Tuesday, November 24, 2015

2016 is Census Year. But why do we bother?

Every five years Australia holds a census of its people and housing and next year it’s our turn again. The five yearly interval was introduced back in 1961 and it has over time become the essential reference point for demographers, economists, researchers, planners, governments and industry.  The last one in 2011 cost $440 million. It’s a small price to pay for such a high quality image of the reality of Australian society. So why are so many keen to ignore it?

Evidence geeks (myself included) love Census data because it’s almost impossible to refute. Myths and theories can whirl around in a drunken dance together with ideology and blind faith, but there’s nothing like a Census to bring them crashing to the floor with a sobering thud. It’s the indisputable authority on our people, housing and habits that make us Australian. On the evening of the 9th August 2016, wherever you are in Australia, as one of 24 million Australians and some 10 million dwellings, you will be counted and your demographic, economic, social, religious, education and transport profiles (to name just a few) will be taken.

And according to the Australian Bureau of Statistics “The 2016 Census will be Australia’s first Census where more than two thirds of Australia’s population (more than 15 million people) are expected to complete the Census online in August 2016. New delivery and collection procedures will make it easier to complete the Census online.” Which is going to be way more fun than an hour of Fruit Ninja, Subway Surfer or killing time on Snapchat.

Some more Census basics from the ABS Website: 

“In 2016, the ABS will:

  • Mail 13.5 million letters to households and establishments across Australia
  • Count all of Australia’s 10 million dwellings and 24 million people
  • Employ around 39,000 temporary field staff across a variety of roles, including up to 500 people to process the data
  • Scan paper forms as they arrive using industrial scanners operating 12 hours per day, 5 days per week, over 10 weeks, scanning close to 88 million pages
  • Produce and publish over 3 trillion cells of data as a result of the information collected in the Census.”

The level of detail provided by the census findings allows almost microscopic analysis of populated areas – down to groups of around 400 people (called a Statistical Area 1, or SA1). Combined with powerful GIS data mapping, the results can be displayed in a graphical way that is both intuitive and highly informative. 

But despite the best quality of data and the most advanced tools for interpreting and communicating that data, you can almost guarantee that sections of industry, media, think tanks and various lobby groups will either turn blind eyes to the findings, or find ways to contort the findings to suit their various agendas. 

Frustratingly, urban myths will persist despite the abundance of fresh, resolute data provided by the Census. Which makes you wonder why we bother with the expense and effort of gathering hard evidence only to find ourselves confounded by public policy which owes more to perception and prejudice. 

What are some of the myths that might prevail despite evidence to the contrary? Here are some nominations but we’ll have to wait until 2017 to see for sure:

  • The myth that all the jobs growth, and all the jobs, are in the inner city. The past several Census’ have stubbornly revealed that CBD and inner city shares of metro wide jobs are stuck at around 10% to 15% of the total, depending on the city. City centre jobs are growing, but so are suburban ones – and generally at least as fast if not faster. Some will ignore the relative balance between city centre and suburban market, and by only focussing on changes in the smaller city centre market, make distorted claims that appeal to kindred booster interests. Those claims get repeated without query, and the myths get a new lease of life.
  • The myth that millennials and Gen Y overwhelmingly favour apartment living in the inner city. There has been a very significant increase in the supply of new housing in the form of inner city apartments in the inter census period and there will be even more completed by August 9, 2016. The Census will reveal how much of that stock is occupied and by what types of households, and will prove an interesting reference point in the debate about the type of housing we are building, and for whom. 
  • The myth that families have turned away from the traditional suburban home. There have been numerous reports in recent years suggesting that young families have abandoned the ‘dream’ of a detached home with a backyard for the kids. I doubt this is true and suspect the Census might reveal how untrue this is. Sure, if you’re a young single or young couple with few ties and big city careers, the downtown loft is a lifestyle solution. But once children come along, or certainly by the stage they are ready for pre-school, my suspicion is that Census data will show young families still overwhelmingly choose the detached housing form in a suburban location. This is not to suggest there won’t be an increase in families being raised in apartment style living but I can’t see the scale of social change being predicted by some commentators being borne out by the evidence.
  • The myth that the traditional family model is dying. I know it’s de rigueur to talk about the growth of single person households, gay and lesbian couples (“not that there’s anything wrong with that”) increasing divorce rates and so on, but the Census is a reality check on what can become a runaway debate.  Unless I’m terribly mistaken, the idea of mating and producing children hasn’t suddenly gone out of fashion for the overwhelming majority of Australians. Much to the frustration of some social campaigners, I suspect the Census will reveal a stubbornly conservative majority still prevails. 
  • The myth that retirees are generally all wealthy boomers with money to burn. I know it’s an appealing thought, but I suspect the income data sets for seniors and retirees will paint a sobering picture of household incomes for this cohort. Assets are another thing of course and the Census doesn’t ask about assets like the value of the family home. But still, it’s cash flow that pays the grocery and other bills and most seniors, I suspect, will be shown to be on lower incomes than we’d like to think.

