Learning to live with less

Population growth has been a mantra of our property industry for as long as I can remember. And once again there are predictions of a surge in growth, driven (this time) by people allegedly fleeing Victoria. However, there are good reasons to think this may not happen, and that we may need to prepare for an extended period of minimal growth. This may not be a bad thing.

One of the first things to understand about our recent rates of actual and predicted future population growth is that they have been extraordinary in terms of the actual numbers and also in terms of the rate (speed) of growth. On a global scale, our forecast rates of population growth in major cities exceeded many leading world cities and was on a par with places like Shanghai and Beijing. In just 15 years, Brisbane, Sydney and Melbourne were predicted to grow by around a third – roughly three times the rate of growth of cities we often like to compare ourselves with like Copenhagen (for some reason), Los Angeles, San Francisco, London or Paris.

Given we started this forecast period with widely acknowledged urban infrastructure deficits (failing to keep up with population growth in the past), how we were supposed to not make the problem worse with these rates of growth is something smarter people than me might like to explain. Let’s just say the Chinese do things very differently so we can’t use Shanghai or Beijing as comparisons.

These predicted rates of growth were driven by three components: international migration (net overseas migration or ‘NOM’); interstate growth (net interstate migration or ‘NIM’) and natural growth (more births over deaths). And all three now look severely compromised by the policy responses intended to manage Covid.

In Queensland’s case, NOM has grown in importance in recent years, now accounting for more than a third of our population growth. However, with the closure of international borders, there’s been a virtual halt to 457 work visas, along with foreign student visas. Net overseas migration to Australia – Queensland included – will slow from record numbers to a trickle. This is likely to recover but unlikely to recover to pre-covid levels for some years: rising unemployment in Australia would not be helped by importing more labour on work visas. I cannot see a Federal Government supporting NOM at the same levels as we have seen in recent years when so many Australians themselves are out of work – something sadly that’s unlikely to change for a few years yet.

The rate of natural population increase is also significant, and typically stable. It has sat at around 30,000 per annum since 2016. There are two schools of thought here: lockdowns and work-from-home will lead to a post Covid baby boom (for obvious reasons) or that the post Covid recession will see fewer people plan on starting families until their financial futures are more certain. I can see a bit of both – an initial baby bump possible at year end after the March-April lockdowns, followed by a slowdown in births as the full implications of the recession sink in. In short, less growth from natural increases is my punt, for the foreseeable future.

The final source of population growth has been net interstate migration and this is where some are seeing hope of significant growth. The numbers of net interstate migrants to Queensland has been increasing since the 40 year lows recorded from 2010 to 2014, but will this continue?

There are a few things to keep in mind here. First, when NIM reached levels of 1,000 a week (around 50,000 per annum) in the late 1980s and early 1990s, Queensland’s total population was around 2.4 million. Today it is around 5 million. To have the same proportional impact, we would need to see NIM rise to around 80,000 per annum – and we are a very long way from that.

Second, there has been a close correlation between periods of high net interstate migration and periods of economic prosperity in Queensland. People did not come just for the weather or the lifestyle (attractive as these were) but they came in numbers when Queensland’s full-time jobs growth was strong, even stronger than NSW or Victoria.

There have been recent media reports speculating about Victorians (in particular) seeking refuge from Covid impacts in their home state and moving to Queensland. I don’t believe the media reports will reflect significant real numbers for the reason that Queensland’s full-time jobs growth has actually been negative in the last five years and anaemic in the last ten.

It’s important to look at full time jobs because these are the things people need to secure mortgages and to provide family security. Much has been made of the Gig economy, but part time and casual jobs are particularly vulnerable in recessions and especially to downturns in Covid-sensitive industries like hospitality, travel and tourism. Which happen to be synonymous with Queensland.

