The Pulse

Some New Year Resolutions

2011-12-14T20:43:00.000-08:00

In no particular order, here’s a bunch of ideas forresolutions for 2012. Some are a bit tongue in cheek, some are impossible, butmaybe one or two just might be worth trying?

We live in ademocracy. Consumer preference should lead public policy, not the other way around.

Market forces and consumer preferences are now not justlargely ignored, but too frequently the subject of public policy disdain. Where consumer preferences don’t align withsome ideologically driven position, they become the subject of attempts to ‘re-educate’the public. Stalin would be proud of howfar we’ve come. Instead, in 2012, let’s have some public policy settings thatactually ask the question: “what do the majority of people actually want?” You can’t - and shouldn’t in a free anddemocratic society at least – impose unwanted ‘solutions’ onto an unwillingpublic just because someone in a position of power has deemed it’s good forthem.

The suburbs are fine,thank you.

If you live in a suburb of one of our cities you could beforgiven for thinking you’re the root of all problems from traffic congestionto obesity to rising seas and falling skies. Anti-suburban intellectual snobbery isn’t anything new but lately perhapsit’s been getting a bit too much air time? So in 2012, let’s hear a bit lessfrom the anti-suburban elites, and perhaps celebrate the fact that our suburbshave proven remarkably successful as places to live, work and play. There’s alot that’s right about them, they’re popular with the community, and most ofour suburbs were delivered before highly deterministic planning schemes were thoughtof. (How could that be?)

We can handlethe truth!

Gathering impartial evidence and examining the facts are increasinglyout of favour in public policy, at least it seems that way. It’s become quite trendy to recite slogansand ‘truisms’ without asking for the evidence of whether they’re true and canbe readily substantiated, or whether they’re just some new form of urbanmyth. Maybe myth-busting and healthy scepticismshould be taught in schools and universities, as opposed to the slavishadoption of public policy fashion. So how about in 2012, evidence and impartialfactual analysis makes a comeback?

A bit less dogma?

‘Four legs good, two legs baaad.’ So bayed the sheep atNapoleon the pig’s insistence in George Orwell’s ‘Animal Farm.’ Dogma is nota good thing. But much of what passes for public policy is often little morethan dogma, designed to push, cajole or direct people toward some outcome thatthey’re otherwise not fond of. The private car, for example, is not a bad thing,but we are frequently told it is (or at least that’s implied). The detachedhome is not a bad thing either. The backyard, likewise, is something we can‘afford’ to have. The truth about dogma of course is that’s often a willing bedpartner of hypocrisy. ‘All animals are equal, but some are more equal thanothers’ was where dogma led to in AnimalFarm. In public policy, it means ‘do as I say, not as I do.’ And there areplenty of examples of that. Maybe in 2012, we could have much less of that?

Let’s give the word “appropriate”a rest.

A pet hate of mine is the way the word “appropriate” (ormore often “inappropriate”) is used in justifying public policy assertions.Just what do people mean, for example, when they say ‘this form of housing isno longer appropriate’? Appropriate? Youmean it’s something you disagree with on a personal or philosophical level, andyou want to impose your thinking onto others by suggesting there’s somethingfundamentally wrong with it? If that’s what’s come to be meant by the word inthe public policy context, let’s give it a rest in 2012. If you just don’t likesomething, just say so and express that as your opinion, but don’t load it witha value judgement by telling me it’s not ‘appropriate’.

A few less study tours to mediaeval towns orfrozen metropolises

In 2012, maybe we could question the relevance to Australiancities of town planning study tours to Copenhagen, Venice, Paris, Portland, orVancouver (just some of the places cited as ‘cities we should be more like’).For starters, the town centres of most Euro cities were designed and laid outin the middle ages. Transport economics was unheard of. Private transport wasmainly by foot because most people were too poor for a horse. And they were all created before the adventof ‘town planning’ as we know it. And as for more modern centres like Portlandand Vancouver, why choose some of the world’s least affordable cities asbenchmarks for Australia to study? We’ve got enough problems on that frontalready. Then of course there’s the climate issue - cities designed forfreezing winters and very brief summers may not be the most logical casestudies to use? Why not instead visit cities in regions of similar climate, andwhere affordability and quality of life and economic opportunity are all in ahealthy state? Maybe the junket factor for Houston, USA, just isn’t quite as appealingas Hamburg? Or at the very least, if it’s simply impossible to resist thelatest planning study tour to Paris, try at least getting out of the ancientand touristy centres of town, and away from the 5 star hotels and conferencerooms, and visiting the suburbs where the majority of Parisians live and work.

It’s OK to countheads and ask what they do

I was surprised to be corrected about a recent article whichguessed that the $17million budget for the planning and assessment‘directorate’ of the Sunshine Coast Council might indicate some 200 people workingin that department. I was wrong: thefigure I’m told is more like 270 staff. Just what do 270 staff do in a planning department for a localcouncil with a population of just over 300,000 people? That’s almost 1planning department employee to every 1000 residents. According to theAustralian Medical Association of Queensland, the ideal ratio of GPs topopulation is one to 1000, but we’re currently experiencing a shortage of GPssuch that the ratio is closer to 1:1500. Surely planners haven’t become moreimportant that doctors? These large planning bureaucracies spend a lot oftaxpayer funds, and have grown exponentially in size and power in the lastdecade. But for what outcome? It is fair to question bureaucracy wherever it’sfound, and town planning bureaucracies are no different. The solution isn’tmore bureaucrats, it’s less red tape. Let’s start asking some questions in2012?

When it’s not ‘ourland’– it’s private property

The legal rights and protections afforded to owners ofprivate property have been whittled away to the point that some landowners mustwonder why they bother. It might be timely in 2012 to start reminding NIMBYs,bureaucrats, academics and sections of the media who make pronouncements aboutwhat should and shouldn’t be done on someone else’s land, that it’s not ‘their’land make decisions about: it belongs to the person holding the title, andpaying the taxes. Owners’ views ought to hold substantial sway.

Hyprocrisy onaffordability

Another little resolution for 2012 would be to ask thatlocal, state or federal governments simply stop pleading their concerns abouthousing affordability if at the same time they continue to raise taxes, addregulations, limit or delay supply and add to the complexity of constructionfor simple housing development. You can’t have it both ways. If you areconcerned about affordability, cut the taxes, free up the constraints, and fixwhat the industry’s been identifying as a huge problem for more than a decade.

‘Yes you can’ cut levies

On the subject of taxes, it is of course quite possible tocut taxes on property and new development in particular. Upfront per lot or perapplication development fees are tightly focussed on new supply, to the point wherenew supply becomes prohibitively expensive. But at the same time, thejustification for these development levies seems to be that rates and othergeneral taxes can’t rise beyond inflation. Surely though if the community as awhole benefits from a certain activity or infrastructure investment, thecommunity as a whole should pay? And if you want to provide new libraries andpools, and cultural facilities for the community as a whole, it’s unfair toexpect only new development to pay for it. Cutting levies is possible, as israising rates, or reducing the scale of promises. It just requires morepolitical will. Maybe 2012 will provide some?

Demand some KPIs

A simple measure, easy to put into effect in 2012, would befor new planning schemes, initiatives or regulatory mechanisms to have attachedsome very clear and measureable KPIs. In short, if the regulation is intendedto produce a certain outcome, how will you measure that outcome? And if itfails to measure up, scrap it.

Realism not heroism

Heroic assumptions are fine in their place, but maybe not inpublic policy. Realistic, evidence-based approaches are far superior. Forexample, I still don’t know (nor can anyone tell me) how we are going to create138,000 infill dwellings in Brisbane, or 374,000 infill dwellings in south eastQueensland, in 20 years. Just where willthey go? 374,000 infill dwellings is the equivalent of 4,675 twenty storeyapartment buildings, or 212 such towers per year for 20 years. Sound stupid?But that’s exactly the target contained in the SEQ Regional Plan. And if it realisticallyjust can’t be done, is it time to revisit those assumptions with something morerealistic?

Forecasting thefuture?

Is something best left to gypsies. Some developers nowcomplain that it can take 10 years from site acquisition to the first sale, andin that time, much changes. Ten, twenty or 30 year plans are OK for stimulatingthe mind and provoking debate, but locking in public policy inflexibility forsomething that may happen in 20years’ time based on what we know today andthe assumption that things won’t change, seems odd.

Take a helicopterview (we’re not running out of land)

To all those ardent believers of the view that we’re fastrunning out of land, or at risk of ‘LA type sprawl’ my wish for you in 2012 isa helicopter ride over south east Queensland. Look down. There are trees andopen land everywhere. We are so far from ‘running out’ that to suggestotherwise is to refuse to believe what your own eyes are telling you.

Private enterprisepays for public services

Basic economics 101 is the lesson that a healthy andprofitable private sector generates the wealth (taxes) that pay for the publicsector. Cripple the private sector and the public sector fast runs out of money(or has to borrow it). This is something the Greeks and Italians forgot. Let’snot forget the lesson here in 2012. Governments (dare I harp on but planningdepartments included) could spend a bit more time on the ‘how can we help youmake money’ line of thought rather than the ‘making money from economic orurban development is wrong’ culture. Without money, without the profit motive,the music stops and tax revenues that pay for all public services dry up.

Developers createthings. Plans don’t.

Look around. Most of our region was developed and builtbefore modern town planning , as we now know it, came to such prominence. Developers made this happen. People who tookrisks. Almost every house in everysuburb, every shopping centre, factory, office or workplace was created by adeveloper taking risks to develop the land on which these things now sit. Thereare some notable exceptions – SouthBank being one – where public sectorplanning and development, using taxpayer funds, has created something positive.But even here, it could not have been done without developers. They are notthe enemy. They create value. They create jobs and places for people tolive, to work and also to play. Planning regulations and brightly illustratedplanning documents or policies don’t create these things.

No more ‘initiatives’that add cost

Here’s a wild idea. Every time some new ‘initiative’designed to save the planet or achieve some public policy objective is raised,the costs involved in doing so are subject to an affordability test. Ifmandatory building code changes are going to add several thousand dollars tothe cost of a new project home, that test should ask “can young families affordthis extra cost on their mortgage.” If not, the proponents ought to have towork much harder to get their ideas up. At the very least they ought to get athumbs up from the people who are ultimately being asked to pay.

The city is not amuseum

We’ve become very protective of our urban form, to the pointthat NIMBYs have become replaced with BANANAs (Build Absolutely NothingAnywhere Near Anything). It’s almost as if we now have some collective desireto see nothing much change. But that’s a strange way of thinking, because itsuggests that nothing we have today can’t be done better tomorrow. Our city canevolve, grow and develop, improving the lives of its residents and meeting theirchanging needs during their lives. But if we are being asked to place a giantglace dome over the region and declare it all a museum piece to be preservedfor all time, then evolution won’t be possible and the quality and standard oflife will decline. It would be nice forthe positives of change to get some more air time in 2012, as opposed to thissense of wanting to cling to everything as it now is.

Hope that lot got you thinking, please feel free to suggesta few more.

Happy New Year!

Time to rethink this experiment?

2011-11-23T19:24:00.000-08:00

The famous physicist, Albert Einstein, was noted for his powers of observation and rigorous observance of the scientific method. It was insanity, he once wrote, to repeat the same experiment over and over again, and to expect a different outcome. With that in mind, I wonder what Einstein would make of the last decade and a bit of experimentation in urban planning and development assessment?

Fortunately, we don’t need Einstein’s help on this one because even the most casual of observers would conclude that after more than a decade of ‘reform’ and ‘innovation’ in the fields of town planning and the regulatory assessment of development, it now costs a great deal more and takes a great deal longer to do the same thing, for no measureable benefit. As experiments go, this is one we might think about abandoning or at the very least trying something different.

First, let’s quickly review the last decade or so of change in urban planning and development assessment. Up until the late 1990s, development assessment was relatively more straightforward under the Local Government (Planning and Environment) Act of 1990. Land already zoned for industrial use required only building consent to develop an industrial building. Land zoned for housing likewise required compliance with building approvals for housing. These were usually granted within a matter of weeks or (at the outset) months.

There were small head works charges, which essentially related to connection costs of services to the particular development. Town planning departments in local and state governments were fairly small in size and focussed mainly on strategic planning and land use zoning. It was the building departments that did most of the approving. Land not zoned for its intended use was subject to a process of development application (for rezoning), but here again the approach was much less convoluted that today. NIMBY’s and hard left greenies were around back then, but they weren’t in charge. Things happened, and they happened far more quickly, at lower cost to the community, than now.

In the intervening decade and a bit, we’ve seen the delivery and implementation of an avalanche of regulatory and legislative intervention. It started with the Integrated Planning Act (1997), which sought to integrate disparate approval agencies into one ‘fast track’ simplified system. It immediately slowed everything down. It promised greater freedom under an alleged ‘performance based’ assessment system, but in reality provoked local councils to invoke the ‘precautionary principle’ by submitting virtually everything to detailed development assessment. The Integrated Planning Act was followed, with much fanfare, by the Sustainable Planning Act (2009). Cynics, including some in the government at the time, dryly noted that a key performance measure of the Sustainable Planning Act was that it used the word ‘sustainable’ on almost every page.

Overlaying these regulations have been a constant flow of land use regulations in the form of regional plans, environmental plans, acid sulphate soil plans, global warming, sky-is-falling, seas-are-rising plans – plans for just about everything which also affect what can and can’t be done with individual pieces of private property.

But it wasn’t just the steady withdrawal of private property rights as state and local government agencies gradually assumed more control over permissible development on other people’s land: there was also a philosophical change on two essential fronts.

First, there was the notion that we were rapidly running out of land and desperately needed to avoid becoming a 200 kilometre wide city. Fear mongers warned of ‘LA type sprawl’ and argued the need for densification, based largely on innocuous sounding planning notions like ‘Smart Growth’ imported from places like California (population 36 million, more than 1.5 times all of Australia, and Los Angeles, population 10 million, roughly three times the population of south east Queensland). The first ‘South east Queensland Regional Plan 2005-2026’ was born with these philosophical changes in mind, setting an urban growth boundary around the region and mandating a change to higher density living (despite broad community disinterest in density). It was revisited by the South East Queensland Regional Plan 2009-2031 which formally announced that 50% of all new dwellings should be delivered via infill and density models (without much thought, clearly, for how this was to be achieved and whether anyone particularly wanted it). Then there was the South East Queensland Regional Infrastructure Plan 2010-2031 which promised $134 billion in infrastructure spending to make this all possible (without much thought to where the money might come from) and a host of state planning policies to fill in any gaps which particular interest groups or social engineers may have identified as needing to be filled.

The significant philosophical change, enforced by the regional plan, was that land for growth instantly became scarcer because planning permission would be denied in areas outside the artificially imposed land boundary. Scarcity of any product, particularly during a time of rising demand (as it was back then, when south east Queensland had a strong economy to speak of) results in rising prices. Which is just what happened to any land capable of gaining development permission within the land boundary: raw land rose in price, much faster than house construction costs or wages.

The other significant philosophical change that took root was the notion of ‘user pays’ - which became a byword for buck passing the infrastructure challenge from the community at large, to new entrants, via developer levies. Local governments state-wide took to the notion of ‘developer levies’ with unseemly greed and haste. ‘Greedy developers’ could afford to pay (they argued) plus the notion of ‘user pays’ gave them some (albeit shaky) grounds for ideological justification. Soon, developers weren’t just being levied for the immediate cost of infrastructure associated with their particular development, but were being charged with the costs of community-wide infrastructure upgrades well beyond the impact of their proposal or its occupants.

Levies rose faster than Poseidon shares in the ‘70s. Soon enough, upfront per lot levies went past the $50,000 per lot mark and although recent moves to cap these per lot levies to $28,000 per dwelling have been introduced, many observers seem to think that councils are now so addicted that they’ll find alternate ways to get around the caps.

So the triple whammy of ‘reform’ in just over a decade was that regulations and complexity exploded, supply became artificially constrained to meet some deterministic view of how and where us mere citizens might be permitted to live, and costs and charges levied on new housing (and new development generally) exploded.

At no point during this period, and this has to be emphasised, can anyone honestly claim that this has achieved anything positive. It has made housing prohibitively expensive, and less responsive to market signals. Simply put, it takes longer, costs more, and is vastly more complicated than it was before, for no measureable gain.

[An indication of this was given to me recently in the form of the Sunshine Coast Council’s budget for its development assessment ‘directorate.’ (How apropos is that term? It would be just as much at home in a Soviet planning bureau). Their budget (the documents had to be FOI’d) for 2009-10 financial year included a total employee costs budget of $17.4 million. For the sake of argument, let’s assume the average directorate comrade was paid $80,000 per annum. That would mean something like more than 200 staff in total. Now they might all be very busy, but it surely says something about how complexity and costs have poisoned our assessment system if the Sunshine Coast Council needs to spend over $17 million of its ratepayer’s money just to employ people to assess development applications in a down market.]

If there had been any meaningful measures attached to these changes in approach over the last decade, we’d be better placed to assess how they’ve performed. But there weren’t, so let’s instead retrospectively apply some:

Is there now more certainty? No. Ask anyone. Developers are confused. The community is confused. Even regulators are confused and frequently resort to planning lawyers, which often leads to more confusion. The simple question of ‘what can be done on this piece of land’ is now much harder to answer.

Is there more efficiency? No. Any process which now takes so much longer and costs so much more cannot be argued to be efficient.

Is the system more market responsive? No. Indeed the opposite could be argued – that the system is less responsive to market signals or consumer preference. Urban planning and market preference have become gradually divorced to the point that some planners actively view the market preferences of homebuyers with contempt.

Are we getting better quality product? Many developers will argue that even on this criteria, the system has dumbed down innovation such that aesthetic, environmental or design initiatives have to fight so much harder to get through that they’re simply not worth doing.

Is infrastructure delivery more closely aligned with demand? One of the great promises of a decade of ‘reform’ was that infrastructure deficits would be addressed if urban expansion and infrastructure delivery were aligned. Well it’s been done in theory via countless reports and press releases but it’s hardly been delivered in execution. And when the volumes of infrastructure levies collected by various agencies has been examined, it’s often been found that the money’s been hoarded and not even being spent on the very things it was collected for.

Is the community better served? Maybe elements of the green movement would say so, but for young families trying to enter the housing market, the answer is an emphatic (and expensive) no. How can prohibitively expensive new housing costs be good for the community? For communities in established urban areas, there is more confusion about the impact of density planning, which has made NIMBY’s even more hostile than before.

Has it been good for the economy? South east Queensland’s economy was once driven by strong population growth – the very reason all this extra planning was considered necessary. But growth has stalled, arguably due to the very regulatory systems and pricing regimes that were designed around it. We now have some of the slowest rates of population growth in recent history and our interstate competitiveness – in terms of land prices and the costs of development – is at an all time low. That’s hardly what you’d call a positive outcome.

Is the environment better served? If you believe that the only way the environment can be better served is by choking off growth under the weight of regulation and taxation, you might say yes. But then again, studies repeatedly show that the density models proposed under current planning philosophies promote less environmentally efficient forms of housing, and can cause more congestion, than the alternate. So even if the heroic assumptions for the scale of infill and high density development contained in regional plans was actually by some miracle achieved, the environment might be worse off, not better, for it.

All up, it’s a pretty damming assessment of what’s been achieved in just over a decade. Of course the proponents of the current approach might warn that – without all this complexity, cost and frustration – Queensland would be subject to ‘runaway growth’ and a ‘return to the policies of sprawl.’ The answer to that, surely, is that everything prior to the late 1990s was delivered – successfully - without all this baggage. Life was affordable, the economy strong, growth was a positive and things were getting done. Queensland, and south east Queensland in particular, was regarded as a place with a strong future and a magnet for talent and capital. Now, that’s been lost.

Einstein would tell us to stop this experiment and try something else if we aren’t happy with the results. To persist with the current frameworks and philosophies can only mean the advocates of the status quo consider these outcomes to be acceptable. Is anyone prepared to put up their hand and say that they are?

Will you still house me, when I’m 64?

2011-11-01T22:02:00.000-07:00

In the song by the Beatles, the worry was about being fed and needed at 64. Things have changed. If the Beatles wrote those lyrics today, the worry instead might be about housing.

Australia’s ageing population is an inevitability. As our replacement rate falls (we’re having fewer children per family) and life expectancy extends, the proportion of over 65s will double in 40 years. In raw numbers, there were 2.5 million over 65s in 2002, and this will rise by 6.2 million in 2042. That’s an extra 4 million in this demographic. Have we given enough thought to where they’re going to live, and what styles of housing they might prefer?

There have been a number of developers who have understood the looming significance of Australia’s ageing population, and who have sought to supply the ‘retirement living’ market with product that suits. At one end have been the glitzy apartment style residences in inner city locations, while at the other have been the aged care ‘homes’ provided for those in need of access to nursing care or medical assistance, or at least the reassurance of it being present.

Running parallel with the provision of retirement living or seniors living projects has been an assumption that, once ready to abandon the family home of many years, seniors will be happy to move across town and relocate to the facilities that are available. (Perhaps this is hangover from the days when retirement or aged care living was provided on Stalinist lines: our oldies were forcibly shuffled off to some retirement centre well away from the rest of the community they grew up in. A sort of gulag for grumpies?)

But what if seniors simply want a change of housing style within their community? What if they don’t want to move across town to the only available accommodation because they would prefer to continue to live in the neighbourhood and community they have spent a large part of their lives living in? They may want to continue to shop with ‘their’ local butcher, visit their local supermarket, newsagent, bank branch (if it still exists) and generally remain connected to the people and places that they’re familiar with – including (quite possibly) members of their family, children and grandchildren.