Why bother with the Census? Some will ignore it and others will twist its findings into all manner of statistical contortions to prove a theory they’ve decided to believe in, no matter what. But that doesn’t detract from the fact that it’s a terrific investment in the truth of what makes us tick. Bring on August 2016!

Thursday, November 5, 2015


Some parts of the real estate market are experiencing a new feeling they haven’t known for some time: fear. Initial outbreaks, based on media reports, seem confined to overheated parts of the Sydney and Melbourne housing markets. The question is whether the fear will be contained or will it spread more widely?

It’s always hard to pick the point at which market confidence turns. Australia started the year with unrestrained exuberance. Auction clearances were at record highs and off plan sales to speculative investors seemed like an ocean of inexhaustible opportunity, particularly with rising interest from foreign (mainly Chinese) buyers. Repeated warnings about the extent of investor activity, particularly in new apartment sales, or warnings about record low affordability relative to incomes, were brushed off.  Then along came APRA’s rule changes, and banks also shifted their risk appetites down a notch or two, reducing their LVRs and raising interest rates for investment property.

Sometime in the second half of the calendar year, rising notes of caution crept into mainstream media commentary on housing. By October, the likes of Macquarie Bank, Credit Suisse and Bank of America Merrill Lynch were warning of ‘hard landings’. (See here for an example of the bearish comments). Add to this some ‘tutt tutting’ from the celebrity TV financial commentators and the mood seems to have quickly turned from unbridled optimism to caution. 

That itself is a good thing. Opportunity and risk should be weighed carefully, not approached recklessly. The question now is how much more bad news can the market expect, will the bad news be confined to certain parts of the market, and will the market have the maturity to respond rationally?

That there is still bad news to come seems inevitable. I heard last week that traditional financiers expect that 20% of investors buying off plan apartments will be unable to settle on completion, based on the revised lending criteria. If that’s true, a lot of developers will be caught and a lot of investors will be in a bind. This is likely to be confined, however, to just some parts of the capital city markets – especially the flood of new stock of one bedroom apartments, not designed for living in but for investor price points. I can’t see projects aimed at owner occupiers suffering settlement risk: intending occupiers tend to be more discerning, and have more equity. Many investors are however highly geared and have less emotional attachment to their investment as it was never intended to be their home.

Then there are markets which were supported by exceptional but temporary economic conditions. The mining town real estate booms were never sustainable and there are plenty of investors ruing that lesson already. But even large cities like Perth, where the sagging resources economy is reverberating through employment markets just as more stock arrives, are already feeling the pinch. Even the ever ebullient Real Estate Institute has adopted a more somber tone.

Parts of Melbourne, Brisbane and Sydney do appear at risk of oversupply of a particular type of housing product (particularly very small one or two bedroom apartments). Commentators and analysts will learn that all housing units in commencement or approval data are not alike: some will find a market, others will not. If, as seems likely, there is a surplus of small apartments in concentrated locations, prices and rents must inevitably fall. Some people are going to lose money, and our media loves nothing more than hard luck stories. Expect a lot of these from the nightly ‘current affairs’ shows and tabloid press.

