Supermarkets, shopping centres and the weaponisation of planning

 

The current Federal inquiry into anti-competitive practices of our large supermarket chains in Australia could do well to ask how planning schemes have been mercilessly weaponised to minimise competition. The allegations are not new. Remember Kaufland? Back in 2018 it was talking up its impact on the Australian grocery sector, which was (and remains) essentially a duopoly. Plenty of opportunity to challenge market power and establish a third major presence in the grocery sector. Or so they thought.

There were no doubt a number of factors that led Kaufland to sensationally pull out of Australia in 2020, but finding suitable sites was certainly one of them.

According to this analysis by KHQ Lawyers: “Finding appropriate sites has been a challenge for Kaufland.  Although Kaufland has secured a variety of development locations, the fact that it announced its first store would be in South Australia (no offence, Prospect) indicates it was not an easy task.  The eastern states, with higher populations and greater spending power would likely have been preferable.

With a store footprint anywhere from 4000m² (i.e. larger than a standard Woolworths) to 20,000m², the number of appropriate sites is probably limited – and will generally be in the outskirts of town and often separate from existing retail developments rather than in areas with a more concentrated population and accordingly greater customer catchment. Australia’s highly restrictive planning laws and lack of development opportunities due to sub-optimal land use zoning (I’m looking at you, NSW) would have impacted any projected growth of the Kaufland network.  Accordingly, the benefits of economies of scale will take longer to achieve.”

There was also the problem that major suppliers to Woolworths and Coles felt intimidated that by supplying Kaufland, their existing contracts to Woolies and Coles would be jeopardised. The issue was investigated by the ACCC but nothing came of it. Kaufland left Australia, scalded by the encounter with our anti-competitive competition for the consumer dollar. The duopoly survived, and arguably grew stronger. The two now account for two out of three of all dollars spent in the sector.

The issue stretches back deep into planning law and the notion of a “retail hierarchy.” What this means, in simple terms, is that the established pattern of retail stores – from city centre, to regional, district, neighbourhood etc – should be maintained, and that “allowing” planning permission for rival centres to be developed within the same arbitrarily defined catchment should be refused. To protect competition, we need to prevent competition.

This double-speak is now daily bread and butter for an entire industry of highly paid lawyers, planners, economists and others – including someone called “Brad” - who will argue that black is white if it suits their cause.

A senior Westfield executive once said to me: “Ross, we would object to a competitor moving a plant pot if we thought it was in our interests to do so.” That was back in the late 1990s, during some heated debates about shopping centre trading hours. The arguments were put in favour of deregulation but in the end we did not end up with more competition.

Fast forward to today and the same allegations are resurfacing.

“There is a long-time pattern and behaviour, which is anti-competitive, which seeks to close out markets and remove competitors from the markets, and we’ve seen that happen over a long period of time,” said Grant Ramage, Australian head of IGA, giving evidence to the federal inquiry.

“Their sheer scale gives them the financial capability to do that. It gives them greater sway with developers, landlords and other parties, like state governments,” he said.

He was arguing that the duopoly were buying up new sites - not with a view to developing them, but to prevent competitors from buying the sites, or even prevent them buying another site within that arbitrarily defined future trade area. Hard to prove, and people like “Brad” will swear under oath it isn’t true. But the suspicion lingers.

Locally, our IGA Milton store was a recent victim of these aggressive tactics. A very well supported store, with local owners (who owned and ran a total of three IGAs including this one) and friendly staff, it was open 365 days a year. But some years ago, then centre owners Vicinity sold the small shopping centre to Coles Property. Not so that Coles could own an IGA of course. Coles just waited for the IGA lease to run up for renewal, refused to renew, and so the IGA was forced to close. Coles are now in the process of building a larger store, presumably with computers rather than checkout staff and certainly with no local owners anywhere to be seen. And if someone wanted to open a new independent grocery store nearby, you can bet that Coles will take them to court if they have to, arguing that to protect competition, we need to prevent competition, giving due respect to prevailing planning law and practice – and the retail hierarchy.

Good luck to the Federal inquiry but I fear it will go nowhere. There’s a conga line of self-interests masquerading as the consumers’ champions who will ensure it doesn’t.

The density dividend: smaller, worse, slower, less?

 

In 2005, a UK policy group “The Policy Exchange” published “Bigger, Better, Faster, More: Why Some Countries Plan Better than Others”  It surveyed four countries with similar demand side pressures to the UK, to explore what was being done well, and what wasn’t. Australia was one of them.

“Britain’s centralised system of planning restricts the supply of housing. As a result, Britain has some of the oldest, pokiest and most expensive homes in the world,” it said.

For Australia they concluded that it was “Death of a Dream: Planners versus the Traditional Australian Home”:

“The Australian desire to create a home away from ‘home’ (their European roots) has led to a strong cultural preference for spacious houses with big gardens – ‘the Great Australian Dream’. Various Australian (state) governments have threatened this dream by reducing the quantity of land released for housing and by levying homebuyers to provide infrastructure. Both policies have had a strong upward impact on Australian house prices…  land-use planning has actually created a shortage of land – in a country with a population density of only 2 persons per square kilometre.”