Meeting that need in the future is going to be close to impossible unless planning schemes (old fashioned zoning laws) adopt a more flexible approach. Flexibility will be needed because most of the existing suburbs of our major population centres are largely built out and will require retrofits and redevelopment of existing stock to accommodate senior’s housing preferences. Generally, the only tracts of undeveloped land capable of meeting seniors housing needs tend to be on the outskirts and while there’s nothing wrong with fringe development, it seems unfair to expect seniors to relocate across town to regions they’re unfamiliar with and to alienate themselves from their community simply because supply side mechanisms (controlled by planning schemes) don’t permit choice.

Further, the built out status of our ‘established’ suburbs – as they now stand – is something that much planning law seems to want to preserve for time immemorial. It’s a little bit like imagining that someone has declared the existing housing mix and styles a fixture of permanency: let’s put a giant glass dome over it all and call the city a museum – because we don’t (it seems) want anything to change.

But if we are to allow Australia’s seniors to ‘age in place’ and to ensure our markets provide choice, it’s going to mean some things will need to change, given the likely levels of future demand. The fastest growth of aging populations will be around our ‘middle ring’ suburbs and given the overwhelming preference to ‘age in place’, it is these suburbs that are going to have to change if those needs are to be met.

What will that change look like? The psychology of seniors in years to come – even today – is going to be different to those of previous generations. They’ll likely be more active rather than sedentary. The family home that’s served them to this point may now be simply too big for their needs, or contain too many stairs (the artificial hip or knee doesn’t like too many stairs). Their future housing needs will vary widely - some will be happy with apartments in high to medium density developments (elevators to their level of living means no stairs) while others (generally the majority) will prefer smaller, detached or semi-detached, single level dwellings. Many may want a small yard or garden (or at least a large balcony or terrace if in a unit), and perhaps want to keep a small pet dog or cat. They may want a spare bedroom for visitors or for babysitting grandchildren. They will probably prefer to be close to shops and near to public transport. And the majority will want to find something of that nature generally within the same community they’ve been living in. It is unlikely they’ll be searching for the ‘retirement home’ style of assisted care living until they’re well into their later years when their choices will be more limited.

Their problem will be that developers will struggle under current planning schemes to get approval for semi-detached housing designed with seniors in mind, if it means amalgamating some detached residential dwellings near local shops, because that land use is highly protected. They will struggle to gain approval to convert a large single site into medium or high rise in areas near local shops or transport, because the community will likely object – particularly if it’s in a neighbourhood where low density prevails (typical of most of suburban Brisbane). Advocates of TOD style development might now be shouting at this article that ‘TODs are the answer.’ That might be so, if only one single TOD had been delivered during the past 15 years we’ve been talking about them. Plus, the majority of proposed ‘TOD’ style development areas largely surround inner city transport nodes. Not much use if you’re in Aspley and want to stay there. And of course there’s the reality that multi level apartments are much more costly to develop and construct than the cottage building industry’s approach to single level, small detached housing.

The changes needed need not be dramatic, and subtle changes to land use surrounding existing retail or service centres in middle ring suburbs ought to be able to be achieved with minimal planning fuss. (It is still possible to imagine something being done with minimal planning fuss, but very difficult to point to any actual examples. Still, hope springs eternal).

The changes could allow (for example) for some amalgamations of larger lot, detached post war homes into higher density cottage-style dwellings on a group title, still single level and with low construction costs. A 2000 square metre amalgamation could in theory provide 10 such cottages, with private garden space and minimal likelihood of community objection. The key would be to keep regulatory costs down, so punitive development levies would be out of order. After all, the infrastructure already exists and seniors tend to be much less demanding on utilities or services than young households. (Have a think about how little garbage they generate, or how little water they use as an illustration. It would surely be unfair to tax seniors in this type of housing for infrastructure upgrades under the circumstances?).

The traditional ‘retirement home’ or ‘aged care’ model of seniors housing is still going to be needed, especially as people require more frequent or acute care in their later years, and become less and less independent. But there will be a good 10 to 15 year period for people for whom the family home no longer suits, and who aren’t yet ready for ‘God’s waiting room.’ How we accommodate this coming bubble of seniors who want to age in place and continue to live independently, and how planning schemes will allow markets to provide choice and diversity, is something that perhaps should be a policy focus now.

Is industrial strife a sign of housing stress?

2011-10-20T16:01:00.000-07:00

Industrial disputes are becoming once again a frequent feature of the daily media. Unions are pushing for wage rises in the face of the falling buying power of the fixed wage (as costs of living rise). Those wage push pressures are being resisted by businesses which are trying to stay afloat in a very ordinary domestic economy and in the face of rising global competition. But as unions push for more wages, is it not possible to consider lower living costs as a solution which benefits fixed wage workers and which also benefits business? And if lower living costs are part of a solution, then housing – one of our highest living costs of all – ought to take centre stage.

It’s ironic that the rapid and undeniable escalation of housing costs relative to average wages has taken place largely due to policies introduced during the terms of State Labor Governments. The introduction of artificial growth boundaries that limited land supply, the introduction of upfront taxes on new development, and the spawning of myriad and complex planning and development regulation, whether it’s been in Queensland, NSW or Victoria, have all occurred generally with Labor Governments in power.

The reason it’s ironic is that the adverse impacts of those policies have been most felt by the very constituency which Labor traditionally sought to represent: working people, in largely fixed wage environments. In the very early days of the Australian Labor Party, these were symbolised by shearers in their Jackie Howe’s. Later in the 20^th century, they expanded to include the unionised ‘white collar’ workforce of teachers, nurses, police and other para-professional groups. Today though, wage pressures by unions of teachers, police or other groups (especially those on public payrolls) are assiduously resisted by Labor Governments, as they defend their budgets. And this is the irony – having presided over and championed policy mechanisms which have had a large impact on the cost of living of these groups of workers, these same governments then resist attempts to recover that standard of living through wage growth.

Now before you think I’ve gone all militant on you all (trust me, I haven’t), here’s an example of what I’m driving at.

Much has been said about housing affordability, and what it will mean to lock an entire generation out of the housing market. Even as late as this week, this story documents yet another report attesting to falling home ownership and the rise of a renting class. Most of what is said and written about affordability though works on averages – average incomes, and average house prices. These are convenient measures, so it makes sense to do so.

Consider for a moment though the people who are trying to enter the housing market and buy a home in which to raise a family. They could typically be around their mid to late 20s, and biologically in their prime for having and raising children. At this stage of life, you are probably below the average income for your career or profession as you’re really only starting out. But it’s at this stage of life that the reality of the affordability problem is most acute.

In Queensland, this might be a teacher in their mid 20s, with two or three years of training, who will earn around $50,000 per annum gross and pay roughly $9,000 per annum in income tax. He (or she) may be married to a police constable, of the same age, who will earn roughly $58,000 per annum gross including their operational shift allowance, and pay around $11,500 in tax. Their combined after tax income could be around $87,500 per annum. (This combined income would be much less of course if, for example, one of our young couple was a child care or retail worker).

Now, take a modest new family home in an outer suburb like North Lakes or Springfield. Let’s assume they’ve saved a small deposit, and with a loan of $400,000, they buy something for around $450,000. That’s hardly McMansion territory. But that loan, over 30 years at 7.8%, will cost them close to $35,000 per annum in repayments, or 40% of their combined after tax incomes.

This, of course, is before they even think about children, and the prospect (despite generous maternity and paternity pay and leave provisions) of enduring a significant household income reduction while one of them isn’t working. Even on returning to work, there would then be child care fees, which quickly erode their pre-child household budget.

The basic sums are not horrendous but neither are they full of promise. Buying a home and starting a family have become a huge financial consideration, instead of a fairly normal and unremarkable pattern of generational and social growth. And it is now absolutely dependent on a dual income family, with both of them preferably good incomes.

This is a profound change, and it’s happened just in the last decade. As a result, fewer people are buying homes, people are postponing children (until they can afford them) and when they do, they’re having fewer children. A countless stream of statistical and demographic reports are now underlining this change on an all too frequent basis. All of which is very bad news for the economy, for society and the community as a whole.

But returning to my original theme – is it any wonder we’re seeing wage push pressures from people such as those in this example?

Consider the cost of the $450,000 modest home they’ve bought. Within that price is roughly a $50,000 up-front ‘developer levy’ (better called a new home buyer tax). There’s probably close to the same in inflated land costs, brought on by artificial land supply constraints in a country of unbelievably abundant land. There’d also be a raft of minor additional building costs introduced under the guise of ‘green’ or ‘sustainable’ building guidelines, in order to prevent the sky from falling. (Sorry, I meant to say ‘to prevent the sea from rising’. I always get those two confused for some reason). Plus there’s a hard-to-quantify compliance cost because getting the approval to develop the land for homes for the likes of our young couple now takes 10 years instead of a few months, and involves teams of town planners, lawyers, and other hangers on. Plus of course, there’s a 10% GST – the money from which was supposed to have allowed State Governments to abolish stamp duty, which they didn’t. If our hypothetical couple above weren’t first home buyers, they’d be up for stamp duty also.

The total cost of all this that’s been added to the price paid by our young couple could easily be well over $100,000. If you don’t believe me, check out this old report, prepared back when I used to get paid to do this sort of thing.

A quick bit of math’s now follows. That extra $100,000 (conservatively) has been funded via our young couple’s mortgage. That’s an extra hundred large they’ve borrowed, to cover the costs of additional taxes, fees and compliance – introduced under the watch of a State Labor Government. That $100,000 is worth an extra $720 a month on their repayments, or an extra $8,640 per annum out of their pockets. If their repayments fell by that amount, their mortgage costs would be around $26,000 per annum in total, or just under 30% of their combined household income – not 40% of it.

There you have it. At 30% of household income, not only the home becomes more affordable, but so do children. But at 40%, it’s proving to be touch and go.

The point of all this is that there are two ways, simply put, to improve the cost of living equation faced by younger workers on largely fixed incomes. You can increase their wages (which the unions want and which businesses – and governments – resist). Or you can reduce their costs of living.

This is about as simple as economics can get but is has somehow eluded people working in State Treasuries and Planning Departments. I haven’t even commented in this on the impact of rising motor vehicle registration costs and the cost of fuel (our young couple in this example both have jobs which are dependent on the private car and hence the cost of running them – both of them). I haven’t touched on the impact of rising utility costs – especially electricity – on their household budget. And I dare not mention the insanity of the carbon tax, which is only going to exacerbate things (our young couple have a combined gross income of $108,000 and for housing and children to be more affordable it would need to be closer to $150,000 – the very point at which, our Prime Minister has declared, people are ‘too rich’ to warrant compensation for the carbon tax. Go figure!).

The simple economics of what we’re talking about was summed up beautifully over 160 years ago, in Charles Dickens’ novel David Copperfield, when Mr Micawber lectured the young Copperfield on the perils of exceeding budgets:

"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

Mr Micawber, you’ll note, wasn’t implying the need for more income... he was highlighting the important role played by expenses.

In the Australia (and Queensland) of 2011, the same still applies. Rather than push for more income, unions could do better to lobby their Labor Parties to reduce living costs. Reduce the housing infrastructure levies, relax the rigidity and ideology of urban growth boundaries, reduce compliance costs, cut green taxes and simply the provision of our single greatest cost – housing. When done with that, take on the militant green agenda and lobby for reduced retail energy costs and car registration fees, and don’t let congestion charging even get a look in.

Fighting pitched industrial battles with employers for a few extra dollars a week in income seems futile compared to the lack of battles ever fought with governments over the introduction of tens and even hundreds of thousands of dollars in extra taxes and costs associated with the provision of one of life’s essentials – a family home you can afford, the children you want to raise in it, the energy to power it, and the vehicles to get you to and from it.

This time it’s no different.

2011-10-04T19:18:00.000-07:00

The current obsession with all things negative makes for some pretty depressing times. The media have been scouring the globe for experts prepared to predict the end of the world (or at least the end of Europe and the USA, and some are even predicting a China fizzle) and global equity markets are showing the sorts of gyrations normally only seen on a seismometer reading of a major earthquake. Housing prices have been sliding, and consumer and business sentiment falling. Politically, we hate our national government (according to the polls) and the whole country is basically in a big downer. What good can come of this? Possibly, plenty.

‘This time it’s different’ is the sort of fallacy that collectively we can all be fooled into believing from time to time. In the same way we were promised there couldn’t be a world downturn (because ‘this time it’s different’) the same could be said of those who deny the prospects of recovery (because, they say, ‘this time it’s different’).

But are the signs of recovery, in Australia at least, already there? One certain sign has been the clear evidence that Australian consumers have read the tea leaves and flicked the switch from being consummate consumers to avid savers. Official ABS data released mid year showed that the household savings ratio rose to 11.5% - the highest rate of household saving in 24 years. In other words, you have to go back to 1987 to find a more conservative bunch of savers than we are today.

That news was followed in September by reports that cash deposits are growing as businesses and consumers put money into safe haven accounts. In August alone, $27 billion was pumped into bank deposits, and between Westpac and the Commonwealth Bank, consumers pumped a combined $4billion into deposit accounts in one month.

It’s been a trend noted by the Reserve Bank, and one felt acutely by Australian retailers from Myer to David Jones to Harvey Norman and JB Hi Fi. While it may be bad for shareholders of retail businesses, it’s encouraging to know that consumers and business are winding down debt and increasing their savings.

Another sign is the evidence that the economy is still growing. Australian GDP rose 1.2% in the June Quarter, and this week, Australia’s trade surplus recorded its second largest number ever, largely on the back of the resources economy but also with strong performance in the traded goods and services sector, and even dwelling approvals recorded a strong rebound (albeit from dismal levels).

Sure, there’s a two speed economy at work, possibly three and even four speeds. But you could have said the same prior to the GFC, when urban markets were going well but regional and resource markets weren’t exactly glamorous.

Searching the tea leaves for more signs for positives are the continued reports of strong company profits. Amidst all the talk of earnings downgrades, most company profits during the reporting season have been positive, and ahead of expectations. According to the AFR, two thirds of companies reported increased profits this year, while 37% were better than expected.

And when companies are making profits, people keep their jobs. The unemployment rate, as recorded by the ABS, crept up slightly to 5.3% in August. Hardly a calamity. Since 1978, our unemployment rate has averaged 7.11% and peaked at over 10% in 1992 – and we recovered from that.

The equities markets aren’t providing many grounds for positive thinking but even here, there’s a clear view that markets are oversold and trading at heavy discounts. The fundamentals, my economic friends tell me, are generally all pretty good. The markets though have been rewarding good profit reports with falling prices, and the Greek/Euro position has provided the latest excuse for pessimism. Markets, as Adam Smith observed, are driven by ‘animal spirits’ and right now the animals have broken out of the zoo and are on the loose. But they will return to their cages at some point.

Summarising the global equities funk was this comment by a trader with ING:

‘‘We’re really oversold,’’ Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $US550 billion.

‘‘The US data has not been bad. The Fed has indicated that it’s not out of bullets. There’s no sign of recession in the US and yet the market is pricing for one.’’

So what’s happening here? Markets are oversold, trading well below their true worth. (I’ve heard some highly respected economists suggest the true value of the All Ords should be around 5500 points, not sub 4000 where it’s been trading lately). Plus, employment remains good – at historically low levels even – and household savings are rising. Bank deposits are growing, and the economy generally remains in positive – though patchy - territory.

To my way of thinking, consumers (far smarter than the politicians they elect) have decided to wait. Purchases are being postponed until the general economic outlook – along with the media headlines – starts to look a bit more certain.

And all this means is that more pre load is being added to the economic spring. The more preload that is added, the more the spring will bounce back as all those postponed consumption decisions will catch up. (This need not mean a return to asset price inflation, as we saw with housing, but it should ideally mean a return to more normal volumes of activity – and money flowing through an economy is as important as blood flowing through your veins).

So what’s the hold up?

Confidence it seems is everything, and we don’t have much right now. Little wonder, given the economic and political management of our Federal Government. The people – and business – know intuitively that this government is a mess and this isn’t a good time for carbon taxes, congestion taxes, taxes of high cholesterol foods, new tax systems, huge expenditures on broadband with uncertain benefits – it’s a long list.

But with confidence sapped, and until there’s a climate of more stability and certainty in our political leadership, along with signs that the global economy isn’t about to fall off the edge of the earth, we aren’t likely to see much change. But when it does, the change I suspect will be rapid and positive.

Remember, this time, it’s no different to last time.

Waging a green jihad on suburban homes

2011-08-19T15:11:00.000-07:00

It seems rarely a month passes without some new assault on the lifestyle and housing choice preferred by the overwhelming majority of Australians – the detached suburban home. Denigrated by a careless media as ‘McMansions’ or attacked as some archaic form of reckless housing choice which is ‘no longer appropriate’ (according to some planning or environmental fatwa), the detached home is under a constant assault of falsely laid allegation and intellectual derision.

The latest of these assaults is the form of a proposed ‘green star’ rating scheme for ‘McMansions’ which critics claim cost could cost homeowners thousands of dollars in devalued prices. While the critics suggestions of financial hardship might be taking the possible impacts a bit too far, it is reasonable to challenge this obsession of regulators and green crusaders which views the detached home as some form of modern environmental vandalism.

The very first (and what should be obvious) fact that escapes our fanatics’ attention, is that houses, or home units, or even office buildings for that matter, don’t use energy. Only the occupants in them, and their behaviour, consume energy. The dwelling itself can be designed for more efficient energy use by the occupants, for sure, but remember always that it is people who consume power, not buildings.

That point was brought home, embarrassingly for our rampaging environmental and social crusaders, by no less than the Australian Conservation Foundation in 2007. Their ‘Consumption Atlas’ revealed what came as a surprise to many, but which should have been widely understood from the start: that wealthy people who can afford to live in the expensive home units and townhouses of trendy inner city areas use much more energy, and have bigger carbon footprints per capita, than their suburban counterparts. More than that, it also revealed that inner city areas are “consumption hotspots” and smaller household sizes have greater environmental impacts than larger (chiefly suburban) households.

The significance of those findings has been studiously ignored by the advocates of environmental engineering who claim that a leading virtue of wholesale change in housing type - from detached suburban to high density inner urban - is that this will be good for the environment. The facts, however, show that it ain’t necessarily so. If a large family of five, for example, (mum, dad and three kids) living in a four bedroom house with two cars in the suburbs produce a smaller carbon footprint than the dinks and yuppies living in their city apartment, why aren’t the media, environmental and planning advocates asking more questions?

At the time the ACF report was released, I was running the Residential Development Council, and I can still recall hearing the ACF’s key findings mentioned in some very early radio news bulletins on the ABC. For some reason, the story quietly petered out but the ACF kindly had a version on-line and once I sent a copy to Demographia’s Wendell Cox, it went on to infamy. Wendell prepared a report analysing its findings for the RDC in terms of housing choice and greenhouse gas emissions, which is well worth reading. You can still find the report ‘Housing Form in Australian and its Impact on Greenhouse Gas Emissions’ online. Talk about the man who kicked the hornet’s nest.

There have been other reports too, which have either been ignored (where their evidence doesn’t suit the cause) or attacked (if the evidence is clearly getting too close to the truth). If you’re remotely interested in some of the facts (as opposed to the parade of rhetoric in the mainstream media) have a look at the evidence in this study called ‘The Relationship Between Housing Density and Built Form Energy Use’ which you can find online here. There’s a graph on page six which shows the dwelling operational energy (blue part of the bar) for apartments as roughly three times that of detached homes. (The suggestion that occupants of high density apartments will be less likely to use private transport is yet to be borne out by evidence, with the ACF report admitting that higher incomes allowed inner city residents more opportunity to drive despite the presence of convenient public transport and also (heaven forbid) to fly to places, than households with lower incomes.)

Common sense also comes into play. Consider the basic design of apartment buildings as opposed to the detached house. Cross flow ventilation in apartments is harder to achieve (unless it’s a penthouse occupying an entire floor) than in the detached home with windows on all sides. Then there are the energy uses that the apartment more or less makes essential. No room for a solar powered Hills Hoist in the backyard – instead, energy guzzling clothes dryers are practically essential. As are air conditioners - not just for individual apartments but also for common areas throughout the building (foyers and corridors). Lighting in common areas is also almost always permanently on. Lifts to move people up and down also consume energy – taking two people from ground to level 25 in an air conditioned lift produces a lot more carbon than walking up a flight of front stairs into the detached home, after all.

I’m not proposing that the leftist green agenda which is waging war on the detached home instead turn the blow torch of blame to the wealthy, nor am I suggesting that there’s anything wrong with apartment and townhouse developments. But what’s wrong with letting market forces play more of a hand, without the overt moralising and environmental hand wringing that seems to accompany decisions on urban planning policy? Is it really necessary to malign the detached suburban home, in order to make the alternative more attractive?

We are talking about middle Australia which is under the barrage of assault for having the temerity to choose a form of dwelling that actually suits them. The fact is that people prefer, in the main, to raise children in houses rather than apartments. They often like to keep pets, and have a garden around them. The children tend to like backyards to play in. The cars these families drive aren’t a ‘love affair’ but a necessity – getting from suburban home to suburban workplace, and picking up or dropping off children on the way, isn’t exactly a valid choice with public transport. But you get the strong impression, reading the constant digest of anti-suburban living which parades through mainstream media, that mainstream Australians are a reckless bunch of self-interested misfits whose behaviour and choices need to be controlled by people wiser than them.