Would Victorians (for example) logically leave a state that has produced more full-time jobs than any other in the last five years for a state that now has fewer full-time jobs than five years ago? I have heard some in the property industry argue that if you had to be unemployed, where better than in Queensland. Which is true, but is this what we want? Migrants arriving without jobs to go to or limited prospects of getting any in the near term isn’t helpful. This won’t stimulate our economy but will add to the drain on services in costly areas for governments (meaning taxpayers) like health and education. Fewer full time employed taxpayers and a rising population of dependent unemployed is not a recipe for economic growth. Property professionals spouting this line need to take a long, cold shower. All population growth is not alike.

So each of three sources of population growth looks challenged in a post Covid Queensland, for the next few years at least. Less NOM, fewer NIM and less breeding.

Is this such a bad thing though? Provided we continue with infrastructure projects, it could allow the State to begin to close the infrastructure gap which has widened significantly in recent decades. The pressure is everywhere to see – rising congestion, hospital waiting lists, rising school class numbers, and hostility to development generally. If Covid forces a breather on the rapid rates of population growth we’ve been used to, perhaps it will mean we can actually enhance our quality of life and standards of amenity in the process?

It’s also worth keeping in mind that there are many global examples of low growth cities and regions which remain highly attractive and economically prosperous. The surplus of demand by people wanting to live and work there, relative to supply (deliberate limits on housing supply and population caps) invariably makes these very expensive real estate markets, completely unaffordable for many. But from a selfish property market point of view, they are still viable markets for development and redevelopment. Locally, think Noosa. Being horrendously expensive for residential or commercial property hasn’t stopped some of our other property markets before?

 

Learning from Levittown

Attend any number of presentations on the subject of “sprawl” or read any number of articles denouncing it, and very often you’ll find the example of Levittown USA being used as a case study in what not to do. The 1950s era mass-produced housing development has been pilloried by designers, new urbanists, smart growthers and creative classists from the US to Europe to Australia. Admittedly, its design when first completed was far from inspiring. But the critics omit to mention some very important and enduring features of Levittown, some of which we could use more of today.

Figure 1 Levittown USA in the 1950s

What is Levittown? It’s the name given to a number of post World War II housing developments in New York and Pennsylvania. Developers the Levitt family sought to provide low cost detached housing, especially for servicemen returning from WWII and their families. Houses were manufactured using a Henry Ford assembly line approach, with construction teams devoted to particular components, allowing for an entire house to be built in as little as a single day. Houses with land came with appliances installed, lawns and of course a white picket fence. They sold like hotcakes.

Largely uniform designs on low cost land with efficient building techniques were the keys to making these homes affordable. Keep in mind, many residents were escaping cramped, unhealthy and relatively expensive rented accommodation in New York urban tenements. For them, the hope offered by a new home they could afford to own, with space around them, was a no contest compared with the lifestyles they and their parents’ generations had known.

Figure 2 Urban living was a dystopian nightmare for residents of New York in the 1920s and 1930s. Cramped housing, disease, crime - all were rampant.

Figure 3 The opportunity to own their own home, with internal room and external space, free from the conditions they and their parents had experienced, made Levittown an obvious and logical choice.

But for urban design critics at the time, Levittown represented everything they detested. The writer and urban critic Lewis Mumford had this to say in his 1961 booked “The City in History”:

“…a multitude of uniform and unidentifiable houses, lined up inflexibly, at uniform distances, on uniform roads, in a treeless communal waste, inhabited by people of the same class, the same income, the same age group, witnessing the same television performances, eating the same tasteless prefabricated foods, from the same freezers, conforming in every respect to a common mould.”

That set in train a repeating pattern of criticism over the decades that followed, all of which seems to have two things in common: first, the criticism is based on initial design (making next to no mention of the improved housing conditions it provided, liberating a generation of families, nor the affordable prices at which it could be purchased). Second, the criticism reflects mainly the early days of Levittown. Indeed, the opening photo in this article is the one I have seen used most in articles and at conferences where scorn is freely piled upon Levittown. The image is 70 years old people! Why not use a recent image to show what Levittown looks like today? Here’s one below for example -  which looks very much like any middle-class suburban environment anywhere. Criticising projects like Levittown in their very early days is a bit like criticising a 2 year old for their lack of literacy and numeracy skills. Give it a rest.  