They  added: “In Ireland and Australia, with planning systems derived from the UK’s, restrictions on the supply of land, densification policies and central planning fail to provide the kind of homes people want, and lead to high real house price inflation.”

They were right. Our regulatory approach hasn’t changed but we have added to demand pressures via record immigration (the main driver of population growth). Now, as if taken by surprise, we find ourselves in a “housing crisis.”

Rather than “bigger, better, faster, more” we seem to be doing smaller, inferior housing which is taking longer to deliver plus we are delivering much less of it. Why?

Urban policies which preference density over sprawl are partly responsible – and before you start poking pins into your Rossco voodoo doll, hear me out. There are many compelling reasons to pursue higher density: a more efficient use of space and proximity to necessary infrastructure among them. My interest in suburban renewal precincts recognises that many of these potential renewal precincts historically carried more employment density than they do today: hundreds or thousands of workers used to work under saw tooth shed roofs which today store boxes or caravans and are overseen by two kiwis with a forklift. Returning employment density to these precincts, supported by housing density and social infrastructure, means more jobs and amenity closer to where people live, amongst other things.

However, density is difficult and not very popular. It is also more expensive to develop and takes longer for even simple development propositions to be approved.  

The lowest hanging density fruit is what is now euphemistically called “gentle density.” But try introduce this in the form of relatively benign townhouses into low density streets full of detached housing and you have a residents war on your hands. Write them off as NIMBYs if you like but they all vote and they are entitled to protect their single biggest asset – their home. If they are not convinced that broader town planning aspirations mean knocking down detached houses in their neighbourhood for the common good, they will let their elected representatives know of it. And they do, loudly.

Consider also that finding suitable sites for even medium density housing projects is not easy. Sites with the least risk of confronting community and local council opposition are either spoken for or - if available - demand a high price premium. Developers will tell you that finding sites at prices which work is a massive challenge.

Then you need your project approved. One site in inner Brisbane has just received development approval – a full decade after it was first lodged.

Neither is density affordable. A two-bedroom apartment struggles to be built (not including land) for less than $800,000 these days. A three-bedroom house can still be built for under $350,000 not including land. The greater the density of housing type the higher the cost per square metre to build.

It’s worse for social infrastructure:  a typical low-density school on a 7-hectare site in a new estate will cost around $15m to $20m to build.  Try to even find a 3ha site for an infill school where you won’t confront a phalanx of objections over traffic, noise etc. Then you have the build cost of a vertical school which will be closer to $150m for the same number of students. Ten times more expensive. And in all likelihood, many years before you get through all the planning applications, assessments, appeals, courts etc.

But surely there are infrastructure savings under the density model? That’s debatable. The cost of installing below ground water, sewer, power and telco infrastructure in a new housing estates is considerably cheaper than the cost of retrofitting older infrastructure in existing areas which may not have been designed to handle the increased demands of higher density models. Plus, you can even find that infrastructure providers in the form of utility companies may object to infill proposals which increase density if that means it risks over taxing the capacity of their aging network infrastructure. They become objectors to the very models of urban growth endorsed by their government owners.

Infrastructure such as public transport is more efficient under higher density models. But getting to the point where density becomes efficient for public transport includes many years of pain when it isn’t. Savings on one side of the density equation are often over-hyped, while the costs on the downside are frequently glossed over.

We need to accept the reality that higher density development, especially when being introduced into existing metropolitan areas, is more costly, more difficult and takes longer, whether that is housing, schools, hospitals or network infrastructure of some type. Given this, it should come as no surprise that our supply responses are slowing down. Stuff is taking much longer.

But density is our preferred urban development policy approach, and there are compelling reasons for it. Logically it should follow that, if we are to pursue higher density as the preferred metropolitan development model, we would also do so in a lower growth environment, in recognition of the delivery challenges.

Instead, we are promoting density as a solution to very high rates of growth. This is a bit like putting a tractor on the start grid of the F1. You don’t stand a chance.

If the objective is to address the “housing crisis” and other shortages, then doing things “bigger, better, faster, more” is how we need to be doing it. 

Instead, we are persisting with a policy and regulatory framework which has proven itself mostly capable of the opposite.

Something has to give. We either change the assumptions of underlying planning orthodoxy, or we moderate growth – slowing it down to the same careful snail’s pace that current urban planning regimes support. 

We can’t have both and expect anything to change.

Rapid population growth - and its consequences

 

“Rapid population growth – at rates above 2 percent, common in most developing countries today – acts as a brake on development. Up to a point, population growth can be accommodated… but the goal of development extends beyond accommodation of an even larger population; it is to improve people’s lives. Rapid population growth in developing countries has resulted in less progress than might have been – lost opportunities for raising living standards, particularly among the large numbers of the world’s poor.”

That’s an extract from a 1984 World Bank report “ The Consequences of Rapid Population Growth.” It defines “rapid” as growth above 2 percent and its focus was on developing countries. Advanced economies were not trying to grow populations at the same speed as those of the third world. Except for us. South East Queensland – promoted by growth boosters as a “hotspot” – is growing at 2.2%.  Sydney and Melbourne, while larger and growing numerically by more, are growing by around 1.5% per annum for comparison.