And there’s one of the great ironies in all this: those who advocate denying housing choice and enforcing apartments over detached homes, public transport over private, inner city density over suburban expansion, invariably seem to do the opposite of what they preach. Next time you come across one of these green jihadists waging war on the suburban home (and the people who live in them), ask them if they live in a house or a unit, how many children they have, ask how many cars they own, and ask what their power bill is like.

(The term ‘green Jihad’ isn’t mine, but one that leading global demographer and geographer Joel Kotkin used recently in an excellent article “California’s Green Jihad” for Forbes Magazine. It’s well worth a read, if you want a sobering insight into where the green obsession got California, and where it will no doubt lead us also).

Banana-nomics

2011-07-27T21:12:00.000-07:00

The price of bananas is again making headlines as it pushes up inflation and threatens rising interest rates. But what’s the price of the humble ‘nana got to do with property markets? Plenty.

Banana prices have risen almost 500% since Cyclone Yasi wiped out much of north Queensland’s banana crop earlier this year. The immutable laws of supply and demand dictate that when supply falls relative to demand, prices will rise. Which is what they have done, and as they did a few years ago when the same thing happened after Cyclone Larry. As banana supply was restored, prices fell. As they will again.

Banana prices are a self-evident, every day example of supply and demand at work. They’re the sort of example understood by consumers and even school children with no formal economic training. But clearly the lessons are beyond the capacity of some Australian politicians, most land regulators and many town planners. In the very same way that constraints on supply create scarcity value for every day commodities, constraints on supply and scarcity equate to rising prices for all types of real estate, not just housing.

It starts with misguided planning schemes that aim to direct consumer behaviour and distort their purchasing decisions by limiting choice. This has become commonplace in planning to the point of representing accepted wisdom. One of the most obvious examples has been the continued efforts by some regulators and planning authorities to attack the detached house as a choice – however best suited to the needs of young families – which ‘Australia can no longer afford.’ Like a contemporary version of Stalinist central command, housing choice is distorted via planning schemes that are biased to high density apartments in central locations (that consumers are told is good for society), as opposed to detached housing on the urban boundary (that remains the majority consumer preference). Faced with little choice, more people are forced to choose the option deemed appropriate by higher authorities than themselves, and when this is later reflected in data, the regulators hail this as some sort of fundamental change in consumer preferences. You’re seeing this type of shallow analysis in the media, pushed by various interest groups, on a regular basis now.

An equally significant consequence of using planning ideology to achieve social engineering outcomes has been the impact on prices. In the case of raw land for housing, we have succeeded in the unimaginable – needlessly elevating prices far beyond the reach of average Australians, on the basis that we may run out of land, in a country where land is plentiful. This has been achieved simply by making raw land for detached housing development scarce because permission is not allowed outside artificially drawn urban planning boundaries. (On top of creating scarcity, of course, new land supply is taxed more aggressively than existing supply, via upfront levies. This is no doubt because there are fewer votes at risk in taxing new housing lots as opposed to raising council rates or other broad based revenue measures. Plus, new supply is tied up in a regulatory tangle which now means it can take 5 or 10 years just to get permission to develop land in areas already described as intended for future housing. Go figure).

The proof is readily available. In the Brisbane region, for example, the price of vacant land per metre is now 2.3 times (230%) what is was a decade ago. Established house prices also increased, but at a lower rate – they are 1.5 times (150%) the price a decade ago. Average weekly earnings, just to bring it back to earth, are 0.6 times (60% higher) what they were a decade earlier.

In Melbourne, where supply constraints have been more sensibly managed, land for housing is 1.3 times the price of a decade earlier. Little wonder developers are giving up hope for south east Queensland and focussing their energies in Victoria.

If the fundamentals of supply and demand (let’s call it banana-nomics) are so obvious in the market for new land for housing, where else are they revealing themselves?

Recent reports have noted that Australian retail property rents (a lot like our housing prices) are amongst the highest in the world. Research by CB Richard Ellis suggests that rents in Sydney, Melbourne and Brisbane are higher than the better shopping strips in Los Angeles or Milan. How can this be? Los Angeles County has a population of around 10 million people, some of whom are noted big spenders. Retail demand there would dwarf that of Brisbane’s retail spend.

Once again, the answer lies in supply. LA’s ‘sprawl’ is arguably more about the historically easy dispersion of retail and commercial space along high streets and back roads throughout the metro area, as it is about expanding housing. As LA developed, it was relatively easy to create new retail space, and there is plenty of redundant retail space in older strip areas where secondary traders can operate at low market rents. In Australia, by contrast, planning constraints have been much more onerous. The major retail centres, developed from the 1960s to the late 1990s throughout metropolitan areas largely remain the same major centres we have today. Finding new opportunities for retail expansion is a large hurdle which few clear – protection of the retail hierarchy and existing centres, and preventing a dispersal of retail activity beyond existing areas, is the deliberate intention of urban planning schemes.

The result has been that those with the existing retail centres have paid for, and now own, a precious commodity: the permission to conduct retail activity, with limited threat of competition in that catchment. Our retail rents have grown because retailers – and consumers - have had limited alternative choices. New retail operators have encountered barriers to entry in the form of planning laws and no-compete clauses, once again reinforcing the value of existing permissions. Just ask Aldi or Costco what they think our planning schemes are doing for competition if you don’t believe it.

City carparking is another example of banana-nomics at work. A study by Colliers International reveals that city parking costs in Sydney and Melbourne are more expensive than London, Tokyo or New York. Brisbane came in at 14th most expensive on a global list of 156 central business districts. How can it be? The answer is simply that the anti-car crusade has led to planning policies which deliberately seek to limit CBD parking spaces, in the futile hope that this will somehow force people to abandon the convenience (and frequently the necessity) of private transport in favour of buses or trains.

Those ambitions have never come to much, so regulators then resort to the blunt weapon of taxes – with car parking levies now common in many cities and the prospects of congestion charging for access to CBDs frequently rearing its ugly head. This deliberate attempt to restrict (and then punitively tax) the supply of city parking spaces has the inevitable effect of raising prices.

But there is one fundamental difference between how banana-nomics works for banana growers and property developers. Banana growers can grow more plants and create more supply. The same can’t be said for developers of property. In housing, new supply is likely to remain constrained by growth boundaries and the preference of regulators towards higher and medium density within existing areas. This will create a floor under the cost of new supply which means that prices are unable to fall (they can’t fall below the cost of production). So raw land is unlikely to get much cheaper, unless there are some radical (and many would say much needed) reforms to planning policies around Australia.

The same applies to retail property. Retailers (most recently evidence by Solomon Lew’s Just Group comments about retail rents) may object to high rentals, but they won’t get much option. Major retail centres are where the action is, and the alternative (on-line retail) isn’t sufficiently appealing to the majority of consumers, who get more from their shopping trip than just a retail transaction. New shopping centres won’t be created within existing urban boundaries because planning schemes are unlikely to allow further retail dispersion away from existing centres. In the limited cases where approval is granted, existing centre owners will play hard ball, arguing fervently against the free market (witness Westfield’s objections to a new Aldi Store, approved by Brisbane City Council, north of Brisbane). Their actions are understandable, given they’ve outlaid very large investments that are contingent on the existing planning scheme remaining.

And the same applies to car parking. Unless there’s a monumental shift in policy attitudes to private transport and city car parking, we aren’t going to see multiple new above or below ground public car parks being created in our cities, no matter how much the demand. That will mean prices remain high.

In all cases, it has been the planning regulations that restrict supply and limit choice, not demand, that have been responsible for making our housing, our retail rents, our car parking and so much more, amongst the costliest in the world. And given that those constraints are unlikely to change, you’re unlikely to see that position reverse itself any time soon.

The burning question, of course, is how long can it last? If supply costs elevate prices beyond the capacity or desire to pay, people stop buying. Economies slow down. The music stops.

How do you like them apples?

An affordability time bomb?

2011-06-16T20:41:00.001-07:00

The fuse was lit in the early 2000s, as housing affordability quickly began to deteriorate across Australia. But the fuse is a long one, and the real damage may not be felt for another 20 or 30 years when a generational change makes itself felt across Australian society. If the predictions are right, it could be very painful.

That there is a housing affordability problem in Australia should be beyond doubt. This issue is something that ought to be separated from movements in broad housing markets – typically measured by changes in median prices of established houses – because the affordability problem is not universal. Instead, it is felt most by young families in the early stages of family formation, and who are in average income brackets, trying to enter the housing market.

Making the bomb

For these households, the last decade has seen the price of new housing escalate rapidly – well ahead of any increase in their household incomes. Driven by restrictions on new land supply, exacerbated by the rapid imposition over a few short years of increasingly usurious upfront levies, and worsened by a dysfunctional and counter-productive planning system which adds costs and delays for no measureable benefit, the cost of new housing has been forced beyond the reach of many traditional purchasers. I am not talking here about the median price based on established houses in settled areas but the cost of new land for housing at the fringe. They are quite different markets.

These younger and typically lower income households are increasingly deferring their decision to buy a home of their own, either waiting for a change in their financial circumstance or waiting for prices to fall. They may be waiting a long time because what needs to happen for prices of new housing to fall is a wholesale reform of planning regulation and infrastructure financing. In short, less bureaucracy and lower taxes. Don’t hold your breath. The Bligh Government’s recent budget offer of a $10,000 grant for any new housing purchases under $600,000 is tokenism in the broad scheme of things. Plus it’s only 6 months worth of tokenism.

For evidence of the impact of these failed policy experiments, you need look no further than the growth in the cost of new land for housing. According to the UDIA’s 2011 State of the Land Report, the cost of a typical block of land in south east Queensland has leapt from around $80,000 at the beginning of the decade to around $220,000 by 2010. That’s almost a threefold increase in price. In the Brisbane Statistical Division – which takes in surrounding local authority areas where much of the land supply is located – new lots grew from $78,000 to $215,000 but shrunk in size over that time from 705 square metres to 615 square metres, meaning the cost per square metre jumped from $111 to $350 – a 215% increase. Average weekly earnings in that time grew from $800 to $1200 – a 50% increase.

There are some economists who still point the blame for high land prices at a demand side thirst for land, fuelled in part by high levels of population growth and low costs of debt. But that story ignores the underlying cost-push pressure on land, imposed directly by regulatory mechanisms. The UDIA report also identifies that the land acquisition cost itself is only $60,000 per lot for a typical city fringe subdivision. (That figure itself would be lower if there was more competition in the supply of land). But that $60,000 is doubled after taking into account the cost of preparing the land for the market (development works), then add the cost of government levies ($39,000 per lot), GST ($20,000 – which is money for the State Government remember), stamp duty and land tax and other costs, and you’re up to $200,000. A significant chunk of that $200,000 number - $39,000 in levies, $20,000 in GST, $5,200 in stamp duty and land tax, and $12,000 in finance costs – is directly attributed to government and much of it delivered in the past decade. Finance (holding) costs, for example, are directly linked to the interminable delays in getting subdivisions approved – which have gone from a number of months to several years in that space of time.

Making the fuse

So with prices of new land being pushed up faster than the capacity of its typical consumers to pay (that is, younger and lower income households in the early stages of family formation), we get the inevitable result: lower levels of home ownership.

According to a recent and I think worrying report by REST Industry Super, one in four Australian households by 2036 will be retiring without owning their own home. That’s a fall from 85% retiring with their own home today, to 75% in 15 years’ time. Home ownership of Australians under 35 years of age has fallen from 45% in the mid 1990s to around a third today, and that reduction in home ownership will only work its way through the demographic cycle, as the REST report identifies.

But what’s worse is that alternate future savings aren’t what they could be. The same report notes that median superannuation fund balances for people aged 55 to 64 are a miserable $70,000.

Now do the maths here and if you’re a policy maker with a long term view you should start to worry. In 15 to 20 years time, we may have a greater proportion of the population entering retirement and not holding title to their own home. Plus, superannuation balances are nowhere near what’s needed to fund these people in their retirement years. The ageing of the population is going to mean more people in retirement relying on taxpayer support (the current boomers) but they are likely to be followed by another generation entering retirement with even less financial independence than their predecessors.

If you think that superannuation ever stood a chance of taking the place of the pension or aged welfare in the future, think again. And the situation’s been made worse because we’ve denied a larger chunk of the current young population the chance to save for their own future via home ownership, by deliberately increasing the cost of new housing supply through introduced regulatory and tax measures.

Adding more combustible material

Now if all this wasn’t bad enough, we’ve now got the anti-growth provocateurs claiming that our rates of population growth aren’t sustainable, and that we need to effectively halt growth or the sky will fall in (or some equally nonsensical doomsday scenario).

The ‘sustainable’ Population Minister Tony Burke recently released a population plan which said nothing about future population and entrepreneur Dick Smith continues to wage his campaign for low or no growth in Australia. With politicians running for cover and Dick pushing himself in front of news cameras, it was left to Bernard Salt to point out that, if we now choose to slow our population growth by reducing immigration, we reduce our productive taxpayer base and effectively kneecap our economy. Look what falling population growth (now at a twenty year low) is doing to a wide range of economic sectors in Queensland – from airports to construction to property – for an insight into what a low growth or no growth future might be like. Bernard’s articles here and here on population growth are worth reading if you haven’t done so yet.

The bottom line is a rapid slimming of the population bulge of young working age Australians will mean fewer taxes for the non-working Australians in the future. And in the future, if fewer of those Australians enter retirement without the title to their own home, or do so still holding a large mortgage because the upfront costs and mortgage size were excessive and their entry into the market deferred, there’ll be less capacity to self-fund retirement. Super nest eggs of $100,000 won’t go far – figures of five or six times that are what’s needed.

Ka-boom?

The shame of it all is how unnecessary the current policy settings are. Despite the clear damage being done to the current generation of new entrants and young families by deliberately increasing the cost of new entry level housing, and the increasing reports of mortgage stress and defaults in the face of mortgage overburden and cost of living increases (and yes, imagine the collateral damage we’ll see with a carbon tax), policy makers blindy carry on citing untested and unproven ideology.

If you ever wanted an example of the sort of deranged policy speak that passes for town planning in some circles today, have a read of this tirade by a Queensland academic, suggesting that the ULDA’s involvement in low price housing at Flagstone is somehow a reckless return to ‘1960s style sprawl.’ Typical of many similar ideologues, the author makes no mention of the affordability issue and is totally removed from market needs of young families.

Left unchecked, today’s policy settings will continue to exert unnecessary cost pressures on new housing. It will deter many from the market because they simply cannot afford it. Or they will defer their entry into the market, still with low deposits, and find themselves retiring still with a mortgage and a miserable super fund balance, and a relatively smaller society of working taxpayers who will resent any further burdens on their wallets to pay for someone else’s aged pension.

This is something that the highly paid academics may not get. They may be planning their second investment home, and a generation of highly paid bureaucrats may face retirement with lovely super fund balances and a tidy property portfolio. In the process, we may have created two classes of Australians – those with property (and probably quite a bit of it), and those without.

Personally, I don’t think that’s a pretty picture. And how ironic that this is potentially the future we now face? It was almost 70 years ago that Robert Menzies gave his ‘forgotten people’ speech. A lot may have changed in that time, but much of what he had to say then rings loud and true today:

I do not believe that the real life of this nation is to be found either in great luxury hotels and the petty gossip of so-called fashionable suburbs, or in the officialdom of the organised masses. It is to be found in the homes of people who are nameless and unadvertised, and who, whatever their individual religious conviction or dogma, see in their children their greatest contribution to the immortality of their race. The home is the foundation of sanity and sobriety; it is the indispensable condition of continuity; its health determines the health of society as a whole...

The material home represents the concrete expression of the habits of frugality and saving "for a home of our own." Your advanced socialist may rave against private property even while he acquires it; but one of the best instincts in us is that which induces us to have one little piece of earth with a house and a garden which is ours; to which we can withdraw, in which we can be among our friends, into which no stranger may come against our will. If you consider it, you will see that if, as in the old saying, "the Englishman's home is his castle", it is this very fact that leads on to the conclusion that he who seeks to violate that law by violating the soil of England must be repelled and defeated.

England may have lost its chance with widely available home ownership, but is it too late for Australia?

The day the music died

2011-05-17T01:35:00.000-07:00

“Life is great in the Sunshine State” was a song written in 1958 by Clyde Collins, and became a sort of anthem which championed the low tax, pro-business and pro-growth attitudes of government and people that characterised Queensland for so long. Queensland’s economic reputation became a magnet for talent and capital, with net interstate migration peaking at over 1500 people per week in the early to mid 1990s, in turn fuelling more growth. But that’s now just a fond memory. Queensland’s population growth is slowing rapidly, its economy being outpaced by South Australia and even Tasmania. The wooden spoon economy that once was Victoria is now the envy of many in business in Queensland. If it weren’t for the resources sector, Queensland’s economy would be in the toilet. What went wrong?

If you’re part of a national business, it can be hard to explain – the idea that the Queensland economy is somehow limping along behind the rest of Australia is counter intuitive. Many interstate colleagues, after being subject to decades of economic bragging by Queenslanders, have accepted as an article of faith that somehow Queensland is immune to downtown. But it’s sadly true, and the evidence is mounting that Queensland’s performance has hit the skids.

One noticeable indicator has been the rapid decline in population growth. Net interstate migration was once the engine room of growth in Queensland, with cashed up southerners moving here with spare cash after buying a better house than the one they left behind, meaning money for the kids’ education, a boat, and a better lifestyle all round. But that trend has now slumped to its lowest levels since records began. From a peak of nearly 50,000 or 1000 per week in the early 1990s, last year the figure collapsed to 9,576 people, or 184 per week. Overall population growth was for a time held up by increasing numbers of overseas arrivals to Queensland, but even these figures are now falling, bringing overall population growth in Queensland to a relative standstill. It’s something The Pulse foreshadowed here and here.

(It’s ironic, isn’t it, that only one year ago the State Government was holding a population summit, arguably because Queensland couldn’t cope anymore. And now the problem is insufficient growth. So much for long term planning, and a cautionary tale about the dangers of governments waxing lyrical about the future, rather than focussing on the here and now. As The Pulse warned a year ago: “It would be the ultimate irony if, in the midst of a debate about future population numbers outstripping our capacity to deal with them, that this turned out to be the least of our worries.”)

For an economy which for so long has been reliant on growth, the slowdown is having dramatic effects. Construction starts are at record lows. According to the UDIA’s latest quarterly Development & Construction Industry Performance Report, some 17,000 construction jobs have been lost since 2008, with nearly 8,000 lost in the most recent quarter. Reports this week that housing finance approvals have fallen across the board but most dramatically in Queensland, will mean more bad news on that front is just a matter of time. Beyond construction, the broader economy doesn’t rate much better. In mid April, Commsec released it’s “State of the States” report, which revealed that “Queensland is at the bottom of the list in terms of economic performance, suffering from above-average unemployment and a poor housing market.”

That view was reinforced by a report from the Centre for Independent Studies earlier in the year, which claimed that Queensland’s financial performance rated amongst the worst of any state. According to reports at the time: “In the 2009-2010 period Queensland ties with South Australia for dead last, while Victoria and Western Australia are ranked as the best performers in terms of fiscal management.”

Rising costs, taxes and charges and increasing red tape are frequently blamed, and it seems with some justification. In February, the RACQ released research showing that Brisbane motorists are paying more for fuel than drivers in other major Australian cities. Hang on, didn’t we used to have some of the lowest petrol prices in the country? With petrol and transport forming a significant part of the average worker’s household budget, this becomes another nail in the Queensland growth coffin.

Of course petrol isn’t the only non-housing cost for average income households to grapple with. The whole cost of living equation, which used to be in Queensland’s favour, has somehow reversed. In April, ING’s Financial Wellbeing Index reported that consumers Australia wide were struggling with rising costs of living, but that Queenslanders were struggling the most. “Queenslanders, who are still recovering from disastrous floods and cyclones, suffered the biggest hike in living costs - 8.3 per cent over the past year, compared to 6.3 per cent in NSW,” the report said. And a leading factor in those costs of living are rapidly rising utility costs. Electricity and water bills are galloping well beyond many household’s capacity to pay. In fact, the rapid rise in utility costs now rates as more of a concern for consumers than interest rates, according to this report.

Once again, it’s a reversal of fortune for Queensland, which once (in what seems recent memory) boasted of low electricity charges (that’s history), the cheapest vehicle registrations in the country (now among the highest), among the lowest land taxes and stamp duties (no longer), a quick and efficient development approval system (that was good while it lasted), abundant land for growth and development (now artificially constrained without empirical justification), a solid tourism industry (now being beaten by Victoria – can you believe it?) and of course low cost, affordable housing. The sad reality is that it is now more expensive to buy a block of land in Brisbane than Melbourne, and that Melbourne’s western corridor has overtaken the Gold Coast as a growth region in Australia, according to this report.

So what went wrong? Everyone will have a theory, mine traces the roots of this downturn to a few things. First, the series of planning initiatives which sought to constrain urban growth within artificially imposed urban growth boundaries had the immediate effect, combined with the introduction of upfront development levies, of raising the cost of land, which rose relatively fast compared to other major centres. Housing is the biggest single cost for most new families, and once the costs of new housing supply in Queensland were pushed to the brink of people’s capacity to pay, the market – along with our competitive position – slowed dramatically. We can’t blame the GFC, or interest rates, as these have the same effect nationally. These don’t explain why Melbourne, for example, has experienced solid supply growth in new housing supply, at lower costs, than south east Queensland.

