Retirement affordability: a bigger problem than housing affordability?

Housing affordability is such a hot topic now that evidently a number of Federal backbenchers – along with Pauline Hanson - are urging that young homebuyers be able to access their superannuation to enter the housing market. This is not good policy and reeks of short term reactive opportunism. Hopefully the government will resist the idea - for the very good reason that an even bigger problem could be looming: affording retirement. The facts are sobering.

The retirement and superannuation industry likes to promote the idea of post-work lives that feature images of couples with groomed waves of silver hair, perfect teeth, dressed in pastel coloured knit wear and walking their Labrador along a deserted beach. It’s a nice image but so far removed from the reality for the majority of Australians that it’s bordering on deceitful. 

According to a 2013 OECD report, Australian’s aged over 65 were second only to Korea as having the worst seniors poverty in the world, based on the percentage of seniors with incomes below 50% of the median income. Australia came in at just over 35% of seniors with incomes below half the median – almost three times the average of 34 nations surveyed.

One in four retirees in Australia receives the full pension or close to it. A further quarter received a part pension. Two thirds of Australians aged over 65 earn less than $400 a week from all sources. Roughly one in four people aged over 65 are still paying off a mortgage or are renting. Superannuation is yet to deliver the retirement incomes promised.  The proportion of Australians aged over 65 with no superannuation at all if roughly 65%. The average superannuation balance for someone aged 70-74 is just $102,000. The median superannuation balance on retirement in 2016 was $100,000 for men and $28,000 for women. Estimates of what’s needed in superannuation at retirement vary but usually start at $500,000 and rise to $1 million. So we’re falling a long way short.

This picture may begin to improve if super contributions rise in the future, and as more people reach retirement with a lifetime of contributions behind them. But even then, the ability to look to superannuation as a retirement self-funding option for the majority of Australians is slim indeed. What’s going to make things worse is our success at living longer. If you’re a 65 year old woman alive today, the chances are you will live to nearly 90. An estimated 10% of you will reach 100. For men born in the mid-1970s, life expectancy was around 69. Meaning if you retired at 60, you needed to fund an average nine years of retirement. But for millennials, their life expectancy will be in the 80s. Meaning they will somehow need to fund 20 years of retirement if pulling stumps at 60, or 15 years if retiring at 65. For the high proportion that will live into their nineties or longer, it may not be anything to celebrate unless you're loaded. So while the next generation might have acquired superannuation over a longer period, it’s going to need to last a lot longer too.

This is going to become a much bigger problem in the near future, as the ‘boomer’ bubble ages. Australians aged 65 and over are now the fastest growing age group. They will represent a staggering one in every five Australians by 2033 – that’s just 15 years or so away. The current crop of 65 plus Australians number around 3.5 million. That will increase by nearly 3 million – effectively nearly doubling – in the next 20 years.

So not only are we living longer, but there will be millions more of us doing so. Which means spending longer in retirement and either drawing a pension from a depleting (relatively smaller) tax base or relying on superannuation. The latter looks improbable and the former is probably unaffordable.

And so into this worrying picture we have the wooly thinkers enter the debate about housing affordability by suggesting a national raid on limited superannuation balances in order to further stoke the buying capacity of an insatiable property appetite (focussed mostly on just two cities) while doing nothing about the cost side of the housing equation (which policy makers have studiously ignored for the best part of 20 years). It’s a recipe for disaster in the short term by effectively further fueling housing demand without addressing the fundamental supply side problems, and in the longer term by depleting future retirement savings, the demands on which will only increase as we continue to live longer.

You wonder where we get them from. 

Cross your fingers on Cross River Rail

Earlier this year I wrote a story about the costs of Brisbane’s cross river rail, relative to the number of people who might actually use it. A number of readers – some of whom are in positions to know – corrected me. I was off by several billion dollars on the costs. The true costs of this project are much more than I had realised.

The Cross River Rail is a proposed 10.2 kilometre new rail crossing under the Brisbane River. It will include five new stations and is, we are told, essential to avoid passenger and freight rail networks choking. The proposal first emerged under the Bligh Government. Back then we were told the choke point would come at 2016. It was amended under the Newman Government to include a bus tunnel. And then amended again under the Palaszczuk Government, without the bus tunnel. The choke point didn’t arrive so the rail transit Armageddon date is being pushed back.

We are told the project will cost $5.4 billion, which is what I based my numbers in the last article on. Wrong. This does not include the cost of the five new stations. Nor the rolling stock, marshalling yards and other bits and pieces. Some of these stations are 60 metres below ground. They won’t be cheap. In reality, the actual cost of the cross river rail project will be closer to $10 billion – and that’s before the inevitable cost blow outs.

To allay fears that this very expensive project might in some way be out of proportion to current use, we have now been promised that “SEQ rail commuters will double in 10 years: Government figures.”  This story contained parts of the business plan not released publicly but selectively shared with that media outlet. But a doubling of passengers in 10 years? Seriously? Is there anywhere in the known universe where public transit under similar circumstances has doubled in the space of 10 years?

This is little more than a prayer, not an evidence based projection. To find it repeated in the media without challenge is a sign of our times I guess.  If the project feasibility is relying on this sort of faith based expectation, particularly given rail transit has been falling both in terms of its share of travel and the actual number of people using it, then some meaningful justification ought to come with it.  