More stable parts of the housing market in these cities – in my view new housing and land, well located medium density projects, quality owner occupied apartment projects and the established housing market generally – ought to be treated separately, because they are working on entirely different dynamics. But will they be?

I know of two banks who are actively gaming this scenario already. They’re asking whether a fall in confidence, led by what’s looking like happening in the investment apartment sector, will spread to other parts of the markets, both by type and location? For example, if inner city apartments in Melbourne become the focus of negative market comment, will that rattle markets in established parts of Brisbane? And will it spread to other types of property?

The answer is that no one really knows - and won't until after it happens. Confidence is a fragile thing. It can go from reckless to reclusive in a very short space of time. Fanned by a tabloid appetite for click bait (bad news gets more clicks on line) and a widespread disregard for accurate or detailed reporting, it’s unlikely that there will be much rational analysis or reporting of real estate or housing markets in the coming year.

Having said that, we should be used to it. There hasn’t been much rational reporting for a long time. Real estate markets have been lumped together as if they’re a homogeneous product, and price movements have been reported on a weekly basis to feed a ravenous media and public appetite for poor quality information. That commentary will likely turn from positive to negative but its quality will remain the same: underwhelming.

On the positive side, most of us know that markets move in cycles and they’re rarely as bad as the media might make out, nor are they as risk free as painted to be in good times. Stability never rates much comment but the reality is that the majority of Australians who have owned or are paying off their home will continue to do through the cycles, both up and down. And if you do need to trade, you tend to buy and sell on the same market. If you are buying for the first time, things might improve.

However the potential of contagion plays out, seasoned players will endure it with cool heads and a rational strategy. Amateurs had neither going into this market and are unlikely to have either of those qualities if they need to head for the exits. 

Sunday, November 1, 2015

Public transport’s biggest problem… the public (that’s us).

When’s the last time you heard some futurist or management guru suggest that in the future more of us will be working at the same desk doing routine tasks on a predictable working week schedule? No? That’s just one of many problems that advocates of limitless spending on public transport need to keep in mind in dealing with the issue of urban congestion.

Increasing urban congestion is said to cost the economy dearly and if Infrastructure Australia is to be believed, it will cost even more in the future unless something is done now. They warn the current estimate of a $13.7 billion annual cost will balloon to $53 billion by 2031.

Congestion is without dispute a handbrake on economic productivity but the range of solutions for reducing congestion range from the outright zany (see Elizabeth Farrelly’s suggestions for Prime Minister Turnbull as one example) to milder versions of zany. They all tend to be very expensive and many impose unacceptable compromises on our basic freedoms (such as proposals to ban cars from cities).

Increased investment in public transport is a feature of many proposed solutions for alleviating congestion. It is true that we have under-invested in public transport systems in past decades and it’s equally true that we’ve under-invested in private transport. Basically, we’ve cheered a rising population while passing the buck for funding and delivering the infrastructure needed to support that growth to future generations. Rising congestion levels are making it feel like crunch time now.

But there are valid questions about the capacity of public transport to alleviate congestion which are rarely getting asked. Rather than a magical silver bullet, there are a few things to keep in mind before you climb aboard the merry bandwagon of limitless investment in public transport…

The nature of work is changing. Public transport systems work best on a hub and spoke model of employment and commuting, built on predictable schedules designed around predictable commuter needs. Central business districts of very high employment concentrations, where people work in the same workplace from day to day and for the same hours each day, are ideal candidates for public transport.  But increasingly this is looking like a 20th century model of work. Technology has been the primary driver of change, allowing more workplace flexibility and providing for increased location diversity. ‘Standard hours’ of work are being diluted and at the same time companies increasingly realise the high costs of ‘paper factories’ for administrative staff in costly CBD locations makes little sense. With this, the centralised nature of work is also being diluted and this is working against the centralised economic model that makes fixed public transport systems (especially rail) effective.