Promoted under the guise of ‘sustainable growth’ these land use policies have failed the aspirations of average workers on average incomes of around $60,000 per annum, who can no longer afford new housing product, without considerable financial pain. The phrase ‘growth management’ has become a byword for ‘growth control’ and reflects an outdated and unsupported view (on the evidence at least) that our rates of growth need containment. A state which once sought and promoted growth has become a state which fears it, and we are paying the economic consequences.

Another major contributing factor has been the disconnect between public policy and the people it is designed to serve. Policy initiatives which have sought to direct consumer behaviour through pricing models have not been subject to affordability tests, or financial impact tests. So whether it’s been the raft of new building codes which have added thousands to the cost of building a basic home, or what’s happened to electricity prices, water prices, or any of a number of ‘user pays’ initiatives, it seems few have asked the obvious question: ‘can the user (ie the consumer) afford to pay?’ The combined effects of multiple cost increases have eroded Queensland’s economic advantage, with workers on average wages feeling it most. They have responded with belt tightening – something the denizens of Brisbane’s inner city coffee shops, or upper echelons of the bureaucracy, may be unfamiliar with.

Finally, we seem to have lost sight of a simple reality: there can be no public sector without a profitable and healthy private sector. The latter generates wealth, the former collects it, and spends it, redistributing wealth according (in theory) to democratic decisions made by the people. But rather than supporting and promoting private sector growth and development, an attitude appears to have taken root which derides wealth creation and which assumes the public sector can do better. That’s most visible in development, where ‘greedy developers’ (who actually provide many times more houses than government, and who pay considerable taxes) are attacked as a group for daring to question the imposts on their industry. It has become a thought crime to challenge planning policies which promote lovely images of future urban growth without a single reference to consumer needs, aspirations or capacity to pay.

Developers aren’t alone – witness the furore on South Stradbroke Island, where sand miners defending their industry against planned closure have been marginalised and attacked for having the temerity to point out the economic value they bring to that community. (This reached a point of high farce when the Premier and Climate Change Minister were pictured on some supposedly pristine sand dune, talking to media about the importance of the natural environment on Stradbroke, except the very dune they’d been pictured sitting on was a former mine site which had been rejuvenated by the miners).

Economic growth and private sector wealth creation are what will pay for the public hospital beds, school classrooms and expanded infrastructure. Private developers, given the chance, will provide Queenslanders with the types of housing they want, in locations they want, at prices they can afford. Farmers will provide food efficiently if allowed to manage their land without instruction from environmentalists and policy makers. And the taxes paid by miners and farmers and other businesses will also pay for the national parks and environmental standards the community says it wants. This is a pretty fundamental thing to understand, but are we living in a state anymore where this is clearly understood?

Tiny [thought] bubbles

2011-04-12T01:47:00.000-07:00

Entrepreneur Dick Smith wants Australian families to be subject to China-like population doctrine. Families should be limited to just two children, the father of two and grandfather of six says, because our population growth is something like ‘a plague of locusts.’ But at the very time people like Smith are warning that the sky is falling on population control, our population pressure is arguably the opposite: we need more people, not less.

Thomas Malthus was an 18^th century economist and Anglican clergyman, whose ‘Essay on the Principles of Population’ (published 1798) popularised the notion that vice, plague and famine were natural forms of population control, without which population growth would ultimately be limited by the means of agricultural production. In short, overpopulate and starve because food won’t keep up.

Maulthusians never seem to fade far from attention. Almost 200 years later, in 1968, Paul Ehrlich wrote the blockbuster ‘The Population Bomb’ which warned of imminent mass starvations and famine due to overpopulation. 1968 must have been the year for sensationalist blockbusters, because it was also the year that Erich von Daniken wrote ‘Chariots of the Gods’ (which argued that ancient astronauts built the pyramids, educated the Aztecs and basically gifted mankind with alien intelligence). Pseudo sciences sell better than dry evidence-based science after all. Just ask American pulp fiction writer L Ron Hubbard (and look where it got him).

Now joining the fray is our very own Dick Smith, former super-nerd and founder of Dick Smith Electronics stores, aviator, publisher (of Australian Geographic), entrepreneur and 1986 ‘Australian of the Year.’ Ironically, given his latest comments on population theory, he was also founder of the Australian Skeptics Society (amongst whose ranks you’d be unlikely ever to find a Malthusian).

Dick’s a popular figure in Australia, and when he speaks people (and the media) listen. But there are a number of problems with Dick’s suggestion that Australia is overpopulated, and even more problems with the suggestion we need to limit our growth through a two child policy.

First, let’s start with some global perspective. Overall, world population growth rates are slowing according to the United Nations and the US Census Bureau. Further, based on United Nations forecasts, populations by 2050 will be smaller than they are today in 50 countries – leading economies included. Here’s a useful article from The Economist which explains. And in this article from Bloomberg’s Businessweek, titled ‘Shrinking Societies: the other Population Crisis’, the massive economic and social problems of countries with falling populations are highlighted. Here’s an extract:

"Europe, Korea, and Japan have gone into panic mode," says Carl Haub, a senior demographer at the Population Reference Bureau. A declining population impacts a country's economic growth, labor market, pensions, taxation, health care, and housing, according to the U.N. Globally by 2050, the number of older persons in the world will exceed the number of young for the first time in history, according to the U.N. The imbalance will create havoc in the pension systems and make it difficult to support retired and elderly persons, Haub says.

That sounds awfully familiar. Australia’s ageing population is a problem, and this country also faces a demographic time bomb whereby, in the absence of more young people, we will soon have a very large population of retirees and seniors, with demands on the welfare system largely unfunded by the present tax system and those who fund it (namely, workers in the private sector).

But strangely, discussions about our ageing population and how to fund it, and concerns about the overpopulation of Australia, seem to take place side by side without the logical connection being drawn between the two. If we are to avoid a horrendous tax burden on the future generation of workers, in order to maintain our standard of living and support the needs of the boomers, we will need more workers. It’s either that or higher taxes. And the problem with higher taxes, as other countries with similar problems have found, is that they can lead to an exodus of the workforce seeking better opportunities elsewhere. Which in turn reduces the tax base. No ‘win-win’ there.

Doug Saunders is the author of ‘Arrival City’ - a book about the conflicts and change brought on by massive urban migrations. And in this article, he explains the problem very clearly:

In Japan, an aging population and commensurate shrinking work force and taxpayer base has produced 20 years of consistent deflation, rising poverty and inequality. To avoid that fate, other countries are either shifting more of the population into the working-age bracket by raising retirement ages, or by taking in large numbers of immigrants.

Without mass immigration and much higher retirement ages, now-prosperous states will become impoverished: By 2050, most Western countries will have to devote between 27 and 30 per cent of their GDP to spending on retirees and their needs, according to the bond-rating agency Standard & Poor’s; this will produce fiscal deficits in most advanced countries of almost 25 per cent of GDP, making the current crisis seem minuscule by comparison.

...

In Japan, the first advanced country to see its population shrink and age rapidly, employers have responded the only way they know: By moving to China, which is now home to some 20,000 Japanese firms.

But even China is aging fast. The working-age population, which now makes up three-quarters of China’s 1.3 billion citizens, will plummet to 66 per cent after 2035, when the country’s population starts falling. Already, China’s coastal cities are talking about taking in immigrant workers. “Given China’s age structure today,” Mr. Fishman writes, “it is in the midst of a retirement avalanche … today, for every 10 working Chinese there are two elderly dependants, but by 2050, there will be six elderly dependants for every worker.”

This is not a remote or abstract crisis. Countries like Canada will soon be fighting to attract anyone we can get to work – and squeezing as much as we can from the remaining few.

Australia has been fond of comparing itself to Canada. We are both western democracies, operating under similar governance systems. We both have relatively small populations given our geographic size (Canada has 34 million people, we have 23 million) and abundant natural resources. A resource we both lack is people. If Saunders is right about Canada fearing the same demographic problems as Japan (population 127 million), Australia might want to take note.

Dick Smith’s concerns for Australia rely on a second, also false, argument:

"We are putting our kids into high-rise because we are running out of land, because people want and need to live close to the city. We pay $50 million a year for free range eggs for our bloody chooks to be free range - what about our kids? I was a free range kid. I had a backyard. We are starting to lose that now, and it's only driven by the huge population increases." (full article here)

But Dick, we aren’t running out of land. This argument is preposterous, on any valid domestic or global comparison. The reason we are denying future generations a backyard in preference over high density dwelling is not a land shortage brought on by population growth, but a planning philosophy which dogmatically asserts that growth boundaries and high density are the preferred regulatory path for accommodating growth. Developers and land economists could explain this to Dick, if he were prepared to listen. Plenty of people, given the choice, would happily occupy suburban blocks far from CBDs because their work (which for 9 out of 10 Australians is not in the CBDs) and their lifestyle preferences (typically raising a family) are that way inclined. Those people though are not planners, and neither are they part of the current oligarchy which delivers decisions allegedly in their interests via the confines of inner city coffee shops.

Even in the United Kingdom (population 62 million, in an area slightly larger than Victoria) there are those proposing the establishment of new urban centres to provide housing choice and to accommodate growth. Ian Abley’s Audacity.org has proposed a ‘250 New Towns’ movement, which seeks to do precisely that.

If there are those prepared to venture such audacious ideas in a nation the size of the UK, one wonders why Australia has allowed itself to become preoccupied with the notion that we are somehow running out of land.

Australia’s growth rate is currently a dizzying 1.6% per annum. It’s fallen from a high of 2%, as international migration was reduced. Neither rates of growth, on a global scale, are remarkable. By 2050, when global population growth is predicted to stop, our total population will reach an estimated 35 million people, of whom 23% - or nearly one in four - people, will be aged over 65.

It reads not like a recipe for over population, but one of under population. Perhaps it’s time the tiny thought bubbles of Dick Smith and his cohorts in this discussion were well and truly pricked by the sharp end of reality?

The socialisation of ‘private’ property

2011-03-16T22:34:00.000-07:00

The notion of private freehold land was once sacrosanct, in law and in public policy. But the rights of private property owners are slowly being eroded. To what extent is land private anymore, when so many government impositions can be made upon it, without recourse? This exchange below is a piece of satire, designed simply to highlight where property rights are heading. The interchange, and the characters, are entirely fictional.

THE SCENE: A landowner with a 100 hectare parcel of rural land right on the wrong side of the urban growth boundary, visits a bureaucrat to discuss his options for improving the value of his holding.

Landowner: Good morning, I’m here to discuss this letter which says I can’t divide my block up because my application’s been knocked back under this regional plan of yours.

Bureaucrat: Good morning Sir. First I should explain it’s not my regional plan, it’s a regional plan for all of us, so we can all live sustainably and plan for a better future for our wonderful region. Now the reason your application was rejected is because your land has been defined as an important piece of our rural environment and we don’t want to see that ruined by people chopping up blocks for rural residential housing.

Landowner: Who’s this “we”?

Bureucrat: The government, and the community Sir. There’s been extensive public consultation on all our planning schemes so we’re really only doing what the people want...

Landowner: Not what I want mate, and no one asked me. Look, immediately across the road, some developer’s bought my neighbour’s land which is the same size as mine and they’ll be subdividing it for a new housing estate. My neighbour’s retirement and future health care costs have all been met through that sale, but here I am right across the road, and I can’t do anything like that.

Bureaucrat: Well I am sorry Sir, but the boundary has to go somewhere, and it’s important we balance the needs of future housing with the need to preserve rural lands. Plus, the people who live on your neighbour’s block in the future will appreciate having the open space provided by your land.

Landowner: Oh terrific, so you’re using me to provide the views for the people across the road all cooped up on tiny blocks and in townhouses. If you want the views that much, why don’t you buy my land?

Bureaucrat: (laughs) The government isn’t made of money Sir.

Landowner: All right, so tell me this. My land’s only marginal as cattle country. Half of it’s covered with regrowth so to improve the land I’ll need to clear some trees and improve the pasture. I presume you don’t object to me doing that?

Bureaucrat: Sir, I’m sorry but you can’t be serious? Haven’t you heard about climate change? We can’t allow people to cut down trees willy nilly, there are very strict rules about that. We need to care for our environment, not ruin it. Plus, that land is an important koala habitat and essential to the survival of the species in this region.

Landowner: What?! You’re kidding aren’t you? No one’s ever seen a koala out here in living memory. It’s the wrong sort of country. The wrong sort of trees. What sort of bloody evidence are you on about?

Bureaucrat: Scientific evidence Sir. We’ve used the latest satellite imagery and survey maps to determine that ...

Landowner: (Interrupting): .... did anyone get out of their bloody office and actually walk around and look for themself?

Bureaucrat: Yes Sir, they did. (Impatiently) We have a report on hand from a prominent environmental group which claims to have collected koala droppings in this very area.

Landowner: (Increasingly impatient). They’ll find koalas on the bloody moon that mob if they’ve smoked enough drugs... you must know that they’re all bloody inner city hippies who wouldn’t know koala shit from cow shit.

Bureaucrat: Now Sir, calm down. They’re a very respected group - very influential in government circles.

Landowner: Only because those bloody greenies give the government their votes to keep them in power and doing what they want. (Pauses). Never mind, if I have to leave the trees, I’ll need to improve the water holding of the land. I want to dam the seasonal creek that runs through it. You don’t have a problem with that I hope?

Bureaucrat: Sir, I find your disrespect for the environment disappointing. That creek is an important riparian habitat, at the headwaters of an important waterway where lungfish fossils have been found. You can’t possibly dam the creek. In fact, we will shortly be asking landowners with creeks on their properties to instigate a riparian repair program, so that these creeks can be restored to their original pristine condition.

Landowner: (Mouth agape). WHAT?! You tell me I can’t put a dam on my creek so the cattle have some water, and not only that, I’m supposed to spend a small fortune planting weeds along the creek bank because someone downstream found a bloody fish skeleton? Have you lost you mind?

Bureaucrat: Not at all Sir, it’s good policy to ensure the protection of creeks and waterways for future generations. There are serious fines if you deliberately breach that policy you know. But rest assured, we will consult with landowners like yourself before the new riparian laws come into effect.

Landowner: What’s the bloody point if you’ve already made up your mind?! For crying out loud – I can’t divide my land which is next to useless as a rural block except that it improves someone else’s views, I can’t cut down the trees to improve the carrying capacity, I can’t dam the creek to hold water, and now you want me to spend my money planting reeds along a dry creek bank and it’ll only be dry because all the water will drain away because there’s no dam to hold it back. Tell me this, what exactly CAN I do with my land?

Bureaucrat: Anything you like Sir, it is freehold land after all and this government respects private property rights above all else.

Landowner: So I can put a house on it?

Bureaucrat: Provided you seek the appropriate planning permission, and ensure that all the referral agencies concur with where you plan to put the house. Mind you, you’ll need to ensure that the house design and colour scheme also comply with local character planning guidelines, and also that any greywater and blackwater is treated with an approved on site eco-friendly waste treatment plant. We have extensive guidelines which are available if you’d like to read them.

Landowner: But right across the road there’ll be multiple brick shit boxes on small blocks with a sewerage connection? Those waste treatment plants cost a small bloody fortune...

Bureaucrat: But what price can we put on saving the planet Sir? I don’t think you should be down heartened, it could prove a valuable asset for your property, and we’re processing the approvals much faster now. You could even have yours in under 3 years. Of course that depends on how our revised planning scheme progresses.

Landowner: What revised scheme?

Bureaucrat: As part of our commitment to creating more liveable places, we’re looking at realigning some roads and creating bikeways and public transport corridors. Now, my understanding is that the draft plan for your area could mean a busway and bike path through the middle of your block, but we won’t be able to confirm the final decision until the draft plan has been out for public consultation, feedback received and the final plan gazetted. That could be as quick as 10 years.

Landowner: (By now, on the verge of tears). You want to push a busway through my block? That’ll render it unsaleable... and you want to take 10 years to work out whether you’re going to do it or not? Listen, there’s no one bloody well there who will ever use a bus. Not now, not ever. Anyone living there will be a tradie or work locally, they’ll use their cars. That’s what they want. But if you do that, I’m stuck with complete uncertainty about whether my land is going to be affected or not, and I doubt you’re going to offer me any compensation.

Bureaucrat: There IS certainty Sir, your land is freehold, and as such, of course we will compensate you for the slice we require, if we require it, based on our official land valuation of your land as a rural holding.

Landowner: But the value you come up with will be next to nothing because I can’t subdivide it, I can’t clear the trees for the sake of some phantom koala shit, I can’t dam the creek because of some ancient fish bones, and I won’t be able to afford to build a house because of the time and uncertainty of the approvals. You’re rendering my land next to useless, you know that?

Bureaucrat: (Taking offence) That’s NOT true Sir. We regard your land as very useful, for all the reasons I’ve outlined. That’s why we’re so intent on protecting it. Plus, we’re aware of certain underground gas finds that could be of great value as royalties to the government in the future.

Landowner: Well that’s terrific, at least I might get to make a buck if some drillers arrive some day. Bring em on!

Bureaucrat: No Sir, YOU won’t get to make anything. The gas is underground, you have no ownership of the mineral rights. The miners will and the government will collect the royalties, which improves our ability to create more liveable communities for all of us. (Sarcastically) You included.

Landowner: So you mean they can come onto my land, uninvited, drill holes everywhere, knock down trees in the process, even poison what little water’s in the creek, and there’s nothing I can do about it other than stand by and watch you and them make money at my expense?

Bureaucrat: I’m sorry you feel that way Sir. But the Government has certain obligations to expand the productive capacity of the economy and the resources sector is very important in that regard.

Landowner: I don’t know why I bother, why my parents ever bothered, why don’t I just go on the dole and forget about doing anything with the land?

Bureaucrat: But it IS your land Sir, it is freehold and you own it. You’re a very lucky person, so many others would be envious of you, given how unaffordable land has become.

Landowner: I’ll bet I could change their mind in a heartbeat. Christ, I’m ruined. Have you got anything else you want to tell me?

Bureaucrat: No Sir, that’s about it I think. (Pauses) Now let me think, there was something... now what was it? (Pauses again) Oh, of course, did I mention that someone thinks they might have found a sacred site? ....

Tourism down but by no means out

2011-02-14T22:58:00.000-08:00

As the ravages of Cyclone Yasi leave scars across the northern landscape, and as much of the rest of Queensland continues with a clean up and repair bill from successive flood inundations, recreational visitor numbers to various part of the state will inevitably tumble in the short term. Tourism’s recovery from natural disasters will occupy headlines for a time, and the industry will recover. As it does so, industry leaders could begin to focus on some of the man-made disasters which deserve equal attention in any rebuilding and growth plans.

Tourism industry representatives have so often predicted their industry’s near death that there’s a Cassandra element about it. From pilot’s strikes to the Ansett collapse, to S11, SARs, bird flu, the high Australian dollar, Cyclone Larry and now Yasi – each has prompted dire warnings of imminent demise accompanied by the request for bigger advertising budgets. You’d be forgiven for thinking the industry was one of our most vulnerable, based on the repeated prophesies of doom.

But the industry over the years has proven itself remarkably robust. International visitor numbers may not reflect long term predictions or industry ambitions, and Queensland’s share of that traffic may have slipped, but the numbers generally have held up. In fact, last year, there were 2% more international visitors to Queensland than the year before. This is a handy snapshot of international tourism trends, and it doesn’t provide evidence of past bloodbaths. The picture isn’t one of constant growth, but it is one of relative stability.

Domestic travel has fared worse, but with a strong dollar, who can blame Australians for seizing the opportunity to see the world.? That too will return to a balance once the dollar falls below current levels (which must surely happen at some stage). And business travel continues to perform strongly. The industry might itself be preoccupied by images of white beaches and bikini girls, but men in dark suits attending meetings and conferences actually generate more nights and more dollars spent. It’s why Brisbane is by far the largest tourism market in the state, surpassing the Gold Coast. Room rates for hotel rooms in Brisbane are hardly being sacrificed, and even discount room site Wotif.com suggests that $300 to $450 per night is the going rate for the Brisbane CBD. That’s not dissimilar to what you’d pay for a decent hotel room in New York City, which is hardly evidence of a bloodbath.

So the reality will be that, despite the horrors of Yasi and the floods that affected much of the state, the industry will recover. As it does though, it might be timely for industry leaders to focus on some of the man-made problems that have been wreaking damage just as effectively as natural events.

Let’s start with the ridiculous difficulty faced by tour operators or developers of new facilities, trying to create new product for the leisure or business travel market. What the industry desperately needs is a widening and dizzying array of new tourism experiences and offerings, from Cape York to Coolangatta. Each new experience creates a richer picture of the Queensland offering and it builds the incentive to travel here. It also means each new operation has its own marketing budget, which combined with others is a more effective way of luring visitors than government sponsored campaigns. (What happened to that ‘new brand’ campaign “Queensland, Where Australia Shines”. Don’t remember? The cringe factor can be found here. It’s now been replaced with ‘Queensland, ready to welcome you.’ Tourism’s elder statesman Jim Kennedy suggested in October last year that industry agencies were out of ideas and in need of a shakeup. He could well be right).