Figure 4 Levittown today looks more like a bucolic scene of middle class suburban life.

Below is another image. Over time, owners have planted trees, the area has matured, schools filled, community facilities established, and transit connections improved. In fact, the demographic profile of Levittown today is that of a healthy middle class, middle income, well educated community with very high levels of home ownership (much higher than the Australian average).

Figure 5 A matured Levittown community that the suburb bashers never talk about

Levittown on opening day may not have been the most visually appealing landscape imaginable, but to the people who bought and settled there, they could no doubt see beyond the narrow view of wealthy urban critics like Mumford. They could see a future for their families and a lifestyle free from cramped and run-down housing, disease and urban crime.

Have we learned anything from Levittown? It doesn’t look that way. The prevailing view of new suburban master planned communities today has changed little from the ill-informed, jaundiced and smug denunciations levelled at Levittown. New suburban communities are regarded by the inner urban cognoscenti as some form of social aberration. This, they claim, is a condition that needs curing. This can’t possibly be what people want. It can’t possibly be good for them.

There are many modern-day versions of Lewis Mumford in Australia, generating a steady torrent of suburban disdain like this from Sydney Morning Herald urbanist and university professor Elizabeth Farrelly:

“The suburbs are about boredom, and obviously some people like being bored and plain and predictable, I’m happy for them … even if their suburbs are destroying the world.”

New suburban communities are wrongly accused of generating city bound congestion (though fewer than 10% of residents work in the inner city); they are accused of being environmentally irresponsible (yet they provide public open space and parkland at many times the levels available in inner cities); they are accused of being wasteful energy guzzlers (yet they are more likely to generate their own rooftop solar and dry their clothes without the aid of an electric dryer using instead the common clothesline); they are accused of consuming valuable farmland (though it is often marginal and the accusers have little understanding of farming realities); they are accused of catering for poorly educated, low income, fast food guzzling masses (though the demographic picture provided by the Census shows this to be entirely untrue); and they are accused of creating social isolation, loneliness and ill health (which even the most tortured methodology in the hands of the most ardent suburb hater couldn’t come close to proving).

Unattributed, unscientific, hearsay is accepted “wisdom” in so many circles that it is easy to despair. Evidence is out the window and in its place are unchallenged but fashionable belief systems. Faith over facts. It’s as if we are sick with urban prejudice but are only being able to choose between the witchdoctor, the anti-vaccer or the Chinese herbalist for remedies.

New suburban communities have much to offer Australia. If we simply sought to understand them better, we might begin to support them better too. Affordable housing in new suburban communities is surely an option people are entitled to aspire to? How many really aspire to a permanent life of renting in cramped conditions?

Levittown was popular with working and middle class Americans in post war America. It provided low cost homes and a better future for its residents, who busily went about planting trees and building their own community over time. It provided a start. 

New suburban developments deserve the same opportunity to provide these things to a generation of Australians. They can do without the moral guidance, partisan bias or professional snobbery of “experts” or the opinions of the inner urban cabal who wax lyrical on the need for affordable or social housing yet in the next breath reject models which could provide it.

The Suburban Alliance has commissioned some indepedent research into what mature masterplanned communities are really like, compared with the inner city. The report and two minute video summaries can be found here: https://suburbanalliance.com.au/causes/a-new-suburbia-case-studies-of-successful-suburban-expansion/

Back to the drawing board?

The global response to the impact of the Coronavirus seems consistent in at least one respect: everything we previously took for granted is now up for grabs. Long held truisms, established patterns of corporate and individual behaviour, doctrinal teachings, professional articles of faith – nothing is immune from Covid-19 induced change.

The immediate and long terms impacts are potentially going to reshape cities and the behaviours of the people who inhabit and work in them. Nothing seems untouched: from the nature of work and where it’s conducted, to urban mobility, immigration and population growth, housing preferences, retail spending and personal consumption. A more comprehensive shake up could not have been imagined only 6 months ago. 