Society is changing. There was a time when commuting trips to work in central locations were mainly a case of getting there and getting home.  Much has changed. A rising proportion of women in the workforce and how this has changed family responsibilities means that commutes to and from work are also often tied in with other objectives: dropping off or picking up school kids or children in child care is only a part of this (but one which is said to contribute to 20% of private vehicle traffic on the roads in peak periods during school terms).  Add in to this the increasing propensity to shop less but more frequently (who owns a chest freezer anymore?) and to mix in pre and post work social or recreational appointments, and you have a very different pattern of commuting which public transport will struggle to service.

The suburban economy. A telling reality for proponents of increased public transport investment is that employment remains – and in some cases is increasingly – suburban by nature. Between 8 and 9 out of 10 of all jobs in metropolitan regions are suburban by location, and when you consider that the same proportion of residents in any metropolitan location are also suburban by residence, the problem of servicing this reality through public transport is apparent. In the last inter censal period, the proportion of metropolitan wide jobs located in the CBD actually fell in Brisbane (to 12.5%), while in Melbourne it remain unchanged (at 10%) and Sydney recorded a small rise (to 13.5%). The raw numbers of jobs in suburban locations are growing faster, as a rule, than those in CBDs.  The cost of creating a public transport system designed around suburban home to suburban workplace commutes is beyond calculation. In Australia, we will be in flying cars like the Jetsons long before this happens.

The new and emerging economy. The way cities were designed – with concentrations of white collar workers in CBDs and with discrete areas set aside for industrial, retail or other specified activities – is no longer as important for new or emerging economies. Technology in particular means that physical place is less essential for connectivity to markets. Communication is less dependent on physical proximity. This doesn't mean CBDs will lose their higher order function but it does mean that disruptive or emerging businesses, for which new technologies are more than just a novelty but a foundation, will have less need for the types of places offered by centralised business districts. They can locate in lower cost areas of the metropolitan area, and make use of the central business districts on occasion, rather than routine. Attracting and retaining these emerging types of businesses will also put the onus on suburban business centres to lift their game, but in many cases this isn’t difficult. Just think of any number of start ups or tech based companies you’ve read of recently and think about how many of these have been in non-traditional locations. Even when these businesses mature, their lack of interest in a CBD style presence doesn’t seem to change. Witness the many technologically innovative businesses in the USA or Europe, by way of example.

Where does this leave us with solutions for congestion? Ironically, increasing public transport investment designed to ferry people into and out of central business areas is unlikely to make much difference to metropolitan wide congestion. It can’t – simply because only a minority of jobs (between 10% and 15% in the case of Australia’s major cities) are in these locations. People with jobs in these locations may currently have relatively high rates of public transport usage already (often 40% plus) but imagine the cost of increasing this to 80%? The cost of getting there is incalculable for cities of our size, and in any way, it would only benefit 10% to 15% of the urban workforce. Ironically, the people most likely to benefit from this type of public transport prescription tend be much higher wage earners, living close to the inner city in highly valued real estate. (Have a look at this analysis from The Pulse a couple of years ago). Yet their higher capacity to pay is not reflected in most policy debate.

The reality is that public transport can only go so far in alleviating congestion. Social and economic change to the nature of work is changing the shape of employment decisions and has forever changed the nature of the commute. Public policy officials, urbanists and politicians who pretend that all that’s needed to ‘solve congestion’ is massively increased investment in heavy rail, light rail or dedicated busway networks are deluded: this thinking is rooted in nostalgic notions of work, unrelated to the future of work.

And as if to demonstrate the fact we should not expect better from our various governments, when a technological innovation comes along that promises to realize the long held dream of ride sharing and increased persons per vehicle - which if widely embraced would go a long way to solving congestion at no cost to taxpayers -  governments stand in the way. It’s called Uber. Go figure.