Recent experience with traffic projections should mean that heroic promises of this nature are immediately viewed with extreme caution. Look no further than the predicted vehicle traffic through tolled tunnels and bridges, detailed in this story. The heroic inaccuracies of the Clem 7 tunnel predictions sent investors broke on that one. And the Airport link tunnel opened with 56,000 vehicles against a predicted 194,000. It was still in 2016 sitting at 57,000 against a predicted 221,000. That’s some margin for error.

Maybe we shouldn’t start with much in the way of expectations. Queensland Rail happily cut the ribbon on the $1.2 billion Moreton Bay rail line but forgot to have enough drivers to drive the trains. You’d like to know how many people are using this new service but that information is not publicly available. Are we not to be trusted? I am told though that the actual number of users, relative to the cost, is horrifyingly small.

It also emerges Queensland Rail have ordered $4.4 billion worth of New Generation Rolling (NGR) rolling stock but oops… the new rolling stock won’t work with existing platforms. Which means each of every 143 platforms that form part of the city train network will have to be upgraded before the new rolling stock can be used. And what will this cost? Dunno.

So let’s do a quick tally. New rail link to Redcliffe $1.2 billion but a fiasco in the opening months. New $4.4 billion of rolling stock but woops, we now need to upgrade all the platforms. Proposed $5.4 billion cross river rail – “essential to avoid system collapse” we are told (as if it hasn’t collapsed already thanks to mismanagement) – is actually closer to double that price. But trust us, we know what we’re doing.  Hardly confidence inspiring and outright worrying given that tally of projects comes to $15.6 billion.

Project proponents will claim the cost of the cross river rail will be less because they will recover the cost of the stations through ‘value capture’ – which means a benefitted area levy that taxes property owners in the vicinity of the stations. These owners will be so happy with a new station that this won’t be a problem. There are also proposed hikes to motor vehicle registration fees, a car park levy (because parking’s so affordable already isn’t it) and for good measure a public transport infrastructure levy that property owners will also pay, irrespective of whether they are near a station or not. But these are all just extra tax measures, designed to make the $10 billion project sound a lot more digestible. Like suggesting that train users will double in 10 years, it’s very hard to believe.

There are some big corporate names earning massive fees to support this fantasy. How much would you think we taxpayers have spent so far on various consultants and seconded staff, reports, office space etc – all in the name of Cross River Rail? That figure, I’ve been reliably informed, is conservatively around $100 million. No wonder there are some people so keen to see the project proceed – this could be a cross river gravy train carrying consultant gold by the carriage load.

So back to our $15.6 billion in commuter rail investment – recent and proposed. Who benefits, other than the consultants? Based on the last Census and supported by QR figures, there are around 65,000 people using the trains. (That’s people – not trips. It’s a trick to multiple the number of people times the number of trips they make each day then multiple that by a weekly number and that number in turn by 52 to get an “annual trips” number. Once again, exaggerate use and underestimate costs seems to be the preferred model). Train travellers – again based on QR figures – are overwhelmingly inner city workers. The current six inner city stations account for 84% of all boardings and alightings.  The inner city workforce of around 160,000 to 180,000 people (depending on how you want to define inner city) represents only one in ten of south east region workers.

Simple back of envelope sums reveal we have spent and plan to spend something like almost a quarter of a million dollars per user. In reality, that cost should be spread across the increase in travellers we will achieve as a result of this investment. A 50% increase – itself almost fanciful – would mean the cost of each additional user is half a million dollars.

Yes, this isn’t very scientific and no, it isn’t very fair. There are network wide implications. Benefits to road users (which it seems they will pay for via increased registration fees anyway), freight (although I am told that freight – which is where heavy rail can be so effective moving bulk goods long distances – could actually be worse for some users under the CRR proposal), and the economy generally.

We absolutely need to reinvest in infrastructure to keep our cities and regions functioning. Efficient transport infrastructure is central to that. But with so many competing needs and money so scarce (or so we’re told) the business case for each needs to be robust, economically justifiable and transparent. The money for Cross River Rail needs to compete with plenty of other projects, and their merits weighed equally in terms of greatest public benefit.

There are some legitimate questions the public might feel entitled to ask:

- What is the true full cost of the Cross River Rail, including stations, rolling stock, marshalling yards etc?

- What key assumptions have been made about how many additional rail users will be serviced as a result, and how many vehicles will come off the road network as a result?  

- What is the cost of not proceeding with the project as envisaged? How were these assumptions arrived at?

- Were alternative infrastructure proposals considered? (This 2012 report for the SEQ Council of Mayors “proposes a new vision for SEQ Public Transport that puts the commuter at the heart of the system.” It suggested that rather than a Cross River Rail, there were better alternatives to create a more efficient regional public transport system).

- How much is planned to be raised from motorists via registration fee increases to fund the project? How much is planned from parking levies? How much is planned for by way of property taxes and who will be asked to pay these property taxes?

As taxpayers, you would think we’re entitled to a bit more transparency when it comes to spending some $15 plus billion dollars on an outfit that forgets about train drivers or matching rolling stock to stations. It reminds me of that famous episode of “Yes Minister” when Jim Hacker opens an empty hospital.

Sir Ian Whitchurch (hospital chief): "First of all, you have to sort out the smooth running of the hospital. Having patients around would be no help at all."

Sir Humphrey: "They’d just be in the way."