Many Australian cities and regions adopted regional planning policies built on some common themes around the mid to late 1990s – the curb of rapid outward expansion, policies of urban consolidation and infrastructure strategies designed to support these principles. Regional plans have been reviewed and updated since then but the general principles haven’t fundamentally changed. Then along came a virus, and it potentially changes everything. Persisting with the assumptions that underpin these regional plans, as if nothing has changed, now makes little sense. They need a root and branch rethink. 

Central to many of these assumptions was a frenetic rate of population growth. In South East Queensland for example, the population was predicted to rise from 3.5 million in 2016 to 5.3 million by 2041 – a 50% increase in just 25 years. It took nearly 160 years to grow by 3.5 million but the next 2 million was forecast to come in 25 years. Melbourne and Sydney planned for similarly meteoric rates of growth. Those predicted rates of growth owe themselves entirely to Australia’s international immigration policies, which until Covid were running hot. That tap is now turned firmly off, and according to many is unlikely to be opened anywhere near as wide again. 

Even traditionally woke pro-immigration Labor Party spokepeople like Kristina Keneally are now calling for curbs to protect Australian workers. “The post-COVID-19 question we must ask now is this: when we restart our migration program, do we want migrants to return to Australia in the same numbers and in the same composition as before the crisis? Our answer should be no,” she wrote in an opinion piece for the Sydney Morning Herald. Many Labor colleagues refuted her suggestion but it is clear that on both sides of politics, the idea of rapid immigration driving population growth is off the table for some time. As this underpinned many of the key assumptions and forecasts of regional plans, this aspect at least needs a completely fresh look at the implications. 

That will also impact on assumptions around housing, deeply embedded in most regional plans; where it will be needed and what it will look. If patterns of settlement are going to change, and if housing preferences also change (as many seem to suggest) that will impact on everything from planning for schools, hospitals, and civil infrastructure. Demand for rural and semi-rural living could also change, as the attractions of ‘splendid isolation’ are not lost on people. The prospects for high density housing around high intensity transit nodes – transit-oriented development – is yet another dimension of the prevailing orthodoxy that Covid-19 could dramatically impact. Just shutting our eyes and pretending it won’t is not good strategy.

Other regional planning assumptions may also now be redundant. The assumption that ‘knowledge workers’ would willingly crowd into highly dense inner-city workspaces, commuting via crowded mass transit, was a sort of ‘Manhattan meets London’ aspiration of some planners. The Planning Institute of Australia indicated as much when in 2018 it responded to an ABC News report warning of overcrowding in Sydney and Melbourne through excessive population growth by suggesting: “We want Tokyos, Parises, and New Yorks – and we can do that by planning well.” Those once celebrated urban models are now looking less praise worthy, at least for the time being. (It’s fair to question how many average Australians ever shared those ambitions in the first place). Very high-density mass transit dependence by cities like Manhattan will be watched closely – how will workers, commuters and companies react and what does this mean for Manhattan’s future? Already there are multiple examples coming from Manhattan of corporations looking to decamp to more suburban or regional centres as a direct response to the perceived lasting impacts of Covid-19, accelerating a pre-Covid which saw millennials and businesses priced out. Regional planning schemes are all about the future and the future of Gotham - and cities like it - now looks quite different. It remains to be seen whether they will continue to aspirational city models for all but the most ardent urbanists.

The likely lasting effects of work from home are another consideration. This has gone from an interesting point of conjecture and discussion pre-Covid to a workday reality for many. So far, there seem to be both positives and negatives, depending on the person, the employer and the occupation. At this stage, significant proportions of those working from home may continue to do so by choice, or by edict (some employers taking advantage of the considerable cost savings). The city-wide impacts in the longer term are hard to gauge but they should be given some careful consideration for their impact on regional plans. Another reason for root and branch revision. 

