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?