20 million

Uzbekistan 27 million

Nepal 29 million

Morocco 31 million

Canada 34 million

Ukraine 46 million

Then there are the heavier hitters:

Italy 60 million

Turkey 71 million

Vietnam 86 million

And finally the A league:

Indonesia 230 million

United States 307 million

India 1,169 million

China 1,333 million

So here we are today with fewer people than Nepal and worried that we are about to “explode” to the size of Canada today or something less than the Ukraine today after another 40 years. At our current rate of growth, it will take 150 years before we reach the current size of Turkey.

This then begs the question: how do all these other places manage? They have water, food, energy. You would struggle to call Italy or Canada third world countries but they manage with larger populations than our own. Nor do places like this conjure up images of vast urban slums, as might be the unfortunate top of mind image of India. And the United States, with today some ten times what our forecast population will be in 40 years’ time, seems to bumble along in economic terms and even enjoy the occasional bouts of prosperity (recent performance notwithstanding).

Even the ‘lone star’ State of Texas in the United States holds more people than we do – at around 24 million. And Texas is predicted to reach 46 million by the year 2040. Yet here’s the incredible thing: they still manage to feed themselves and provide water. And when it comes to shelter – one of those other essentials of life – their housing costs are a fraction of ours. The median house price in Houston (second only to New York in Fortune 500 headquarters) is – wait for it - US$150,000. (Thanks to Wendell Cox for providing this information – you can find more at

Maybe I am missing something here. Australia, population 22 million and with vast areas of land and natural resources at its disposal, and with the sort of governance systems in place that guide progress along more sustainable tracks than might be the case elsewhere, is worried that a growth rate of 325,000 per annum is some sort of explosion. Bob Brown calls it a calamity. Others will worry we will exhaust supplies of food and water.

And others still must wonder at what it possibly the most critical problem facing us with this growth, mild as it might be. We are currently some 80,000 dwellings short of what’s needed in this country. Our rate of new dwelling supply is at record lows. Our planning systems restrict the supply of land and mandate a style of new housing supply at odds with market preference and which is both difficult and expensive to supply.

Not helped by this housing shortage, we endure (practically celebrate) some of the highest housing prices in the world relative to average incomes - and prices are still rising faster than incomes, even when unemployment is rising. The situation is so chronic that we are now starting to show occasional signs of ‘slum lord’ behaviour, where shelter is at such a premium that students are being charged by the mattress and into overcrowded homes (story here). (Deputy Brisbane Mayor Graham Quirk was prompted to comment: "Brisbane is one of Australia's most liveable cities, making it totally unacceptable for students to be crammed like sardines into their homes." But surely until his own planners start to address the root causes of the housing shortage, overcrowding is inevitable and the liveability of the city at risk?)

The extra 325,000 people per annum are going to need around 150,000 new dwellings per annum – well above our current delivery rate. And that’s without catching up with the existing shortage. Ironically, we seem to have coped reasonably well in the last 40 years. But now, the regulatory systems have changed, and we appear to struggle with lower rates of growth when it comes to the supply of suitable shelter.

So while there may be no reason to panic at the ‘explosion’ of numbers we face in the future, there could well be a reason to be worried – very worried – about where, and in what standard of housing these people are going to live.

Thursday, September 3, 2009

Not dead yet!

Despite what can read like attempts to will it to death, the family unit is proving resilient.

Let’s bust a myth. You’ll have read plenty of reports that the traditional family unit is in decline, and that single person households or group households are on the rise. This, we are told, is going to mean a fundamental change to the way we provide housing and lifestyle choices.

It’s true that there have been some marginal shifts in the rise of single person households. The proportion has grown from 21% of all households in 1991 to 24% in 2001. But this is a shift at the margin, the causes of which aren’t necessarily due to wholesale disgruntlement with the family unit but also to drivers like the ageing population (which invariably produces more widows living longer).

The biological urge to pair with a partner of the opposite sex and produce children is proving more stubborn than some forecasters and ‘trend spotters’ might like to believe.

Only this week came evidence from the ABS (‘Marriages and Divorces in Australia 2008’) that the number of marriages registered in Australia last year was at a 20 year high, while the overall divorce rate was at a 20 year low.