While some employers will support work from home options for some of the workforce, others may seek lower cost suburban collaboration hubs. Can the assumptions about suburban employment hubs embedded in existing regional plans (what little there is) any longer apply? Do existing zoning mandates and prescriptive tables of permitted uses adequately provide for the quick pivots on land use from, for example, retail to professional services to cottage industry? And when it comes to assumptions about industrial land uses, are the rapid rise of logistics and distribution, the advent of ‘dark kitchens’ or the acceleration of delivery systems to support internet retailing adequately catered for in regional plans which predate these changes? It’s unlikely. The entire notion of industrial activity has changed markedly with more future needs around distribution hubs on very large sites near fast flowing transit corridors. Covid-19 has accelerated changes in industrial land uses – meaning more large format sites on urban fringes while older style industrial lands in inner or middle rings need a new life and future. Plans should reflect that new reailty.

Planning for regional growth, coordinating infrastructure delivery and maintaining quality of life is something that makes enormous sense. Clinging to plans which cataclysmic events have rendered redundant, does not. 

I can think of no business who plans to use their pre-Covid business strategy and assumptions as the basis for moving forward in a post Covi-19 era. The same logic should apply to planning. 

Is housing affordability the egg we can’t unscramble?

The new NSW Premier Gladys Berejiklian has made housing affordability a commitment of her government and our Federal Treasurer Scott Morrison has been to London investigating alternative means to providing low cost and social housing, while Opposition Leader Bill Shorten claims only Labor has the solution to housing affordability. Politicians are starting to get the message, but is it all too late? Has the affordability horse bolted, permanently?

It was ten years that a research paper I wrote for the Residential Development Council first started doing the rounds of various Parliaments in the country. “Boulevard of Broken Dreams” as it was titled, warned – ten years ago mind – of the impending problem with housing affordability. It got plenty of political attention at the time and the debate over housing affordability was a key issue in the 2007 Federal Election. No one can say there weren’t warnings back then. Here’s what it predicted at the time:

“While much media and political attention is focused on the role of housing interest rates, these do not explain the very high costs of housing in Australia. [Indeed not – we now have record low interest rates and record high housing prices] The root cause of worsening housing affordability lies squarely at the feet of various public policy settings, identified in this discussion paper. If these policy settings continue on their present path, there is no question that housing costs will continue to spiral beyond reach of many Australians. As this happens, dependency on rental housing will increase. Future generations of Australians will not be able to afford a home of their own, and will increasingly be consigned to rental housing - and rising rental costs.

Home ownership will be in the hands of an increasingly elite group of Australians: those wealthy enough to afford a home and those who bought into the housing market before the affordability crisis reached a tipping point.

Housing standards will fall - due to price constraints - and new homes will be built on smaller and smaller lots, with cheaper and cheaper materials to stem the tide of ever increasing government and regulatory costs.

The signs of a deepening crisis are now evident, and industry groups are united in voicing their concerns that present policy settings will only lead to a worsening problem. Failure to act now will leave future generations of young Australians a dismal legacy of housing stress - in a country which by any other assessment should boast the highest standards of home ownership and affordability.”

It’s worth a read if you want a reminder of how ineffectual governments can be in dealing with the bleeding obvious, or of ignoring good advice when there’s plenty of bad advice to be had. There is a copy of “Boulevard of Broken Dreams” you can download here.

Ten years have since passed and – as predicted – the problem is now much worse. Which also means that remedies are now more complicated since the problems are more deeply rooted. If we really wanted to do something meaningful about housing affordability today, there are quite a few more issues for politicians and policy makers to deal with. Here’s a sample:

Are we even measuring the right thing? The city wide median house price is primarily a reflection of second hand (established) housing in established urban areas. It’s the half way price point and can be distorted by heightened activity at either end of the price scale. What this doesn’t measure is the typical cost of new housing supply, being either house+land, or apartments. Nor does it measure within established markets what proportion of houses fall into the lower quartile, and whether these are accessible to new entrants or lower income households. As a market wide measure, the median has some use but in the affordability debate, it can tend to disguise as much as it reveals.

Land supply. It’s no longer a simple case of adding to supply, given that new supply is more heavily taxed than second hand (established) supply. Adding to land and housing supply with highly taxed and over regulated new stock is hardly likely to make things instantly better – it just adds more needlessly expensive stock to the market. So for improving supply to work the distortionate tax system as it applies to new land and housing needs to be addressed first.