Unrestrained growth has many supporters in the big end of town. But the consequences of rapid growth – fuelled mainly by record immigration under Federal Government policies – are being felt acutely by many more others.

Source: Australia hits peak immigration: Macrobusiness, Jan 2024.

 The most obvious evidence of these adverse consequences is the current housing shortage. We simply are not building enough homes, fast enough, to accommodate these levels of rapid growth “hot spots.” Worse, new housing approvals are falling to record lows at a time of record demand growth. Rapid rises in interest rates, construction industry supply chain issues, trade shortages, regulatory burdens …. choose your explanation from a wide variety of options. They all mean the same thing: more demand than there is supply. Oddly, the “housing crisis” has been pigeon holed as a supply problem only. Few talk about the law of “demand and supply.” It seems it’s now just the law of supply.

The focus on housing shortages and people without homes is one thing. It is also leading to excessive costs for those with roofs of their own – whether rented or being purchased. Rents are surging and vacancies falling, causing significant cost of living pressures for the third of our society who rent, while those with recent mortgages are similarly stretched. As a result, consumers are cutting back on spending across a range of discretionary items. So where demand growth exceeds supply, costs increase – leading to consumer cut backs. There’s an adverse rapid growth consequence few talk about.

Other rapid growth consequences are far less discriminatory. In January, large parts of South East Queensland suffered power outages during a period of intense heat. The heat was nothing out of the ordinary for a Brisbane summer, and it wasn’t (we are assured) the energy grid that failed due to generation shortages, but local infrastructure which couldn’t cope with demand (air conditioners, mainly). Policies of accommodating an increased population via increased population density have been around for a long time. But policies to upgrade local infrastructure to support those local density increases haven’t. The “density is destiny” mantra - parroted for more than 30 years - has almost entirely been around population and housing: little has been said about the wider infrastructure consequences of putting more people in the same space. As the World Bank noted 40 years ago, the objective of growth should be to improve people’s lives, not worsen them.

Hospital shortages are another obvious sign of rapid growth consequences with ambulance ramping times increasing as the hospital system is stretched by rapid increases in demand. Hospitals are expensive things to build or to expand, and they take a lot of time to build. Keeping pace with rapid population growth is a Sisyphean challenge.

Schools will also soon be a telling pressure point. I reflected on a possible looming schools shortage nearly two years ago. On latest population projections for South East Queensland, there could be another 500,000 school age kids looking for classrooms. We either move to much bigger class sizes or build new schools. Independent Schools Queensland (non-government and non-Catholic) estimates the need for a new P-12 school of 1000 students each year for the foreseeable future, just within their network. Finding sites within urban growth boundaries won’t be easy. Vertical will probably be the answer but that’s a lot more expensive than traditional lower density designs.

Congestion is another obvious adverse consequence of rapid growth. Mostly we are using the same roads and transport networks that supported a population of half our current size. We are now looking at doubling that population again within another 20 years, all getting around on (largely) the same network. Local Governments do what they can, but with only 3.6% of taxation revenue (the Federal Government, responsible for population via immigration, collects 82% of tax revenue) their ability to fund and manage transport infrastructure needed for a rapidly growing population is severely constrained.

Water shortages will also emerge: more people require more water to drink, wash clothes, fill pools, and so on. The same water infrastructure that comfortably supported a population half our size is simply not going to be able to support a population double our size.

Two ironies emerge from all this. First, those voices most loudly in support of continued rapid population growth are also those least likely to bear responsibility for the consequences. Think apartment developer Harry Triguboff: high growth helps demand for more apartments but he isn’t around for discussions on hospital or school shortages, rising congestion, over stretched energy infrastructure or water shortages. It’s also true that people with financial security (high income earners) are best placed to insulate themselves from the adverse consequences of rapid growth: they simply pay more, where demand exceeds supply. Whether that is private health, private education, well located real estate … money talks and buys your way out of problems if you have enough of it.

The other irony is that the density mantra was originally intended to make use of under-utilised urban infrastructure, most typically in inner urban areas which were at risk of “hollowing out” (as happened widely in the US). With falling inner urban school enrolments, for example, it made sense to increase the local density to make better use of existing infrastructure than build entirely new infrastructure on urban outskirts. But that’s no longer true. A new vertical school in an established urban area targeted for more density is vastly more expensive than a “traditional” build; retrofitting below ground infrastructure (sewer and water) in existing locations is more costly than in new areas; apartments are more expensive to build than detached houses; building tunnels (whether for public or private transport) below existing areas is a great deal more expensive than surface networks in new areas… and on it goes.

In adopting the density model to accommodate rapid increases in population, we have now not only committed to a more expensive urban form, but one that also takes longer to deliver.

Hardly the formula for enhancing standards of living in a rapid growth scenario? Surely we either moderate our rates of growth, or we adopt new models? Or, as the Planning Institute has sensibly suggested, we adopt a national settlement policy that ties the Federal Government – whose immigration policies are driving record growth – to the local consequences of that rapid growth.