That sits at odds with what some commentators are saying, like this from KPMG’s Bernard Salt:

“There's gay couples, divorcees, married couples who don't have kids, singles, ex-pats, de facto couples and we can't forget that we have an ageing population”

“Those groups didn't exist 30 or 40 years ago, so there's different kinds of families now who have different housing requirements. There's less need for basic three-bedroom brick veneer homes in the suburbs.”

Really? Cause and effect are open to debate here. The shift away from the suburban detached house isn’t as much driven by changing family units or consumer choice but instead driven by deterministic planning policies which are restricting the supply of new suburban land in favour of high density living.

Salt again:

“We're talking density housing," he says. "There'll be less backyard cricket and more communal facilities like parklands. It's going to mean getting used to living close to people, which is a cultural shift for Aussies who are used to their own place in suburbia.”

The same Courier Mail article which quoted Salt also featured a lesbian couple, promoted as ‘the face of the future’:

SARA Birtwhistle and Wendy Ellis are the faces of the future. No longer will a typical Australian family comprise mum, dad and two children,” went the introduction.

What, never again? I know same sex couples should no longer fear the sort of social pariah status of recent history, but I didn’t know they were soon going to be made compulsory. (The stats also say otherwise – of all couples, heterosexual couples still comprise 99.5% of couples). Quoting one of the couple in the article:

"We've lived in an apartment in the Valley and New Farm since we've been together, which is 11 years," she says. "It's a nice lifestyle with good restaurants, cultural facilities and like-minded people who inhabit the area.

"Being stuck in the middle of suburbia with families gives me the heebie-jeebies."

How awful! But the reality is that family units are not in decline anywhere near the extent predicted. This has some implications not just for housing styles, but also for ownership.

The Australia Parliamentary Library earlier this year produced an interesting summary of home ownership trends by family types. It concluded that:

One of the main demographic influences on home ownership is age. Rates of home ownership increase progressively with age, reflecting the different life cycle stages. The relationship between age and home ownership has meant that Australia’s ageing population has put upward pressure on the home ownership rate.

On the other hand it says:

Another demographic influence on home ownership is household composition. Rates of home ownership above the average for all households have been experienced by couple families while rates below the average have been experienced by one parent families and lone person households. Changes in the composition of Australian households from couple families to other family types have therefore acted to put downward pressure on the home ownership rate.

The reason for the latter is that non traditional household types are more likely to rent than own (with or without mortgage). But then it concludes:

Given the wide variety of factors that influence home ownership, their net effect has been, surprisingly, to leave Australia’s home ownership rate largely unchanged for more than 40 years.

That tends to support a largely status quo situation in terms of household composition. What is true, however, is that households are getting smaller. In 1960, the average household was 3.5 persons. It’s now around 2.7 persons. Some commentators have seized on that fact to predict (or more frequently, proclaim) that housing should get smaller, not larger. (The derision of so called suburban McMansions often raises this as its justification).

(For a detailed analysis of family and household types, this report by the Australian Institute of Family Studies is worth a read).

But standards have changed somewhat in that time also. I can’t think of any developer who would bravely build a new house of a 1960s design with only one toilet, three smallish bedrooms, and a relatively cramped kitchen and dining room. (A movie worth watching is a recent Australian flick called ‘Subdivision’ which weaves into the plot the tension between old and new style housing).

So while households are getting smaller, the trend has been to demand more space per person. And given that the majority of household types remain couples (with children, or without – the latter predominantly in the pre-child phase or empty nesters) it is just too early to predict the demise of the family home.

Households like the lesbian couple featured as ‘the face of the future’ do tend to dominant social and market commentary. But if the real bread and butter demand for housing is going to continue to come from couples planning children, or with children at home, or with children who have left home but who may want to visit, then how comfortably does that sit with the current crop of planning schemes which are directed to provide housing choice which is the inverse of housing demand?

Will there be enough families buying the proposed volume of high density living units to sustain the market? Or will these become temporary abodes, rented for a period until the family can move out to join their own ‘like minded people’ in the burbs, with children who have room for some backyard cricket and the pet dog?

It’s fine for the commentators to predict the demise of the family unit household. But it’s not dead yet – far from it. The challenge for the market is to avoid the distraction of predictions and forecasts based on changes at the margin, and to supply the housing needs of the majority, notwithstanding the constraints of planning schemes that may not align with majority consumer preference or needs.