Economic concentration. There has been an increasing concentration of economic opportunity in the inner urban regions of (mainly) Sydney and Melbourne – which is also where the worst housing affordability is. A report earlier this year noted that half the country’s new jobs were within a couple of kilometres of the Sydney and Melbourne CBDs.  Decentralising some of the jobs - both government and private - into suburban business centres and into the regions would remove some of this pressure cooker effect, but few seem willing to do so. I’m with Barnaby Joyce on this one – if you want affordable housing and views of Sydney Harbour, you’re being unrealistic. But without higher order jobs and more of them, Barnaby is unlikely to be welcoming hordes of housing refugees into Tamworth, where the housing is - like many regional towns and cities - quite affordable if you have a job.

Regulatory reform. Urban Growth Boundaries, introduced in the late 1990s and early 2000s, sought to contain outward growth. “Sprawl” as it was pejoratively called, was an evil that would lead to social decay, dislocation, congestion, obesity, pollution, environmental degradation, loss of farmland – pretty much a full catalogue of sins, most of them unverified. But these growth boundaries immediately limited supply and saw land prices escalate. To address housing affordability, especially of new housing, we’d have to have a grown up discussion about the effect of urban growth boundaries, which itself will be a challenge.

Planning regulations. More regulatory reform, this time on a host of planning regulations and prescriptive policies which can mean that even a car port application can become a topic of council debate in some places. There is too much planning and not enough doing but we are so attached to “having our say” that the community now seems entitled to advise other property owners what they should and shouldn’t do with their properties. There are regional plans, state planning policies, council town plans, neighborhood plans, plans for everything and the red tape and delays (and costs) that go with it. In the history of this country, I struggle to think of one government at any level which has actually left office with fewer rules and regulations than when it entered, so hope on this front seems remote.

Industrial relations. The militancy of building industry unions is a matter of public record. This particularly affects multi-level or large scale housing projects and adds significantly to the costs of new housing supply. But our appetite for taming the excesses of building industry unions doesn’t seem sufficient to achieve meaningful reform. Without it, new housing will continue to cost more than it needs to.

The GST. The GST adds directly to the cost of all new housing and the cost is borne by the buyers while the tax revenue flows to the federal government and is redistributed to the states. The GST does not apply to established housing. This distortion remains little discussed but it does mean that new housing is taxed at a higher rate than established housing. Talk of reform to the GST seems to end in political apoplexy so we tend to avoid it if we can. Fixing or countering this tax anomaly would be another component needed in any moves to improve housing affordability. 

Stamp duty. As house prices rise, so does the money made by State governments via stamp duty, to the extent that some governments become addicted to it. The NSW Government is one that enjoys a very healthy stamp duty revenue, much of it paid for by the very people it says it is concerned about in terms of the high cost of housing. Paul Keating once warned you should never stand between a State Treasurer and a bucket of money. He was right and Stamp Duty is a good example. In NSW it is now a $9 billion per annum bucket. In 2011, it was $3.8 billion.

Land tax. Argued by many economists to offer a more equitable property tax base than stamp duty and other levies, the extension of a broadly based land tax seems off the agenda for discussion, full stop. But any meaningful discussion of housing affordability can’t be had without a grown up discussion about property taxes, of which land tax is one.

Infrastructure levies. Introduced mostly in the early 2000s as a “user pays” approach to funding infrastructure associated with new development, these quickly became usury and applied without a transparent connection to the purpose for which they were raised. Councils and State Governments got away with calling them a “developer tax” knowing full well that it was home buyers of new housing that were paying. And pay they did – levies at one point exceeded $100k per dwelling in some parts of NSW. The HIA and other groups still say they can account for a quarter to a third of the cost of a new home. Any serious moves to improve housing affordability must look at the equity of these levies as part of the mix.