The challenges aren’t just faced by larger businesses talking major resorts - even the smallest operations seem stymied by planning and environmental regulations. For example in Cape York, traditional owners in several communities were hoping to build tourism experiences but the environmental bureaucrats combined with the politics of Green preferences meant those hopes were dashed in the form of Wild Rivers Legislation. On Fraser Island, chances of anything much happening at Orchid Beach were killed off by environmental forces claiming the area too sensitive, even to beach camping at Waddy Point. On the Gold Coast some years back, attempts to build a skyrail experience to the Springbrook Hinterland were similarly strangled in regulation and anti-anything politics. Earlier this month, developer Graeme Juniper abandoned plans for a $500 million eco resort in the Sunshine Coast hinterland, after a fruitless seven year battle with the local (and allegedly pro-tourism) council. I even know of one dairy farming family who wanted to run Dairy Farm tours in school holidays for city kids in south east Queensland, but the town planners in the local council heaped so many regulations and application fees on their idea that it too died a deliberate death by bureaucracy.

The point here is that whether it’s a micro tourism proposal or a major one, whether it involves simply accessing natural areas or building structures on private or public land, the regulatory environment is tilted heavily against the proponent. This has become a sort of Berlin Wall of regulatory opposition, too difficult for most to scale and too big to go around. Erected in the name of environmental protection or safety, these regulations have had the effect of achieving environmental paranoia and a nanny state obsession with the precautionary principle. And they are strangling the chances of new tourism products being established, which are essential to the future viability of the industry.

Without new tourism experiences or new physical assets, the Queensland tourism picture will start to fade like a postcard from Surfers Paradise in the 1960s. It possibly already is, unaided by tourism campaigns which largely turn their back on promoting business tourism in the capital city and instead trot out the same beaches, the same palm trees, and the same rainforest. For the industry, identifying this massive obstacle to the development of new and expanded tourism offerings ought to be a very high priority.

And when it comes to calls for increased marketing budgets, perhaps we could start to press for campaigns which make direct connections to districts and regions. Instead of announcing some new $10 million tourism campaign designed to bring visitors back to Cairns, for example, give the money to Qantas, Jetstar and Virgin in exchange for free or heavily discounted seats. If a Sydney-Cairns return flight is worth $250, $10 million would be worth 40,000 free return seats, even more if the subsidy was one way only, or for discounts rather than free seats. Over the course of six months, an extra 40,000 visitors spending money in Cairns (or any other distressed destination) would have a direct bearing on the profits of businesses that employ people and that constitute what is called the tourism industry. Initiatives which go direct to stimulating visitor traffic have to be superior to cliché ridden advertising campaigns.

Finally, it would be good to start undoing the assumption that our environment is too fragile and far too sensitive to allow any more intrusions by people. Operators and visitors may have impacts, and these are manageable. You can’t have industry, jobs or create taxes to pay for social services by locking up vast areas with ‘DO NOT ENTER’ signs.

The obsessions with ‘damage’ caused by walking or 4WD tracks in wilderness areas, with water quality because of people’s sunscreen, or the outright alarm at the prospect of clearing a few trees to make way for a structure of some sort, must surely look a bit ridiculous now.

Have another look at the images of vast devastation caused by Yasi, or of the floods of 2011. Thousands of hectares of trees and forest damaged, rivers and creeks unrecognisable. Yet we’re precious about the relatively minor impacts of man and in the process are choking off an industry’s future prospects to develop new product.

Housing bubble? No but, yeah but …

2010-11-28T15:01:00.000-08:00

Talk of a housing bubble and an imminent collapse of Australia house prices gathered steam recently with reports of a senior Treasury official sounding the alarm on house prices as ‘the elephant in the room.’ (Read the story here). So is there a bubble, and if there is, will it burst or slowly leak? And what’s likely to happen next year?

Our media tend to focus on extremes – so balanced reports of what’s happening in the housing market are hard to find. Better to give exposure to doomsayers like Steven Keen (the Professor who predicted a 40% fall in prices, remember him?), or boosters like the many real estate agents or investment advisors, trying to pry money from your hands. A Treasury official may sound like an impartial judge of economic events but don’t worry too much about what one official may have to say – they’re notoriously inefficient in predicting economic outcomes. When’s the last time you heard of a government getting its budget forecasts even close to right?

That said, there are widening views about house prices in Australia and the banking system’s high dependence on a stable housing market makes this a deadly serious subject. The question of a ‘bubble’ presumes a risk of imminent collapse, which would mean economic calamity for many recent buyers without the equity buffer to ride it out, along with much of the economy.

So are prices too high, and if they are, do we risk a rapid fall? Yes, and no – in that order (and in my opinion).

The question of house prices hinges on people’s capacity to pay. Even with latest data showing the average wage has reached $65,000 per annum, median prices around $450,000 are still high – being around seven times average incomes. New entrants to the market find it especially hard, given their incomes are typically lower than average. Two income families are now the norm out of necessity, but even then, the combined household income is under pressure to fund a home at the lower end of the market (say high $300s). New product isn’t generally available for much under $400k – so gone are the days of moving out to the urban fringe to buy cheap.

Pressure on peoples’ capacity to pay is also being exerted via other means – rising utility charges (especially electricity, and now water), motor vehicle registrations, day care costs (a reality for the two income family) and so on. That’s why small movements in interest rates, adding $50 a month to mortgages, are hurting many. With all that in mind, it’s hard to see how prices can rise any further without substantial wages growth, and if that happened, the RBA would cool the growth by raising rates further, cancelling out the increased capacity to pay. Turn it whichever way you like, further rises in prices in the next several years are hard to foresee.

A further point on the RBA is their concern that rising prices, in the absence of new supply, would be a worrying trend. And that’s exactly what happened in the past couple of years – prices rose, and new house starts fell. Glenn Stevens, Chief of the Reserve Bank, warned of this over a year ago:

“A very real challenge in the near term is the following: how to ensure that the ready availability and low cost of housing finance is translated into more dwellings, not just higher prices. Given the circumstances – the economy moving to a position of less than full employment, with labour shortages lessening and reduced pressure on prices for raw material inputs – this ought to be the time when we can add to the dwelling stock without a major run‑up in prices. If we fail to do that – if all we end up with is higher prices and not many more dwellings – then it will be very disappointing, indeed quite disturbing. Not only would it confirm that there are serious supply-side impediments to producing one of the things that previous generations of Australians have taken for granted, namely affordable shelter, it would also pose elevated risks of problems of over‑leverage and asset price deflation down the track.”

(You can read my article last year dealing with why Glenn Stevens was right to be worried about the housing market by clicking here).

So if we assume prices are now at a peak, what’s the risk of a rapid fall? Still pretty minimal I suspect, for a number of reasons.

The cost of new supply is one factor supporting a floor in prices. Developers would be releasing more stock to the market now if they thought the market was there. But the prices needed for new stock are determined by a range of underlying inputs – the high cost of raw land approved for development; the time cost of development assessment; the cost of taxes levies and charges; and the actual build cost the structure. This means the cost of new supply can’t fall (unless developers start selling at a loss). That new supply is around the mid to high $300s for apartments in Brisbane, and probably closer to $400k for a house/land package in a new estate. (Victoria’s new housing market is noticeably cheaper and their politicians are debating moves to make it even more so through cuts to stamp duty. A shame we don’t see that in Queensland).

New supply is also slowing, so there isn’t a big surplus of new stock floating around. Developers won’t sell for a loss and buyers can’t afford (or don’t want to) pay the necessary price for new product, so it isn’t being created. Plus, population growth – once an engine room of growth for the Queensland economy – is slowing, fast. Net interstate migration is falling fast, so we’ve become reliant on breeders and overseas migration for our growth numbers. That’s growth with a different demand profile to what we’ve been used to. So the demand isn’t there as it used to be, and neither is the supply.

Investors have reportedly been keeping the market alive but they will realise that the concept of negative gearing relies on capital growth for the sums to stack up. If prices are at or near their peak, it could be a long wait for capital growth to compensate for the yield losses on mortgaged rental stock. But unless investors are quickly forced to sell, there’s little likelihood of a flood of investment stock hitting the market.

Slower sales rates are already making themselves felt however, and vendor expectations are confronting buyer sentiment, which means prices are being dropped to meet the market. This will have to show up in median price data soon enough, but the percentages won’t be the calamity predicted by bubble theorists because as soon as reported median prices fall, bargain hunters will create a new floor of support. There are always plenty of punters who can’t say no to a perceived bargain.

Further to that, employment promises to remain strong. I remember the media laughing at claims (not so long ago) that unemployment would fall to 5%. Well, in the midst of the GFC, it’s barely moved from there. Provided people have incomes, and provided the cost of living doesn’t get further out of control, and provided interest rates don’t hit double digits, there won’t be that many people in a ‘forced to sell’ situation which would create the imbalance of supply and demand needed for a ‘bubble’ to burst.

The more likely scenario is not a burst but a slow leak. If next year we start to see median prices falling, the media will latch onto that and headlines will scream ‘collapse’ but in reality, a fall of even 10% will only being prices back to their 2008/2009 levels. Not good news if you’ve recently lashed out on a big mortgage and bought the most expensive house you could possibly afford, but those people are a minority in the market. (Media reports will of course focus exclusively on that minority).

Confidence will not be high if the media turns gloomy on all things housing, but perhaps it’s the breather the market needs? We can’t really sustain further increases in prices unless we are willing to consign an entire generation to non home ownership. Higher income households will unlikely be affected, and investors who bought more than three or four years ago will still find the increased rental incomes over that period sufficient reason to hold. There’ll no doubt be some movement in the median price figures, but it’s also quite probable those figures will be based on much smaller volumes of activity.

None of which is especially exciting for 2011, and possibly also 2012. Maybe real estate will for a time stop being the BBQ stopper it’s become, and we’ll see fewer shows on TV about how to make fast money on housing, and fewer spruikers occupying column centres in the press, talking up the future prospects of housing as a ‘make money’ proposition, as opposed to being somewhere to live.

Market stability doesn’t generate headlines, and once you stop reading daily or weekly reports about the housing market, or when TV shows like ‘The Block’ have faded into a memory, it could then be the time to dive back in. But that time may be a while away yet.

UNLOVED AND UNWANTED

2010-11-09T14:34:00.000-08:00

At a time when construction starts are falling across the spectrum from commercial to retail, industrial and housing, and construction industry jobs are going with them, you’d think the very people holding a key to a resurrection of fortunes might be lauded. But no, developers continue to suffer a poor public image. Why, and can it ever be improved?

The Reserve Bank’s recent move to increase interest rates was not well received by the development and construction industry. Housing and non-residential approvals are in a general slide and when the industry represents such a cornerstone of the economy, this might logically be a time when policy levers are applied to turning around the problem. A widely reported lack of new supply in housing is compounded by private sector commercial development at a virtual standstill, development finance the most widely cited culprit. According to the UDIA, construction industry jobs are down by around 25,000 in Queensland. That’s a lot of incomes not being spent in the economy.

Developers as a group though aren’t exactly being courted by policy makers or regulators, looking for a way out of the problem. Quite the opposite – politicians still regularly throw the mud at the very industry which holds a key to improving housing supply and construction industry jobs. “I won’t stand by and let greedy developers get away with … blah blah blah.” You’ve all heard it before. Denial, pass the buck and shoot the messenger continue to be preferred defensive tactics of politicians responding to industry complaints of excessive regulation. Labeling all developers “greedy developers” has about as much validity as suggesting all politicians are corrupt simply because a handful break the law, but the latter (politicians) continue to target the former (developers) - and get away with it.

It’s not just the politicians of course. Many regulators and planners, if you believe the horror stories, have taken an adversarial stance to development assessment whereby the applicant (the developer) is regarded with suspicion from the outset. The regulators don’t see themselves as facilitators of new activity but as ‘growth managers’ exercising every precautionary principle known in a bid to slow, curtail, check and re-check the consequences (real or imagined) of a proposal.

Then there’s community opinion, which puts developers and real estate agents and used car dealers into the same category. Development proposals that align with local or state planning schemes, and which may have already jumped through several hoops before a public airing, are often widely rejected via the pages of the local press. This isn’t just NIMBYism, because the target of hostile public complaint isn’t the planning scheme or the local or state politician who endorsed it, but the developer applicant who is simply complying with the scheme’s intent. Irrespective of how green, how sustainable, how rational or how much needed the proposal may be in community or economic terms, it’s the developer who gets the bad press.

Why is it that developers just can’t win?

I’ll venture a theory that many readers of this won’t like. Developers are too meek, too obsequious, too prepared to be thrashed with a wet lettuce and succumb. With rare exceptions (Stockland’s Matthew Quinn is one) developers rarely comment publicly about the problems imposed on the industry by excessive and growing regulatory burdens. The allegations of land banking, of profiteering, greed, opportunism, social irresponsibility and environmental vandalism are, it seems to me, infrequently challenged in the public domain.

Some of the reason for that no doubt lies in the politicisation of development assessment: development is no longer an exercise in market and land economics, but a political game. Political intervention in planning schemes and the ability to kybosh proposals means that developers need to be acutely sensitive to their position. Throwing back the facts and arguing the case publicly may not win political friends, and developers certainly don’t need any more political enemies. But what that means is that as more mud is thrown, more mud sticks.

It’s true that industry groups have their role to play in advocating development industry positions and promoting the benefits the industry brings, and by and large do a good job with the resources available. But is it also true that developers themselves tend to hide behind their industry groups in a sort of ‘good guy, bad guy’ act where industry group executives are left to do the sledging while developers do the schmoozing?

I recall a meeting with a Government Minister some years ago, dealing with a mounting problem in the Minister’s Department which threatened to cost the industry dearly. The meeting was civil but the issues weren’t danced around – “a full and frank discussion” might be its best description. The Minister was getting the message, loud and clear. But then, at the close of the meeting, the developer representative left the Minister with the comment that “Minister, thanks for your time and we want you to know you’re doing a great job.” Bang, pop – the pressure was instantly deflated. That Minister no doubt reported to their colleagues that the industry was pretty put off but didn’t present a political problem.

So if asking individual developers to publicly challenge the mud being thrown at them and defend themselves more aggressively is akin to asking them to paint a target on their forehead saying ‘shoot me’, is any sort of group industry response to a poor public reputation possible?

A clue might lie with the farmers. Faced with a problem where farmers (thanks to aggressive environmental politics) were copping all the bad press for tree clearing and land erosion to fertiliser and herbicide runoff, while the community somehow was allowed to forget that without farmers we don’t eat, they responded. The ‘Every Family Needs a Farmer’ campaign was a defensive community education campaign, designed to build more empathy amongst urban consumers of the issues faced by farming communities. The campaign has run through several incarnations over several years, and was no knee-jerk, one-off exercise.

Now if Dick Smith can fund a TV documentary and anti-growth campaign single handed, you’d think the entire development industry could manage something in its own interests? Especially when those interests are closely aligned to the interests of the community. I don’t see this as a hard sell, but it is a story that needs selling. You wouldn’t call it ‘Every Family Needs a Developer’ but you could start with a few things that the community as a whole seems to have forgotten:

Almost every street and the houses in it, in every neighborhood, is the result of a developer at some stage taking a risk.

Every shop in every high street, and every shopping mall your family visits, is the result of some developer at some stage, taking a risk.

Almost every workplace, whether it’s a medical centre, a factory, or an office building, is the result at some stage of a developer taking a risk.

Increasingly, many of the schools, roads and community facilities that we enjoy are funded through the activity of developers.

The homes we will need so that people aren’t sleeping on the streets won’t be provided by governments, or politicians, but by developers. The economy that we need to feed our families and support our aged and infirm, relies heavily on developers and the construction jobs that flow from them.

Many developers go broke trying, and in doing so, they lose their own money, not public money. It’s a high risk venture where certainty is essential. It’s not an industry where the public sector has ever shown much of a track record – witness the billions squandered on public housing programs which produce very few roofs.

Developers have legitimate concerns about the cost of doing business. It means their costs to the consumer – in the form of houses young people can’t afford, or rents that businesses struggle to pay, are higher than they need to be. It’s not developers making this happen – it’s regulation.

At the end of the day, developers can sit back and wait for more mud to be thrown, or begin to defend their reputation, and to defend the need for growth.

Is there anything to be lost by trying?

Top gear it ain’t.

2010-10-07T19:38:00.000-07:00

The decision by the Queensland Government to take planning control of Stockland’s massive Caloundra South development away from the Sunshine Coast Council, prompted a predictable retort from the Local Council. In the process, it brings into perspective the competing tensions between various planning authorities and regulators. Those tensions are getting worse, and none of it is doing anything to reduce red tape, improve decision making, speed up supply and reduce housing costs.

The decision on Caloundra South was controversial not so much because it was called in by the State Government, but because it was handed over to the Urban Land Development Authority, a group labeled by Brisbane Lord Mayor Campbell Newman as “unelected, unaccountable and busily pushing the planning policies of unelected state government bureaucrats on local communities.” (Read the story here). That’s pretty much spot on, though he could have added some equally derisive comments about the ballooning budget of the ULDA and its staff, and questioned why we need a State Planning Department at all, if it is considered so inept at getting anything done that its role is being increasingly usurped by the ULDA.

In fact, why bother with Local Government Planning roles at all, if the ULDA or the State think themselves the only ones competent to assess significant development applications or consider substantial issues of local and regional planning? No doubt that’s the view of the Council of Mayors in South East Queensland, who have loudly objected to the decision on Caloundra South and the increasingly significant role being taken by the ULDA.

The State Government counters by arguing that projects like Caloundra South have been in the planning ‘in tray’ of local government for far too long. A slowing supply of developable land and escalating infrastructure costs are problems laid directly at the door of local government by the state. Caloundra South has been subject to planning assessment and debate within Sunshine Coast Council for around 5 years already, with not a single roof yet to show for it.

The Federal Government buys into the fray by arguing that both State Governments and Local Governments must act on reducing red tape to accelerate the supply of land, but the Feds seem content to play the role of commentator, rather than enforcer.

The Reserve Bank buys into the debate by frequently noting its concerns that artificially restrained land supply and excessive development fees seem to be increasing the cost of a reduced supply of land, in the face of constant demand. Hence, they regard this policy inertia as placing in effect inflationary pressures on housing prices.

So the jurisdictional squabbles worsen and the criticisms mount with no clear end in sight. If you’re in any way a fan of motorsport, a simple analogy might explain the frustrations that housing providers are facing.

Neutral. The engine’s revving and you’re chewing through petrol but you’re not going anywhere. You’ve got an application in with your local authority, and a multitude of various referral agencies. Each begins a long process of assessment, questioning, suggesting, and quite possibly public debate. Be prepared for some overheating as you won’t have any airflow for quite some time.

First gear. You’re off the grid and underway. The engine’s revving its head off, chewing through even more juice, but you’re not going anywhere fast. Your application by now is quite possibly considerably altered from when you first submitted it. While you thought you were submitting a proposal in compliance with the planning regulations, you didn’t factor in the flexibility of those regulations. But at least you’ve now got something you hope will tick the various boxes and will hopefully get approved by the relevant authority.

Second gear. After a few laps in first, you find your project identified by the State Government as something they may ‘call in’ because it is potentially state significant. In the case of one recent residential tower, this could simply mean 300 units in a single apartment complex are deemed ‘state significant’. You’re hopeful though – anything is better than doing laps in first gear, your motor will burn out if you keep that up.

Third gear. Your project doesn’t get called in by the state, it gets flicked to the ULDA as an approval agency. This promises the potential of faster speeds, but you’ll have to return to the grid for a bit, stick it in neutral for a spell as an entirely new agency assesses the proposal and makes a series of fresh recommendations. But you’re told to be prepared to run through the gears again quickly once the flag drops.

Fourth and fifth – the top gears. These gears are available but you’re not allowed to use them. Rumours of the ‘old days’ abound though, when development approvals could be obtained from a single agency inside a month, and headworks charges were reasonable and directly related to the project in question. Entire suburban communities were created this way, housing was affordable relative to incomes, and you knew who was in charge. You reminisce with senior industry players, listening with envy to their stories of completing multiple projects in a single year. You’re struggling to complete one project in several years.

Reverse. The Planning and Environment Court can slam you into reverse faster than you thought possible. This might simply be because a competing project identifies some regulatory idiosyncrasy that allows them to appeal your approval. Advocates of a free market in planning terms quickly turn into protectionists when faced with competition from another project. Or, you could find yourself at the mercy of the EPA who find evidence of koala droppings on your site. Your pleas that they’re in fact feral rabbit droppings don’t get you anywhere, because by now the local paper is giving massive airtime to an environmental lobby who are calling you a greedy developer and an environmental vandal.

Meanwhile, construction starts continue to fall, further choking supply. If we keep this up, we’ll soon be a mirror image of NSW where housing starts are at a 50 year low and problems of affordability chronic and widespread. The other mounting problem is that what’s being widely called a two or three speed planning approvals process now seems officially endorsed: local councils are frequently at odds with the state planning department and then off to the side sits the ULDA working to another set of rules altogether. The word ‘integrated’ has it seems been banished from planning altogether. And ‘consistency’ as a principle went with it - as one eminent planner raised with me, “if the ULDA approves Caloundra South with reduced infrastructure charges, what happens to all those other poor developers on the Sunshine Coast left at the mercy of the Council and their higher charging regime? What about a level playing field on charges? What will happen to fair competition under those circumstances?”

They might be stuck in first gear, while someone else running the same race is lapping them in third, while another got slammed into reverse. Fair it isn’t, and top gear it ain’t.

Is Queensland’s tourism brand banal?

2010-09-27T22:55:00.000-07:00

Queensland tourism has a ‘new branding strategy’. But is there anything ‘new’ about it? Or is it a collection of the same banal clichés which we’ve been serving up for decades?