Negative gearing. What a hot potato! If this was to be reformed, how would you do so for just housing and exclude other investments? Could you confine reform to limitations in just parts of the Sydney or Melbourne markets, because if you limited this nationally, many struggling regional markets would fall into even deeper holes. It was never intended that negative gearing would see speculators holding large portfolios of rental housing and outbidding new entrants to the extent that now happens, but how to contain what has become an orgy of real estate speculation through negative gearing is now a problem of monumental proportions. Good luck untangling this one.

Population growth.  We could slow our immigration to a trickle and try ease demand pressure on housing but this could come at a broader cost to the economy. Or migrants could be directed to settle in regions to ease demand in capital cities, but without regional jobs for them, what would this achieve?  The demand side of the equation being population growth is mostly fueled by immigration and until we can get supply in step with demand, this also needs to form part of the discussion around housing affordability. Good luck again with this emotionally charged policy battleground.

Financial reform. The banks, ah what can we say about these great community institutions of conservative and moderate lending, restraint and discipline. Maybe the less said the better. Reform of lending practices has been debated, studied and investigated ad nauseum. While a contributing part of the affordability problem through some of their less savory lending practices, achieving meaningful reforms of mortgage lending practices could be a Sisyphean challenge.

So there you go. If you’re a politician who has worked your way through solving all of these issues, you’ve improved housing affordability by making housing cheaper, through falling house prices. Just think how popular you will be then… in a country so heavily vested in seeing house prices continue to rise. 

Affordable housing in plentiful supply

Australia’s ongoing (some would say interminable) debate about housing affordability was given fresh impetus last month when Federal Treasurer Scott Morrison weighed in with calls for liberated land supply and planning reform by state and local authorities. Scott’s call closely followed a less edifying observation by demographer Bernard Salt that young people simply needed to change their breakfast preferences to afford a house. 

Predictably, discussion swirled around the excessive cost of housing in the inner city markets of Sydney, Melbourne and Brisbane, the declining rate of first home buyers entering the market, the rise of a renting class and the push for higher density apartments of limited size as a means of gaining a foothold in the market. It’s a familiar conversation and one that’s been repeated for a long time now. The same arguments were being thrashed around in the lead up to the 2007 Federal Election: release more land, reduce up front development levies, and free up a notoriously dysfunctional planning system. At the time, I was National Executive Director of the Residential Development Council, and to make the point, we famously sent every Member of Parliament a rubber banana, likening housing to the price of bananas (which when in short supply, rise in price).  The debate got a lot of traction and both then Prime Minister Howard and Opposition Leader Kevin Rudd made a number of statements on the issue.

Fast forward ten years and nothing has happened on the policy front. What’s worse, the level of market analysis in the debate hasn’t improved. One of the realities which ought to get serious attention is that Australia has plenty of affordable housing. It’s just not where the jobs are.

That might sound simplistic but if we continue to push for greater concentrations of employment in the inner city areas of Sydney, Melbourne and Brisbane we will only make the affordability problem worse. And this is what we are doing. Prime Minister Turnbull’s ‘Smart Cities’ plan has been much celebrated by the inner urban cognoscenti but in reality it is mainly an inner cities plan. Infrastructure priorities by State and Local Governments continue to lavish inner city regions with transport and social infrastructure in a vain but futile attempt to keep up with the pressures of further economic centralisation.

More economic centralisation is the last thing we need. It will create an infrastructure challenge we simply cannot afford and will never win. It will add to competitive pressure for housing near city centres and lead to social and economic inequity as wealth splits into the sort of ‘haves and have nots’ more typically associated with the British aristocracy in the 19^th Century.

Yet in all the debate about housing affordability and urban planning, there is a consistent implication that centralisation is the objective. Governments at all levels (with the partial exception of NSW’s Mike Baird) have centralised their considerable departmental operations in central city locations.  Business is encouraged to do the same – via a planning regime which promotes centralization in high density employment zones. Costly transport investment is focused on servicing the needs of a centralized workforce.  Housing increasingly focusses on limited land opportunities as close as you can get to centralized employment areas which often means dwellings that are both idiotically small for a country the size and population of Australia and prohibitively expensive.