This week, the Premier released what was billed as ‘a new branding strategy’ for tourism in Queensland. You can find one report here, and the Youtube video of the latest tourism TV ad for the state is here.

According to the Premier, the new strategy has been worked on for a year by the brains trust of Tourism Queensland. It will be backed by an initial $4million social media campaign. Gone is the ‘Where Else But Queensland’ campaign line, to be replaced by ‘Queensland, Where Australia Shines.’

Hmmm. At a time when tourism operators and destinations are reporting diminished interest from domestic travelers (many lured overseas by the strong dollar, or simply looking for different experiences to the same old same old) and international tourist arrivals have slowed, you might have thought a ‘new brand strategy’ would be something quite different. But this isn’t.

Have a close look at the launch TVC commercial mentioned above. It’s a cascading series of beautiful images but they’re typically all featuring the same thing: beaches, ocean, water and sunshine. Have a close look. There’s a rainforest scene, and Brisbane gets a look in with a scene of people paddling up the Brisbane river in kayaks (as they do, all day. In fact, so popular is this pastime that it’s becoming a menace to navigation. Not!).

So what’s wrong with this? Tourism’s all about buckets and spades, isn’t it? The truth can be something different. Here’s a few things to mull over.

Shopping and dining, along with cultural experiences, usually rate very highly on the recreational travelers list of ‘must dos.’ They also account for much of the actual expenditure by tourists visiting a region for leisure or business (the whole point of calling it an industry, after all. Playing on the beach is free). Shopping, dining or cultural experience don’t feature in the initial ‘Queensland, Where Australia Shines’ campaign, though they may come later. You would hope so, or it could make the mistake that allegedly happened with the famous ‘You’ll Never Never Know’ campaign for the Northern Territory. Evidently, while the ad was very appealing, the fact that the campaign almost exclusively featured remote outback locations turned off a number of potential travelers, because they thought the NT was devoid of decent hotels, shops, or restaurants. So that audience never never knew because they never never went.

The other weakness of this obsession with white sandy beaches and blue waters, tropical skies and bright young things frolicking in the water, is that you can find the same experiences all over the world. For the same money, would you have a family holiday in Fiji, or the Whitsundays? Many domestic tourists have already worked that equation out for themselves. Plus, the new Queensland campaign seems preoccupied with youth. Maybe not a bad thing, but higher end mature or family travelers with solid holiday budgets to spend probably don’t plan on the sorts of ‘young, active and single’ activities profiled in the campaign.

In fact, it doesn’t look like there’s a single person in the campaign that’s aged over 30, which makes it look like an effort to turn the entire State of Queensland into a giant Club Meb or Contiki Tour destination.

While I’m on a roll, I just don’t understand why tourism promoters in Queensland insist on reinforcing rusted on images of the state. Since the 1960s, the state has been synonymous with sunshine and beach holidays. Ask anyone elsewhere in Australia the first place that comes to mind when you mention ‘Queensland’ and the answer will be ‘Gold Coast.’ I think they’ve got the message. It’s warmer, there are lots of beaches, palm trees, rainforest and reef. Because these are so synomous with Queensland, surely you don’t even need to advertise them? Mainstream media and culture does that for us - they’ve become a cultural fixation. Talk about stating the bleeding obvious.

The shame here is that the broader recreational offer of Queensland always struggles for a look in. It’s taken some time, but Queensland’s restaurants are now among the best in the country. Our fresh produce is hard to beat, offering regional delicacies which could lure high spending foodies, if only they knew there was more to the place than cold prawns in the hot sun, by the beach. Cultural and non-beach recreational experiences are improving all the time. Think about it this way – plenty of Australians holiday in Victoria. They’re not going there for the weather. But in Queensland, our tourism promoters continue to project a strong statement that Queensland is all about the weather, beaches and little else.

It might surprise many that, last time I checked at least, Brisbane has more visitors and more visitor nights than even the Gold Coast. The capital city is the biggest tourism market in the state, bar none. The reasons are common sense enough – people visiting their friends and relatives, and a very high number of business and convention travelers, along with people who actually want to experience an urban environment. The tragedy for markets like Brisbane is that, when they do feature in promotions of Queensland, they tend to mimic the beach experience, with visions of people frolicking in the artificial lagoon of South Bank, or (as they do in this case) paddling kayaks up the river.

Is this distorted image of Queensland doing harm to the potential of tourism markets which don’t fit the clichéd image of sun, surf and sand? And what about the State’s business reputation – is a one dimensional tourism message about sun surf and sand so powerful and overwhelming that being taken seriously as a place for suits to make money is a battle to overcome prejudices? Instead of swimming with a tide of opportunity, does the tropical image mean that anything not associated with those clichés means swimming against a tide?

Apparently the latest campaign is the result of a great deal of research. But looking at the first campaign offering, all the research may have asked is in essence “what do you think of when we say ‘Queensland’” and responded by feeding existing perceptions. Is there anything so wrong with telling people something they don’t know about Queensland?

Fortress Australia: ground hog day

2010-08-30T18:34:00.000-07:00

Roughly ten years ago I penned a series of articles lamenting the sudden lurch to all things rural and the demonisation of urban interests. Pauline Hanson was in full flight and politicians the country over were happy to promise anything to disaffected (largely rural) voters to regain their trust. City slickers were persona non grata. I thought we’d made some gains since then, but the results of the recent federal election are shaping up as ground hog day for urban and regional policy. Only this time, it could be worse.

Two things are shaping in the aftermath of the 2010 Federal Election as portents of things to come for our economy and the future of our urban and regional centres. They are the combination of what seems now to be an orthodox view that Australia is close to reaching its maximum sustainable population, combined with the political tilt to the Bob Katterisms of rural politics. Together, this could mean we are about to usher in an era of low growth, high protection policies. Fortress Australia could easily become a reality no matter which side ultimately claims the keys to The Lodge.

This is in part because prior to the last Federal Election, both sides of politics became suddenly shy of the long term growth patterns of population in Australia. In September 2009, Wayne Swan released some early findings of the Intergenerational Report, which predicted Australia could reach 35 million by 2050. Although this rate of growth was pretty much the same as the preceding 40 years, the figure was greeted with alarm by media, the community, and much of the political herd. ‘Australia Explodes’ went the headlines and the lemmings followed. (See this blog post from a year ago).

A month later, then PM Rudd was proclaiming that he believed in ‘a big Australia’ but by mid 2010 his later nemesis Julia Gillard was proclaiming she ‘did not believe in a big Australia’ and as Prime Minister declared we shouldn’t ‘hurtle’ toward 36 million but instead plan for a ‘sustainable’ population, renaming the Population Minister the Sustainable Population Minister in the process. The word ‘sustainable’ in this context stands for ‘slow down or stop.’

Then came the election campaign with Abbot promising to ‘slash’ the ‘unsustainable’ immigration numbers (that his mentor John Howard had been responsible for) and to ‘turn back the boats.’ Population growth was to be cut to 1.4% (a long term trend) and migrants potentially forced to settle in rural areas (some dodgy form of postcode migration policy).

However you look at it, the message from both Gillard and Abbot was clear: support for a ‘big Australia’ (that being 35 million by 2050 or the same rate of growth we’d seen in the last 40 years) was gone.

Add to that the quixotic entrepreneur Dick Smith and his population documentary ‘The Population Puzzle’ where he alleged Australia was at risk of running out of food, out of space and out of control, comparing us (oddly) with places like Bangladesh. Smith might be mad but you can’t discount the impact he has on Australian popular opinion. People believe him, and plenty more people would be thinking we’re about to be overpopulated as a result of his documentary than before, politicians included.

Could it get any worse for the prospects of maintaining even modest levels of population growth? The last election outcome means the answer is yes. We now have the balance of power in the Senate controlled by The Greens, and in the lower house by a handful of notionally old school National Party independents. The Greens’ view is clear on population growth – they don’t support it (unless you’ve arrived illegally, by boat). "This population boom is not economic wisdom, it is a recipe for planetary exhaustion and great human tragedy” said Bob Brown when the Intergenerational Report was released.

The independents’ views on population are harder to work out, but it would be a fair guess to suggest they would lean toward the Abbot view: turn back the boats, and slow the overall rate of growth. They are quite likely to also push for a redistribution of economic riches to a range of projects for rural and regional areas, which could be fine provided these projects were subject to a rigorous business case (unlike the mooted National Broadband Network and its $40+ billion plan for faster porn, unsupported by any sort of economic analysis). The irony that the election result hinged on big swings in urban seats but that a handful of rural independents are now trying to call the shots shouldn’t be lost on anyone.

Not to be left out, the Local Government Association of Queensland’s annual conference this year will focus on population growth, leaning toward limits on growth unless bountiful riches are showered on local governments to cope with ‘unsustainable’ rates of growth. Association President Paul Bell says “councils cannot let population growth exceed infrastructure needs.”

"Where we find water supplies no longer match the size of the community, where we find roads are congested, where we're seeing other infrastructure whether it be health or education are falling behind," he said, population growth was by implication to blame.

The bottom line? Population growth is now a dirty word and for any business which relies on growth for its prosperity, this is not good news. Everything from airports to property to construction to farming to retailers, manufacturers and tourism will be affected by slowing growth. For Queensland, which no longer relies on interstate migration for its growth, it could be worse: any slowdown in international migration will hit state growth quickly and dramatically. (See here for why).

Even social services could suffer if growth is deliberately slowed by this cabal of anti-growth movements. Why? Because in 50 years time, without migration or natural growth, there may only be two working adults for every five retired. You wouldn’t want to be one of those two and paying their tax bill in 50 years’ time.

How has this come about? The answer is pretty simple: growth itself has never been the problem. Note to Paul Bell and others – it’s been a notoriously inefficient planning approach which has misdirected precious infrastructure spending, which has pushed up housing prices, which has caused frustrations at rising congestion, which has seen hospital wait lists grow and which has been the root cause of much of the community angst about the symptoms of growth where policy not only can’t keep up, but tries to slow everything down. In the last decade, can anyone honestly claim that our planning schemes are now more efficient and quicker, or more easily understood, or better targeted, than a decade ago? I doubt it.

Would it be too much to ask for a sensible, evidence-based approach that ties population growth to urban and regional strategies, which emphasises economic progress while maintaining lifestyle and environmental standards? How about some decent plans to link regional urban centres to major cities, based not on pork barrels to influential independents but based only on the business case and community mutual benefit? Or how about putting the ‘growth’ back into smart growth, with some policies that allow our urban areas to expand in line with demand matched to infrastructure spending, rather than policy dogma?

Those same questions were being asked a decade ago. Welcome to ground hog day.

If you’re interested, here’s a couple of yarns from 10 years ago.

Slicker Cities for City Slickers. October 1999.

Nation Building and a National Urban Strategy. May 2001.

Office market glasses at least half full?

2010-08-09T23:34:00.000-07:00

The recent release of the Property Council’s Australian Office Market report was greeted by several media outlets as an opportunity to focus on ‘soaring’ vacancy rates. But what if, for a moment, we focussed instead on the occupancies, not the vacancies? Would that tell a different story?

The office vacancy rate statistic is a pretty straightforward measure of the gap between supply and demand. The Property Council, and most market commentators, have traditionally focussed on the vacancy rate as a barometer of market health. But the vacancy rate can fall in a shrinking market if older, redundant stock is removed from the stock survey for a variety of logical reasons. Equally, the vacancy rate can rise in a healthy market, if additions to supply exceed total new demand.

Another way to look at the health of the office market is to disregard the total vacant space (both direct and sublease) and simply focus on what’s left. That is, what’s really happening to overall demand – the space that’s actually occupied? After all, an excess of new supply can simply reflect bad timing or an over exuberant development market – it doesn’t necessarily mean that demand has weakened dramatically.

An analysis of the Property Council figures on this basis produces a different picture to that painted by the media headlines. What it shows is that total occupied space – or if you like, total demand – has done little more than plateau since it’s peak in January last year. There has been a minor fall in overall demand, of just 150,000 square metres of space, but that’s across the entire country and all the various submarkets covered by the Property Council Survey.

What is just as obvious is that office markets around the country have remained remarkably resilient to the effects of the global financial downtown. If you had believed the Nostradamus-like warnings of impending doom, or followed the share price of any number of listed A-REITS heavy in the office market, you’d be forgiven for thinking there’s been something of a calamity at play. Not so.

If demand had dramatically softened, as some have suggested, you would expect to see a significant fall in total occupied space. A plateau is not a significant fall (unlike global share indices may be used to).

Of course if you’re in the business of leasing new office space in a market which isn’t expanding, that’s another story. But traditionally, vacant space has migrated itself from lower standard buildings to higher standard (ie new) ones. And an interesting thing also then happens (or at least, it has in the past).

As new buildings are added to the stocks of office space, they have rarely over the past 20 years opened fully let. But as they lease up, they do so at new levels of benchmark rents. It stands to reason – new buildings cost more to develop than older ones did, and usually feature higher standards of technological features or sustainability virtues. ‘New’ always comes at a premium to ‘old’ so waves of new building construction have tended to correspond (albeit with a lag) with cyclical spikes in market rentals. And the cost of new construction is not about to fall.

The new buildings command more rent, and those rents are then used as benchmarks for the Grade of building below that, and through the market the ripple flows.

So when new buildings arrive on the market, they obviously add to supply which can tend to bump up vacancies (especially given the ‘lumpy’ nature of new supply in large commercial buildings). But they can also tend to lead rental growth. It is a mistake, or can be, to interpret rising vacancies and stable or falling rents as a sign of weak demand – these things can reflect temporary surplus of supply.

So the short version of all this is that maybe the glass is more than just half full? Total demand for office space hasn’t collapsed or even significantly shrunk, despite the tsunami of economic events endured by global and domestic markets in recent years. Plus, the new additions to supply now coming on stream may just portend the next wave of rental growth in office markets generally, as the economy inevitably improves?

You can read what you like in the daily papers. But believing them is another thing altogether. It’s worth contacting the PCA and buying their Office Market Report, and doing the same analysis yourself for whatever local market interests you. You might just be surprised.

A good decision - but where to from here?

2010-08-02T22:40:00.000-07:00

The decision by Brisbane Lord Mayor Campbell Newman to compulsorily (if necessary) acquire a major inner city development site so that it can be used for public open space might have plenty of people in the planning and development industry shaking their heads in disapproval. I won’t be one of them.

Lord Mayor Campbell Newman’s bold move to purchase the disused Milton Tennis Centre site in inner city Brisbane for public parkland has been welcomed by a host of so called NIMBY groups in the area, who opposed high density development. The 3.5 hectare site had been acquired by a prominent developer and had existing planning approval for a range of development to around seven storeys in height. The developer was in the process of seeking planning approval to increase the development density to closer to 20 storeys in height, for the tallest towers. That proposal was generally consistent with the stated intentions of the State Government’s infill strategy under their regional plan, which sought to deliver much greater density throughout the Brisbane area, especially for sites close to transit infrastructure (as is the Milton site).

But the scale of development proposed did not sit well with local residents. Community opposition in the area was widespread – it was the talk of the supermarket aisles on the weekends and school pickup zones during the week. An active NIMBY group campaigned aggressively against more high density development in the area and they’ll be congratulating themselves on a win right about now.

But the decision goes deeper than simple local community opposition, however vociferous. It highlights some of the inevitable conflicts of a State imposed regional plan which mandates higher density, and a community which hasn’t bought the talk. The decision, I think, was a good one for this local area, given the scale of development which will take place in and around the Milton area in years to come. It signaled that the Mayor is acutely aware that higher densities will mean more pressure on open space. And it also signaled that there is still a place for democracy in public policy, as opposed to the imposition by elites of mandated policy dogma.

On the flip side, it reinforces the legitimacy of political intervention in planning matters. In this instance, a Mayor made a good decision, in the community interest. But other politicians have notably made some very poor interventionist decisions, and not always in the community’s best interest.

The decision also exposes the failures of the density advocates to win public support for their case. This is ultimately the highest test for public policy in a democratic system. The alternative is a Soviet style system where elites dictate direction without reference to the will of the people (or without reference to basic fundamentals of economics, or of market demand).

But perhaps most of all, the decision throws into question a range of issues which have yet to resolved, except for the ‘pro’ and ‘anti’ rhetoric of the protagonists. Clarity, and community agreement are, it seems, a long way off. Consider the following:

· The Milton Tennis site is only 500 metres away from ‘The Milton’ high rise residential tower, by another developer. This tower has been approved for 30 storeys, after being ‘called in’ by the State Government Planning Minister as a ‘matter of state significance.’ Ironically, the existing town plan for the area permits less than 20 storeys, but a draft neighborhood plan by the Council would have allowed 20 storeys. It’s now approved for 30, because the proponent succeeded in convincing the State Government that this was something of great importance to the state. Will other high density proposals required to meet the density targets of a regional plan be equally important, and receive the same treatment?

· Part of that argument no doubt rested on the need for at least some ‘Transit Oriented Developments’ to see the light of day. A decade of discussion has achieved precious little, which would be an embarrassment to the succession of plans and planning reviews which have hailed TODs as the urban planning equivalent of a second coming. Having faith is one thing, but there’s a desperate need for TOD advocates to attend at least one ribbon cutting ceremony, at some stage, to vindicate themselves. ‘The Milton’ looks like it will be ‘the chosen One.’

· Anyone who thought that actual planning permission for a particular site could be found in a local town planning document would be mightily confused. The 30 storey Milton tower gets an OK despite community objection and a planning scheme which provides much reduced height restriction, while 500 metres away a site with existing approval for around 7 storeys gets the opposite treatment – it’s to be resumed and turned into parkland.

· Proponents of high density living have cited many promised virtues as outcomes. These have included less traffic congestion, a cleaner environment, a more environmentally sustainable approach to urban growth, and the list goes on. But the limited evidence offered in support and the affront to common sense suggested by some of these arguments run counter to community wisdom. Even schoolchildren were smart enough to realise that more people per square kilometre will mean more congestion, more crowding in shopping centre carparks, more crowded buses, and more people wanting to walk dogs or play cricket in parks. So while the planning elites maintained their mantra, the community saw through it and called ‘bull.’ Here is where the density advocates have failed. Until they can support their arguments with hard evidence, and until they can mount convincing arguments that win community support, what they are proposing is in effect anti-democratic.

· The realities of higher density housing will inevitably mean more people, more cars and more congestion, and more demands on open space for inner city and middle ring neighborhoods – not just in Brisbane but everywhere that the density mantra has taken root (which is most Australian capitals). To what extent should community opposition be written off as ‘NIMBYism’ or, alternatively, treated as their democratic right to influence public policy? This alienation of local community opinion from the preferred patterns of urban expansion (or ‘in-spansion’) outlined in most of our urban planning schemes is a real problem. Planning elites cannot expect political leaders to fight a tide of community opposition, unless they have in mind a more determinist political system.

· This problem will only get worse, as more pressure is placed on our urban areas to grow within confined, existing boundaries. As it gets worse, the primacy of planning schemes will be further eroded. Unless some fundamental changes are made to planning schemes, more and more politicians will seek to intervene, case by case and site by site, in planning matters because of community confusion and neighborhood opposition. Given the average standard of an Australian politician, this won’t be a good outcome for the developers, for planners, or for the community at large.

So where’s the resolution to this? Solutions aren’t so hard to identify. Here are a couple of suggestions:

· The backyard may or may not be a ‘right’ but it is considered to be one by a majority of the community. Backyards of detached houses, as a place for children, for pets, for BBQs or family gatherings are important to a wide cross section of people. Density advocates may need to give some serious thought to how high density living will ultimately affect family living, and give serious and open thought to the consequences of their preferred policy approach. The same serious consideration to the management of increased demand for road space and open space would go a long way to answering legitimate community concerns. Just dismissing the concerns or ignoring their legitimacy won’t solve the problem.

· Planning schemes based on a democratic and transparent agreement of future development have a stronger chance of meaning something to all parties. The Brisbane City Council recently announced a ‘virtual’ 3D model of the CBD and inner city, which will ultimately be used as a tool for assessing future proposals. There’s no valid reason and no technological obstacle to such a tool becoming the planning scheme itself. A visual realisation of future planning intent has a better chance of clearly communicating with the community at large. Widely accessible and readily understood equals transparency, not just for the community but also for the industry. The archaic regulatory and legislative nature of current planning instruments, with their convoluted terminology, only serve to confuse and alienate, which leads to distrust.

· Finally, elitism in planning whereby policy decisions are made by a collective of highly placed officials or industry professionals, with only limited reference to evidence of market preferences, to broad community opinion or even to accepted ways of life, can only fail. Democracy has its place in planning. That place should be in first determining an agreed overall strategy, right down to the local implications. Communicate that via a transparent and ‘virtual’ model widely accessible to all, and then leave the plan to do its job.

None of this is new but if we’re to avoid a future of even greater confusion in planning policy, it’s now time the spin of planning reform was replaced with substance.

[Disclaimer: Yes, I’m a resident of the area affected by the Milton plans. No, I didn’t take part in any of the protest activities].

Going underground

2010-07-14T17:06:00.000-07:00

The State Government last week sought a bit of a fanfare about the possible construction of a new underground heavy rail line below the Brisbane CBD with a new underground station at Albert Street. The infrastructure commitment should be welcomed but before we get too excited, maybe we should first ask ourselves a few questions about the economics of it all?

The idea of new underground heavy rail lines to connect with the commuter rail system of south east Queensland isn’t new. I can even recall some 15 years ago proposing just that in a policy paper for the Property Council, which identified new stations in the CBD as a critical element in making use of rail transit more user friendly. The existing CBD stations, we argued, were barely CBD at all. Roma Street station is well off-centre, and ‘Central’ station is inappropriately named because it is far from ‘central’ to the core of CBD workers, students or regular visitors in modern Brisbane.

The ‘modern’ Brisbane has concentrated its CBD workforce largely on the south eastern side of Queen Street, toward to the river. This large concentration of office and retail workers are prime candidates for public transport. They typically have regular work hours (great for service scheduling) and being concentrated in a CBD location, it works for the ‘hub and spoke’ nature of public transport systems. But the location of the nearest rail station – Central – is just that bit of a stretch in hot or wet weather if it means walking 300 or more metres, up-hill, to get to your train.

So logically a new underground station (or even two) which brings the convenience of commuter rail closer to the office should encourage more people to make use public transport. In terms of improved workplace amenity, the idea has plenty going for it. If you owned office buildings anywhere along the river edge of the Golden Triangle, you’d welcome this initiative with open arms and beg the Government to fast track the proposal.

So it could indeed be a great idea. But there are few unanswered questions about the economics of heavy rail commuter transport which should deserve equally enthusiastic investigation of the evidence.

For starters, we don’t seem to have much of a plan when it comes to the real cost of public transport – especially the City Train network. The latest Government figures show that every trip, by each and every commuter on the City Train network, is now subsidized to the tune of $10. That’s per trip, so for every daily return trip, the taxpayer is forking over $20 per commuter. And that’s after commuters have paid their fare – remember it’s only the subsidy. Worse news is that the numbers of patrons are falling – from 60.7 million to 57 million in a year. (Worth reading the article “Taxpayers' share of rail fares increases, while CityTrain passengers continue to decline” in The Courier Mail, June 15, 2010).

The concern here would be that unless some of the fundamental economics of this failed pricing model are sorted, more commuters may only mean more subsidies and more taxes for the taxpayer. In short, there doesn’t seem to be an economy of scale: if more people caught the train under the present system, it could cost us more in subsidies, not less.

Ironically, an online poll taken in connection with the above story revealed that 79% of respondents (out of 824) claim that train fares are already too high. This is especially ironic for two reasons: commuters with jobs in the CBD market are, on average, paid more than their suburban counterparts; and commuters who use the rail service are increasingly drawn from more affluent inner city and middle ring suburbs. The proportion of public transport users who begin their journey in low income, outer suburbs, is small compared to the increasing proportion of those who find it a handy (as opposed to necessary or low cost) way to get to work.

The evidence for this is found in studies by people such as Dr Paul Rees, School of Global Studies, Social Science & Planning at RMIT, and others. Various studies increasingly point to a rising correlation between rail (and tram in the case of Melbourne) use and proximity to central city workplaces. Put crudely, big chunks of that $10 each way subsidy are being paid for by low and middle income taxpayers with jobs in the suburbs (far from convenient train stations) so higher paid central city workers can have access to a convenient form of transport from their inner city or middle ring home, to work.

As for the mooted new underground rail network, according to the Premier, it is going to service “Toowong, West End, the city, Newstead, Bowen Hills, Bulimba and Hamilton North Shore.” These are hardly what you’d describe as working class neighbourhoods.

A further question needs to be raised about the potential growth in commuter rail traffic, notwithstanding the convenience of a new CBD station. With the exception of the new line to Springfield, there are no new lines being laid and no new stations proposed. The catchment populations around the various train stations that form the City Train network are variously touted as ‘TOD’ (transit friendly development) zones but other than this new denomination, there’s been precious little development activity to show for a decade of discussion.

Even with the best will in the world, simply building more housing around train stations won’t mean more commuters to the CBD because most of the jobs are in the suburbs in the first place. I am unaware of any State Planning Policy which aims to concentrate more office and retail workers in the CBD (indeed the pressure is on to decentralize). And without more workers in the CBD, there are simply not going to be more commuters wanting to go there. So you can have more housing around train stations throughout the metropolitan area but this won’t mean more people working in the city – unless there’s also going to be more jobs in the city (or the mode share rises).

An additional handbrake on increasing patronage of the heavy rail network is that even getting to a suburban train station in order to catch the train isn’t easy. If you live more than a kilometre from a train station (which means the overwhelmingly majority of all residents) you would need to drive your car to a station. But stations have precious little in the way of parking for these commuters, and nearby residents justifiably object to having their streets turned into kerbside carparks for daily rail commuters. This is one of many practical realities holding back increases in mode share of rail as a percentage of all commuter trips. That proportion has remained stubbornly fixed at under 10% of all trips for Brisbane (rail and bus and ferry combined) while for the CBD the mode share sits at some 45% of all commuter trips (bus, rail and ferry combined).

[Finding impartial rail commuter statistics isn’t easy. There are a host of rail proponents and rail agencies and various transport studies designed to promote public transport who in turn churn out all sorts of figures to support their case. Independent, non partisan material is less easy to source].

So while the notion of a new underground rail line with a new CBD station sounds like a terrific idea, you’d hope that those who are responsible for spending our money will be doing some hard numbers on the feasibility. This cross river rail project is mooted to cost something like $8.2 billion dollars in today’s terms. By the time they get around to building it, it will no doubt cost more.

Even if the cross river rail and new station managed to achieve the optimistic result of 100,000 new rail commuters, that still works out to $82,000 per extra commuter. And if those commuters are to continue to be further subsidised to the tune of $10 per trip, each way, every day, this could be the sort of infrastructure initiative which ends up costing the community a great deal.

You’d hope the numbers are being rationally, dispassionately and independently done, and the questions being asked. For example:

How many extra rail commuters will the new line and CBD station realistically generate?

What extra workforce would be required in the CBD to support a rise in new rail commuters? (100,000 extra rail commuters to the CBD could require, at 15 sq.m per person, 1.5 million square metres of office space, or another 25 Waterfront Place towers. Is this realistic?)

What public transport alternatives are available, and how do those costs compare? (The bus system relies on a lower passenger subsidy than rail, plus largely uses existing road infrastructure and routes can be expanded largely without the sort of investment required of rail. What would even a $1billion investment in the bus system do, by comparison?)

Food for thought.

Planning’s cultural cringe?

2010-06-14T21:42:00.001-07:00

First it was Portland, Oregon, touted as a poster child for urban planning in Australia. Now, Vancouver, Canada, is climbing the ranks (if you believe some of the wistful commentary doing the rounds). But how useful are these comparisons, and are we seeing another incarnation of Australia’s infamous cultural cringe?

Advocates of higher density and the “brawl against sprawl” in Australia frequently cite overseas cities as model case studies. Portland, Oregon, was for a long time cited as a good example of pro-density housing strategies which sought to limit ‘sprawl’, promote public transport through investment in things like light rail, and promote cycling and a range of other planning ‘solutions’ that would sound remarkably familiar in Australia.

The truth about Portland, however, didn’t match the hype of its city planners. Much of the boosterism focused on the mostly downtown area of Portland. Like Melbourne, or Sydney, this is its own municipality, with its own Mayor and its own planning officials. As they aggressively sold a story about the virtues of their planning strategy for the city core, they omitted the inconvenient broader metropolitan facts as they went.

The story of the real Portland, including the surrounding suburban areas, is different to what these policy promoters would have you believe. Portland today, despite hundreds of millions invested in a new light rail system and the promotion of inner city housing density, has fewer public transport trips as a percentage of total travel than in 1980. Urban Growth Boundaries introduced by Oregon State in the 1970s led to housing price pressures which eventually excluded the middle and working class. Leading US city demographer Joel Kotkin describes it as an ‘elite city’ which is ‘remarkably white, young and childless.’ And as international housing market expert Wendell Cox has pointed out, the suggestion that Portland has much to crow about in terms of urban consolidation doesn’t match the official statistics: with Portland just as guilty of ‘sprawl’ as Los Angeles.

The same can be said of Vancouver. Touted by its city officials as a paragon of virtue in planning policy, the Vancouver story is almost entirely limited to its geographically confined downtown. Here, in the wake of overbuilding of office properties in the downtown core, city officials rezoned excess commercial capacity to permit high density residential housing in what we would call the CBD. This ‘living first’ strategy produced a wave of new residential development which saw the core population grow by 20,000 people to around 60,000, and to potentially 90,000 by 2015. Redundant waterside areas have been coverted into residential precincts, and commuting by public transport, cycling or walking are favoured over private vehicles.

Taken in isolation, the Vancouver story could start to sound convincing. But there are some glaring omissions. The City of Vancouver is home to around 600,000 people. The downtown area – the subject of much of the planning hype – is home to 60,000 people. The broader metro region, based on the same sorts of urban definitions we might use for Brisbane, or Sydney or Melbourne, is home to 2 million people. There is precious little said about the lives of the 1.4 million people who aren’t residents of the City of Vancouver, or the more than 1.9 million who don’t live in the revitalized urban core.

For these Vancouverites, life isn’t a rosy as the planning hype would have you believe. The most glaring omission about life in Vancouver is that it also happens to be one of the world’s least affordable cities in which to live. According to both the Reserve Bank of Canada and Demographia, Vancouver’s housing rates as severely unaffordable, eating up some three quarters of the region’s median pre-tax household incomes. The problem is so chronic that it has prompted an online game “Crack Shack or Mansion” where visitors are asked: “Can you tell the difference between a crack shack and a Vancouver, BC mansion, listed for one or two million dollars?” Play the game yourself by clicking here … it’s an eye opener. [A Crack Shack, for the uninitiated, is a den of inequity where illegal drugs are produced].

That’s hardly the sort of model city you’d want to tout as a planning example we could learn from. The other glaring omission from the planning fairy tale of Vancouver is that life in the city core is vastly different from the overwhelmingly suburban conditions of the vast majority. To the south of Vancouver’s downtown lies an endless suburban grid of detached housing, with limited parklands or open space. Check it out for yourself on Google Maps or Google Earth. Jump into Google Street View and take a walk down a typical Vancouver street. Do that with a housing price list from “Crack Shack or Mansion” in hand and then convince me this is a model for any Australian city.

A final glaring omission is the climate. This from the official Living in Canada website: “Snow depths of greater than 1 cm are seen on about 10 days each year in Vancouver compared with about 65 days in Toronto. Vancouver has one of the wettest and foggiest climates of Canada's cities. At times, in winter, it can seem that the rain will never stop.” Summers aren’t so bad though: for two months of the year, the average daily maximum even exceeds 20’c!

So Vancouver as the next poster child of planning for any Australian city is looking shaky. It’s hopelessly unaffordable (and we have enough problems of our own in that regard), the quality of its majority suburban environment is lower than the standards we already enjoy, and the climate could not be less similar.

The same can be said of other city-regions often described as examples of how Australian cities could develop. Copenhagen, Paris, or Venice have all in their time been selectively extolled as models for Australian urban planning.

Maybe this fascination with irrelevant urban models stems from a form of cultural cringe? Whatever the reason, the analogies can be dangerous – especially when they omit the more essential economic or lifestyle based criteria such as housing affordability, share of economic wealth amongst a city/region’s residents or climate and lifestyle factors.

It might instead be more helpful if Australian planners referring to overseas examples also kept in mind some of these pragmatic metrics. For example, benchmarking cities with more affordable housing markets than ours and with strong local economies where wealth and standards of living are enjoyed across a wide spectrum of society would produce some very different case studies. Factor in similar climate patterns (which largely dictate recreational and lifestyle behavior) to our own and the choice of comparable cities reduces further.

We might even start to find that our own cities offer plenty of examples of ‘getting it right.’ Instead of this cultural groveling we could start to define the things we like most about our own existence and plan ways of replicating that, rather than imposing on our cities forms of existence that, appealing as elements might be, are incapable of replication in the Australian context.

Send in the clowns

2010-05-18T22:44:00.000-07:00

Cue Barbara Streisand singing ‘Send in the Clowns’ and tune into Youtube for a piece of viral public policy which plumbs new depths of sentiment over substance, of faith over fact. As a piece of propaganda, it scores well, but as a piece of reasoned, evidence-based policy, it’s a disgrace.

“Brisbane, don’t be a NIMBY [Eye on Milton]” is the title of a Youtube slideshow which bears every resemblance to something interests associated with current high density housing proposals for Milton in Brisbane might underwrite. You can view it here but be sure to have some tissues handy to dab at the tears. The authors have also setup a Facebook page (here), but with only 20 members so far, it’s got a long way to go before Corey Worthington (that brat child of the Y Gen with the white sunglasses) gets worried.

Perhaps I shouldn’t find it so objectionable – we live in a free society and expressing opinions is, after all, what this site is all about. But I can’t help but recoil at the overtly moral rectitude of the tone. The sentiment (it fails as an argument) is that residents who reject moves for much higher urban densities are doing the wrong thing by society, because the alternative is ‘sprawl’ outwards (always a pejorative term).

And why is sprawl bad? The slideshow’s answer is simply “Urban sprawl is bad, VERY bad.” Yes, it’s very bad. Better stop it, or you’ll go blind. Not that some reasons aren’t offered in support: “It’s bad for both the environment and society as a whole” it says.

There you go, surely you don’t need more proof than that?

So having ‘proven’ that sprawl is bad, very bad, we are asked to conclude that density, lots of density, is good, very good.

The video makes a few more claims, including the assertion that the taller the buildings are, the more open space there will be. It then goes on to say that “it is proven to create more sustainable, social environments whereby people don’t need cars” (without offering any of that ‘proof’).

The masterful conclusion would make Goebbels proud: object to these developments or question the density dogma and you are therefore anti environment and pro sprawl. You’re a NIMBY, and that’s bad, very bad.

Now before you start shooting the messenger here, I am not opposed to infill nor to transit friendly development. But I do object to ‘silver bullet’ arguments which claim moral right on their side, and propose that only one form of housing development is sustainable while another is clearly evil. I object to the lack of evidence and, more to the point, worry that we’re becoming so caught up in this emotional clap trap that the facts are fast becoming irrelevant.

What is the available evidence saying about the density dogma then? Here’s a snapshot:

· Urban land boundaries which seek to prevent so called sprawl and enforce higher density have created a chronic land shortage and an uncompetitive market, which is driving housing prices to preposterous highs relative to average incomes and average families’ ability to pay. We have a serious problem with housing affordability in this country and in this region. This fact is rarely commented on by density advocates, let alone a solution suggested.
· As a region of just 3 million and growing to 5 million, alleged problems of sprawl on the scale experienced globally are simply not there. What we have done is to short change our infrastructure investment which is now below capacity, creating issues of congestion and infrastructure pressure not attributable to ‘sprawl’ but to under investment in transport and related infrastructure over a 20 year period.
· Suggestions that high density living is more environmentally sustainable don’t concur with the evidence. No less than the Australian Conservation Foundation showed (in its Consumption Atlas) that residents of inner city, high density housing created a larger carbon footprint through energy use than suburban alternatives. They also showed that inner city residents were generally no more likely to use public transport than suburban alternatives. The reason? They’re wealthier, with less need to turn off the lights and conserve power.
· This was reinforced in studies by Professor Bob Birrell of Monash University, who showed that high density dwellings were typically more energy intensive. Stands to reason if you think about it: lighting and air conditioning of common areas, lack of cross flow ventilation, use of electric clothes driers rather than a (solar) clothes line in the backyard. The list goes on.
· Additional studies by Professor Kevin O’Connor, Professorial Fellow of the Architecture, Building and Planning School and the University of Melbourne suggested that suburban locations with treed footpaths and vegetated backyards actually provide more ‘green’ space and leaf cover than high or medium density housing can. Pot plants on the verandah don’t quite cut it.
· The suggestion that more high density will mean more open space is counter intuitive. We are not opening more public parks in inner city or middle ring neighborhoods. More density will invariably mean more people wanting to use the existing open space. That in itself may not be a bad thing but in high density cities (and I grew up in one in Hong Kong) available open space is more crowded. Kicking a football or playing cricket in the community park might become a thing of the past the moment some jogger gets clocked on the noggin from a good drive to deep cover.
· The suggestion that high density housing will mean that people won’t need cars is also not supported by the available evidence. An interesting paper by Paul Rees of RMIT suggests that the nexus between urban density and types of transport “show little or no relationship to transport modes share, which seems more closely related to different transport policies. These findings are very different from those on which current urban policies are based, and suggest the need for a radical rethinking of those policies.” You can read the paper here. It’s called evidence, don’t worry, it might be unfamiliar but it won’t hurt you.
· A similar conclusion was reached by David McClockey, Prof Birrell and Rose Yip in a paper entitled “Making public transport work in Melbourne” published in ‘People and Place’ which you can read online here. In it, they concluded that the proportion of residents living in TOD style housing only rose as TOD locations were closer to the city, where (ironically) people are wealthier. And even then, public transport rates of use were not that much higher than in alternate locations.
· A final nail in this ideological coffin is the obvious: between and 8 and 9 out of every 10 jobs are in the suburbs. Nurses, teachers, tradies, shop workers, industrial workers, suburban professionals – all located in suburban commercial centres which are not serviced by public transport. You could find yourself living in an inner city TOD and still be reliant on your car because your place of work is not in the CBD, or for other reasons of convenience (eg the children aren’t in a CBD school). Even a heroic public transport assumption of 30% public transport use in high density areas (triple current rates) would mean that 70% of high density housing residents will still use their cars. And that will inevitably mean more cars on existing road space, not less.

So the truth is being crushed by the anti density zealots on one side and pro-density zealots on the other, while the evidence itself is infrequently consulted, if at all.

There are very good reasons why planned new suburban communities, if done well, can achieve the environmental, social, community and economic benefits claimed for high density housing. There are also very good reasons why higher density, if done well, can become an asset for the community and build a better city. Witness the quality of urban form outcomes in the New Farm and Teneriffe areas, achieved under the watch of Trevor Reddacliff and his Urban Renewal Task Force.

But in doing so, it’s worth recalling that Trevor fought vehemently against proposals for 20 and 30 storey towers throughout the area. And thank goodness he did – the picture today of the New Farm-Teneriffe area would be ghastly had he not. Trevor also didn’t fall for slogans or policy dogma. He was a pragmatist who valued good urban design and relied on evidence.

I wonder what Trevor would make of this debate were he still alive today?

A new type of climate debate?

2010-04-28T23:14:00.001-07:00

Will urban settlement and economic growth take root in undeveloped areas of Australia, or are more ancient forces at work?

Attempts to ‘move the problem’ of population growth by trying to divert growth to regional areas are gathering strength. Already this year, we’ve heard Premier Anna Bligh talk about extra home buyer grants for settling regional areas; the suggestion of Townsville becoming a ‘second capital’ of Queensland got an airing at the population summit; we’ve had the new Federal Population Minister Tony Burke talk about mandating migrant settlement in remote areas, and recently I listened as conservative politician Barnaby Joyce raise the same idea, with fondness.

I think they’re deluding themselves.

The reason is that north of the tropic of Capricorn is a fairly hostile climate. It gets very hot in summers and even mid-winters are what many people would describe as ‘hot.’ Not too hot for a jobs market mind; government money or large resources booms are sufficient reason for workers and their families to relocate to even the most hostile of regions (usually at a high wage premium), but for a time only. The inclination to repatriate profits to a more benign climate once the money’s been made is always there.

With this thought in mind, I had a look at a map of the world, and something interesting suggested itself. Between the Tropics of Capricorn and Cancer, there are almost no highly developed urban economies. This might be a bit unkind to Brazil in South America, as it is to the oil rich areas of the southern middle east, and perhaps also to the major cities of India. But even here, Rio De Janiero is only just north of the Tropic of Capricorn, likewise Hong Kong is virtually on top of the Tropic of Cancer. Only Singapore really stands out as a modern, high developed and prosperous urban economy located well within the tropics.

But a look at the United States, Europe, China, Japan, along with the population and economic concentration of Australia and South Africa reveals that all lie outside of the tropical zone. The cities of these nations and continents are the economic powerhouses of global trade and the national vaults of global wealth.

If we hypothetically excluded from the non-tropic zones anything too cold by virtue of latitude (too close to the poles), too cold or plain difficult by virtue of terrain or elevation, or simply too arid, and the probable locations preferred human habitation and economic activity narrow further.

This theory (if you’d call it that) doesn’t explain the massive populations of peoples contained within the tropics – in south east Asia, India, south America, and continental Africa. Except that these are almost universally populations of poverty or at least very low GDP per capita, compared to the rest of the world. And they tend, at least in this stage of their development, to lack urban centres of prosperity and economic power.

Could it be as simple as suggesting that people with money and freedom are the drivers of economies, and that these people tend to dictate where wealth is created by virtue of their decisions about locations - and that this has happened over thousands of years of economic and social development?

Maybe that’s doubtful, as economies and societies are far more complex. But at a domestic level, just ask yourself the question: would you want to live in Townsville, or Mackay, or Cairns, or Darwin, or Port Headland or any number of smaller regional areas above the tropic of Capricorn, permanently? Or would you consider it on the basis of a temporary relocation, to make some serious money or advance a career, with the long term plan to return to a more benign climate at a later stage?

The honest answer to that question is why I don’t believe Townsville will become “a second capital” and a population magnet capable of relieving pressure on the south east. Politicians suggesting that areas known for their hostile climate can ever attract a greater share of population (except by virtue of official mandate and government largesse) are just having you on.

I have never been a fan of the ‘Florida’ theory of regional development (said of the sun belt migrations in the USA), which suggests that people in cold climates will automatically migrate to warmer ones (a theme that’s been frequently exercised in Queensland).

But it does seem true that some places are simply too cold for people and a successful urban economy, and others are too hot. People will move between those climate bands in search of social, lifestyle or economic advantage, but perhaps not beyond them.

If that’s true, then economic and population growth in this country will be confined to areas of adequate rainfall south of the Tropic of Capricorn, but mostly north of Tasmania - much as prosperous urban societies of the northern hemisphere have avoided spreading south of the tropic of Cancer or north beyond the latitude of Scotland.

Politicians and planners looking to divert the ‘problem’ of population growth might need to keep that in mind before embarking on any costly policy misadventures designed to force a future population somewhere it doesn’t want to go.

Don’t panic!

2010-03-22T13:48:00.000-07:00

The population panic about hordes of invading immigrants might prove entirely misplaced. As we ready ourselves for the next wave of populist hand wringing over Queensland’s future population growth (the coming population summit) it is just possible that there won’t be much growth to worry about.

We all remember the graphs - the ones which showed Queensland enjoying a massive tax advantage over other states. ‘The low tax state’ was once almost synonymous with ‘the sunshine state’ as a means of describing Queensland in a sound bite. That tax advantage translated into a cost of living and lifestyle advantage for interstate migrants moving here in droves – especially in the 1980s and 1990s and into the early 2000s. Interstate migration was the driver of population growth until international arrivals took over that role in recent years – which has kept Queensland’s growth numbers pumping along. But for how long?

In fairness, it could have been economically impossible to maintain the low tax status of Queensland and at the same time maintain the population growth numbers we’ve witnessed. But the rapid change in our tax competitiveness is sure to have some impact on future population trends. The question, for almost every business in Queensland from aviation to development to retail, is how much that impact might be. If it’s sufficient to slow Queensland’s growth well below the trend line of the last 20 years, a lot of business plans will have to be changed.

State taxes

Comparisons of state taxes are notoriously tricky because each state has a different tax mix. But however you cut the cake, it’s undeniable that the ‘low tax’ status of Queensland as a competitive advantage has been eroded. According to a recent study by the IPA, Queensland’s business taxes now place us ahead of Victoria and West Australia, and only marginally behind NSW. Our business tax ranking dropped from second lowest in 2008 to mid field in 2009. The demise of the low tax state was lamented in an article in The Australian late last year, which opened with the following comment: “Queensland has squandered its low-tax edge and become a public-sector spendthrift, putting at risk its long-term growth potential and ability to attract investment.”

The recent attempt by the Queensland Government to retrospectively change the method of land valuations to recapture potentially lost revenues was evidence that the willingness to reverse that trend is not there. (The decision was reversed, thankfully, but what damage the furore did to Queensland’s economic reputation only time will tell).

Cost of living

Comparisons of state business taxes are one thing but population growth numbers also depend on the many myriad decisions made by families and individuals. They are unlikely to consult league tables of business taxes (unless they’re business people) and are more likely to feel the hip pocket pressure of other cost of living features of a region, weighed against opportunities presented by the economy or lifestyle. And here too, Queensland’s comparative advantage is slipping.

Vehicle registration costs were until recently some of the lowest in the country. Queensland now has the highest rego costs in the country (see Table 3.5 of this IPA summary). Rego costs are one of those household expenditures which are amongst the lumpiest of many for average working households with a couple of cars needed for work commutes and family. So an extra few hundred dollars does mean a lot to people on tight budgets.

Fuel costs too, used to be proudly amongst the lowest in the country. But the scrapping of the fuel subsidy scheme means that Queensland motorists are now paying the same – and often more – than their counterparts on the east coast. Fuel costs for families on average incomes are a significant weekly expense, so major increases hurt.

You could add to this the costs of electricity, which under a range of reforms to power generation and retailing, have risen substantially and will continue to rise. Low cost electricity was once a Queensland boast. Sure, power costs are rising in all states but it does look unfortunate for Queensland that after handing the market over to deregulation in 2007, and despite promises to the contrary, consumer energy bills have since headed north.

The same seems to be happening across other utilities (for example water) to which we once felt entitled as part of our general tax burden but which are now separately levied.

And then there’s housing.

This point hardly needs to be laboured. House prices throughout the state, in almost any centre, were within recent enough memory so much more affordable than similar styled houses in similar city or regional locations in other states. No more. This huge price advantage in interstate competitiveness has been lost. The median house price in Brisbane, according to some reports, has passed the $500,000 mark and according to other reports could start to catch up to Sydney’s (Brisbane housing prices were around half those of Sydney as recently as 1999. Today, they are 80% of Sydney prices).

The days of moving your family from Victoria or Sydney because you could buy a better home for less, are over. It was regarded as a key driver of population growth at the time. It is no longer.

Advantage lost

In short, the ‘low tax state’ meant more than just low business taxes: it covered a range of living costs and charges and levies which were typically lower in Queensland and which contributed to the strong argument in peoples’ minds that Queensland was the place to be. Hence the population growth, especially from interstate. But if you start to think carefully about each item on the menu of Queensland’s comparative advantages, the menu is getting smaller.

This starts to become especially important when you factor in that household budgets in Queensland have the lowest level of disposable income (other than Tasmania) of any of the states. (A paper presented by Saul Eslake at the recent PCA Population Summit in Brisbane in early 2010 is worth obtaining from the PCA). In short, higher taxes, higher housing costs plus lower incomes aren’t much of an appealing lure to potential migrants.

But the sun’s still shining, right?

Yes, Queensland’s climate continues to feature in marketing messages about the ‘sunshine state.’ But you can’t rest your population attraction on just that, and if you do, you’d be making a big mistake. A lot of people, especially interstate, think Brisbane is simply too hot. Which (let’s face it) it is for almost three months of the year. That message isn’t helped by a tourism industry that can’t think beyond clichés of climate and baking suns and brown tans and white beaches. Other than for holidays, our climate is actually a turn off for a significant proportion of people. And if it’s too hot here, imagine what they’d think of living and working in regional centres further north? After all, if climate was a major motivator, we might find a number of Pacific Island nations inundated with prospective immigrants. Which they’re not.

No, I’ve never been a fan of the ‘Florida’ argument about climate and population growth in Queensland. There’s been more to it than it.

So what if …

So what if the changed competitive position of Queensland relative to other states is a long term phenomenon? What if this starts to translate into even lower interstate migration numbers, and what if Queensland’s lure to international migrants starts to lose its lustre? Worse still, what if the Feds close the immigration tap a turn or two – Queensland’s current reliance on overseas migrants to make up the numbers could collapse.

Importantly for so many businesses, and for the economy of Queensland, it’s been a reliance on those numbers that has underwritten growth. It would be the ultimate irony if, in the midst of a debate about future population numbers outstripping our capacity to deal with them, that this turned out to be the least of our worries.

It’s the price, stupid.

2010-03-02T23:03:00.000-08:00

Housing prices, not interest rates rises, are the real cause for concern.

The latest rate rise announced by the Reserve Bank has been the subject of endless column metres of commentary by the media and economists, both in the run up to the decision and after it. David Koch is looking suitably concerned on the morning TV shows and the Federal Treasurer is threatening the banks with a thrashing with a wet lettuce if they pass on more than the official rise. We’ve seen it all before.

But as always, it’s timely to reflect on what the real problem is. The typical new mortgage, most reports suggest, is around $300,000. The latest rate rise will add about $46 a month. For families on tight budgets and with big mortgages, that can be touch and go. You could argue that smaller mortgages would take a lot of the pressure off, but that would mean buying lower priced housing. And even with a deposit of $50,000 and a $300,000 mortgage, you can’t find much for $350,000 anymore. So suggesting young or lower income families lower their housing choice standards is a bit of an insult. Try searching realestate.com.au for a house with 2/3 bedrooms anywhere near Brisbane for less than $350,000. They’re close to nonexistent.

Apartments don’t seem to be the answer either. The build-only cost for a new 2 bed apartment in a high to medium rise is roughly $300,000. Plus land, plus levies, plus compliance and some margin. You’re up to $400,000 starting price before you know it. No doubt that reality explains the steep decline in apartment approvals.

But consider for a moment the media obsession with the rate rise and the extra $46 a month for the average new mortgage holder. Then compare this with the almost non-existent attention to increases in head works and related charges imposed by councils and state governments, and their impact on affordability.

Here’s a sobering little calculation. If the rate rise equates to an extra $46 per month, what have these increases in headworks charges equated to? Let’s take a pretty conservative sum of $50,000. That doesn’t factor in anything for the increase in raw land costs due to supply constraints, nor the compliance costs of our ‘reformed’ planning and building regulations. The $300,000 mortgage notionally includes those extra costs. So if the mortgage was $50,000 less, on the basis that these regulatory costs had not been imposed, what’s the impact?

You ready for this?

A $250,000 principal and interest mortgage at 6.9% over 25 years is going to cost $1,751 per month.

The $300,000 mortgage will cost $2,101 per month. That’s an extra $350 per month. Sort of makes the extra $46 a month look cheap by comparison, but where has the media been on this issue?

Every time a new building regulation is introduced, whether it’s for water or environmental sustainability or other reasons, it finds its way into extra costs. The same applies to the massive escalations in head works charges imposed by councils. The same for land tax. The same for additional compliance costs (more lawyers and town planners fees) which result from our ‘reformed’ planning systems.

If our hypothetical $50,000 in extra charges number is conservative – and I think it is –it’s painfully obvious that the culprit here is how housing costs, and hence mortgages, have been pushed up by the supply-side pressures of headworks and compliance costs (inputs into final price).

When you work out that those costs translate into some $350 a month or more extra for young homebuyers, you really begin to wonder why the media have effectively let the regulators (the ones causing the damage) off the hook.

Population growth – why it’s different this time.

2010-02-09T12:49:00.000-08:00

Accustomed to many years of population growth driven by ‘refugees’ from southern states, the Queensland picture of population growth has changed dramatically. And that change will have implications for developers, and the economy.

For much of the 1980s, 1990s and early 2000s, Queensland’s population growth was fuelled by net interstate migration. There were more Australian residents leaving Victoria and New South Wales (in the main) bound for Queensland, than Queenslanders leaving bound for southern states.

Those interstate migration flows peaked from the late 1980s to mid 1990s, where net figures of up to 50,000 per annum crossed the border to settle in the Sunshine State. That’s when the “1,000 people per week” figure was first aired, and was subsequently flogged by politicians as evidence of Queensland’s economic and lifestyle allure.

At the time, Victoria was suffering economic malaise in the aftermath of the Cain-Kirner Government. That prompted many Victorians to uproot themselves, sell their homes and move to Queensland. New South Wales was not in the same economic position (that was to come later) but high housing costs and the lure of the sunbelt saw New South Welshmen compete with Victorians for the title of representing the most new arrivals to Queensland.

Those arrivals, contrary to the ‘Gods waiting room’ reputation of retirees moving to the Gold Coast, were typically families in their 30s and 40s – and they brought with them two things important to the Queensland economy: capital and skills. They typically had sufficient surplus capital from the sale of their home to buy a better home in Queensland, for less money (our housing was then relatively cheap, and state taxes and charges relatively lower) and still have funds left over.

This was a golden era for growth in Queensland. Net interstate migration accounted for more than half of Queensland’s population growth. Next was our natural growth rate (births over deaths). Direct overseas migration was the poor cousin of population growth to Queensland.

What’s different now?

Net interstate migration is no longer the main driver of population growth for Queensland. Net interstate migration numbers have fallen to below 20,000 per annum. Baby bonuses and social change have seen our rate of natural growth increase over time, but the big jump in numbers has been direct overseas migration to Queensland. Now pumping something like 50,000 people per year (1,000 a week) into the state, direct overseas migration is entirely responsible for maintaining Queensland’s reputation as a population growth state. Contributing three times the number of people as net interstate migration, the composition of overseas arrivals begs a few questions about how that might change the growth landscape.

If interstate arrivals of the 1990s arrived with capital and skills, is it safe to assume that overseas arrivals of today are bringing the same things to the same degree the state’s economy? Probably not.

What the figures tell us.

The graph above paints the picture nicely (and thanks to Michael Matusik for letting me use it). The blue line of interstate migration has been a bit erratic over time, probably reflecting the relative economic appeal of Queensland compared to other states. (Does the current decline in net interstate migration to Queensland have something to say about the relative appeal of our economy and housing markets? That’s another story again). The red line shows direct overseas net migration, which since the early 2000s has been on a solid rising trend.

(That’s just the net overseas numbers for permanent residents. There’s also a very large population of temporary resident status immigrants in Queensland at any one time. Business and working holiday and student visas have added well over 50,000 people to the population at any one time - roughly a city the size of Rockhampton).

Implications?

Understanding that the mix of population growth has changed in Queensland is the first step in predicting future economic, social and housing trends in the state. Ten years ago, the needs of interstate arrivals might have been pretty straightforward to pick. Today, the social, welfare, housing and community needs of direct overseas migrants from the combination of Asian and sub continent countries which is now feeding our population growth paints a different picture.

The fact that their needs and contribution to the economy will be different is without argument. In fact, the Federal Government acknowledged as much in this month’s announcement of major changes to skilled migration entry standards:

“Only half the migrants entering Australia with skills on the MODL (Migration Occupations on Demand List) actually end up employed in their field and one-third end up unemployed or in a low-skill job, Senator Evans said.”

"The current points test puts an overseas student with a short-term vocational qualification gained in Australia ahead of a Harvard-educated environmental scientist," Senator Evans said.

“While Australia's hospitals need nurses and doctors there are 12,000 foreign cooks waiting to come to Australia under the existing system, he said.

So, if up to a third of overseas arrivals under this scheme end up unemployed or in low skilled jobs, you have a different profile of what’s boosting our population numbers and a different profile on the types and styles and price of housing product in demand, at least in the short and medium term as they become established.

You could suggest that a large proportion of interstate arrivals of the 1990s also arrived without jobs to go to, which could be true. But the anecdotal evidence at least was that they soon found jobs in their chosen field, and had the capital base to enter the housing market with either more equity or a relatively higher standard of housing product than the one they left behind.

The change in the component of population growth to overseas migration is not a bad thing. But it would be wrong to expect these migrants to be bringing with them the same capital, the same skills, the same requirements on social welfare or the same demands on housing as equivalent migrants from interstate did during the mid 1990s.

Housing developers could find that closer study of the population growth numbers in Queensland might reveal some very different demand profiles to the ones assumed on the basis of our historic experience. And Governments likewise might need to be prepared for greater demands on social services and a slightly less immediate economic gain from each overseas migrant, compared with the interstate equivalent.

Populate... and panic?

2010-01-12T22:51:00.000-08:00

The politics of population will be high on the public policy agenda of 2010, with three “summits” already planned for Queensland. So dust off your 1968 copy of ‘The Population Bomb’ or your 1798 copy of An Essay on the Principle of Population, by the Rev Thomas Malthus. It seems everything old is about to be new, again.

“A DECADE of unprecedented population growth in Queensland will leave a chronic shortfall of 50,000 houses by the middle of next year.” This was the opening sentence of one media report which canvassed the issues of population growth and housing shortages in Queensland.

The reality, as usual, is much less dramatic. Even boring. Far from being unprecedented, Queensland’s rate of population growth is trucking along within the 2% to 2.5% per annum band, much as it has since the late 1980s (see Fig 3, Department of Infrastructure & Planning’s “Population Update 2009”). Further, Government projections are for a slowdown in growth, as (then) Planning Minister Paul Lucas told Parliament in 2008: “the latest state-wide population projections for the next 25 years showed an estimated annual growth rate of 1.7 per cent, well down on the average rate of 2.4 per cent in the five years to June 2006.”

So why this sense that we’re now growing faster than before? Why the need for summits? More to the point, what are they likely to conclude?

The Bligh Summit & others

On the 7^th December last year, Premier Anna Bligh announced a population growth summit, saying “here in Queensland, population growth is both our biggest challenge and our best opportunity." A seven member panel of growth ‘experts’ (including the ACF and Tim Flannery) has been appointed and will advise the government by “putting forward ideas that are concrete, real and practical, so that that summit will actually generate actions that can help manage our growth."

There’s a saying in politics about ‘never holding an inquiry until you know the outcome in advance.’ While the Premier has maintained she is ‘pro growth’, the composition of this panel of experts tends to point to a less positive view on growth, especially from the environmental lobby.

Also getting in on the act is the Local Government Association of Queensland, who are holding their own Inquiry into Population Policy, led by Prof Peter McDonald and Professor Lyndsay Neilson (the latter of whom was the architect of much of the ‘Better Cities’ program, and is a pretty capable and clever bloke). Announcing the inquiry, LGAQ President Paul Bell said "By 2031, current estimates are that the state will be home to 6.3 million people, a long-term annual growth rate or more than 1.7 per cent per annum.” That’s slower than the 2% to 2.5% of recent decades, but still sufficient reason to have an inquiry and to create a population policy. Bell made some sense stating: “We believe a state population policy could provide clear guidance towards the future locations of population growth and infrastructure provision. At present, we simply react to the trends in growth rather than seeking to influence aspects of population growth.” You have to ask however what purpose the SEQ Regional Plan is supposed to serve if not precisely that.

And because there’s no show without punch, the Property Council are also holding a ‘population symposium’ of industry views, the results of which will be taken to the official Bligh Summit. The symposium will include “a panel of ‘three wise people’ who will be tasked with observing the day’s proceedings and developing the Property Industry’s Population Growth Action Plan.”

Some perspective.

Opinions on population are about to be as common as warts on a toad so some perspective will be handy.

In terms of growth, The Pulse last year tried to pour cold water on the notion that Australia was somehow experiencing runaway growth (see here). The same applies to Queensland where growth rates of under 2% are hardly noteworthy on a global scale. Have at look at the global table of city growth, provided through the website www.citymayors.com

[table removed for print purposes]

What’s interesting is that growth rates of below 2% don’t get close to being in the top 100 on a global scale. The US cities of Austin and Atlanta come in at 76 and 78 – with roughly the growth rates experienced by Queensland in recent years but with our predicted growth to slow to 1.7%, we’ll be well down on the list.

The same website provided some interesting urban comparisons of scale and urban density. (Keep in mind the definitions of urban boundary and population counts may vary, but this is still a handy ready reckoner for order of magnitude comparisons).

Demand, or supply?

So if our rates of growth aren’t much different to what we’ve experienced in the past, and if in global terms our growth rates, population size and urban density aren’t exactly noteworthy, why the concern over population? Is it really about growth (ie demand) or something else?

The answer could lie with supply – the supply of infrastructure needed to keep pace with growth, of any magnitude. If the people of the south east corner are concerned about growth, they commonly express this in terms of frustration with increased traffic congestion, capacity of public transport, limits on water, availability of hospital beds, energy provision, housing shortages, etc. These are really issues of limited infrastructure supply in the past 20 years. We’re now in a catch up mode under both the Brisbane City Council and State Government infrastructure priorities and work lists, but there’s a lot of catching up to do, something generally acknowledged by governments of all persuasions. Hence the frustration expressed by the community?

Would it concern us if the population of the south east reached 4 million (as predicted under the SEQ Regional Plan) in 30 years’ time, provided the traffic still flowed, public transport wasn’t stretched for capacity, and there were enough houses to go around without inflating prices, sufficient public hospital beds, plenty of water supply, power supply and other infrastructure to maintain the quality of life?

How ‘big’ is ‘big enough?

I suspect the physical population numbers and rates of growth around 2% aren’t the root cause of community and political concern. Providing adequate infrastructure to keep pace with growth seems more like it, but everyone will have their own opinion.

One question though is going to be difficult to answer: just how big is big enough? If a future population of 4 million in the south east should be readily managed provided we match it to infrastructure, what about a population of 6 million, or 8 million? Sure these aren’t big numbers on a global scale - Boston has a population of 4 million already but is still noted for its beauty, and Paris comes in at close to 10 million and seems to manage its reputation well enough – but how will the future residents of south east Queensland feel about numbers of that magnitude?

What will they conclude?

The range of community opinions soon to be sought on the questions of population and growth will span everything from ‘stop everything now’ to ‘just keep going forever.’ Where in this arc of opinion will the pendulum of summits stop? What will we conclude as the result of these summits?

Hopefully, rational heads will prevail and we’ll conclude there is no emergency of growth now or in the foreseeable future. But there is a huge infrastructure burden that’s an immediate consequence of growth. Somehow it needs to be funded, and delivered.

Will the population summits focus on how that’s to be done, or will they go the way of the great Kevin Rudd ‘Australia 2020 Summit’ – largely a ‘conversation’ and ‘discussion’ but one that has quickly been forgotten?

One thing’s for certain: you’re likely to be asked your opinion very soon. You might as well be ready with an answer.

What price a roof over their heads?

2009-12-02T14:01:00.000-08:00

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 http://www.smh.com.au/business/home-ownership-down-renting-up-abs-20091106-i1t4.html 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 http://www.news.com.au/business/story/0,27753,25847312-462,00.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 http://www.canberra.edu.au/centres/natsem/about/natsem-news2/natsem-news/natsem_news_pdfs/NATSEM-News-29---Web-version.pdf (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 http://www.news.com.au/couriermail/story/0,23739,26198157-952,00.html by Commsec. (West Australia is also concerned - see here http://www.theaustralian.com.au/news/housing-shortage-may-derail-states-recovery/story-e6frg6no-1225785217916?from=marketwatch_rss).

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?