Where in all this is the realization that the affordability problem is confined mainly to the inner and middle ring areas of mainly three cities. (Perth is sorting itself out via the deflation of its housing market bubble, as is Darwin. Adelaide firsts need an economy before seriously worrying about affordability and the same largely goes for Hobart).  There are dozens of larger regional towns and cities where affordability is not a problem. Jobs are.

In an era when digital technology has all but obliterated the tyranny of distance, why continue to live with this tyranny? Why don’t we have a genuine strategy to encourage employment growth and opportunities in regional cities and towns? In the US, this has been happening for years. It’s not the New York’s or San Francisco’s but the middle cities like Austin (Texas), Salt Lake City (Utah) or Denver (Colorado) that are the fastest growing economies. Here in Australia however we seem hell bent on ever greater populations and densities in a small handful of cities while we allow regional centres – many with more than adequate infrastructure, good climates, and plentiful and affordable land for housing – to languish.

Australia does have a housing affordability problem but that problem is largely confined to three or maybe four cities, and then mainly to the inner and middle areas of those cities – because that’s where we insist on putting the jobs. Rather than fretting over this dimension of the problem, perhaps instead our debate could turn to expanding and distributing the economic and employment footprint into outer urban and regional centres, where housing is affordable and land plentiful. What’s needed is a slightly larger share of the economic pie. Not only could this alleviate the affordability problem but it would reduce the impossible infrastructure burden associated with even greater concentration of economic activity in a select handful of inner urban areas.  

Footnote: the property featured in the above image is a current listing, in Orange, NSW. The median house price in Orange is $340,000 so this is representative. Orange has a population of around 50,000 within a region of around 100,000 and has quality educational and health infrastructure plus it's a very scenic city and region. (A video is here if you're curious). 

Just consider the difference between being able to earn $100,000 in the Sydney metro region but paying close to $1million for a house and enduring an irksome commute every day, to having the same income, a house for $340,000 and little congestion in Orange. All that's really missing is the job, which is overly simplistic I know, but all that extra money not going into a mortgage that feeds bank profits would find its way into either household savings or productive non-housing investment in the economy. 

What Utah could teach us about affordability, growth and density

Utah may not spring to mind as a region Australian developers and planners should study in more detail but I came away from speaking at an American Planning Association conference there last month wondering why it doesn’t feature more prominently in our thinking. It is more comparable and relevant to Australian conditions than say Vancouver or Portland plus its economic and housing market fundamentals present the sorts of metrics we aspire to.

Utah is one of the fastest growing economies in the USA today. A recent article by Forbes described it as the fourth fastest growing region in the country at 6.93%. And it is tech and financial services driving that growth, with companies like Goldman Sachs transplanting 2000 employees to the state and countless other tech firms doing the same. It is a strong economy and it’s attracting knowledge based industries at a rate that cities in in Australia would be jealous of.

Its population growth is broadly double the average for the USA and parts of the region are growing at close to 6% per annum. A big attractant is the state’s low unemployment and very affordable cost of living. Housing costs are said to be one tenth that of New York and a fraction of what cities like Seattle, San Francisco, Portland, or Los Angeles are commanding.

Centred around the capital Salt Lake City are numerous regions and city authorities. Much like the our metro regions, there are multiple jurisdictions each with their own planning controls and development plans. Salt Lake City itself is home to only around 200,000 people while the wider Salt Lake metro region is home to around 1.2 million people. This in turn is part of a largely contiguous area that stretches some 200 kilometres from end to end, which is home to around 2.5 million people.

These numbers are reminiscent of south east Queensland, and like south east Queensland the corridor of growth is largely contained by water (plus a desert in Utah’s case) on one side, and mountains on the other. It’s an elongated urban growth corridor for this reason. 

Given then its high growth, strong economy and low unemployment characteristics, combined with broadly similar population numbers, how is it that the region has maintained such affordable housing? The median house price across the Salt Lake County region is a multiple of only around 4.2 times median household incomes. Sydney’s housing is a multiple of 12 times median household incomes, Melbourne 9 and Brisbane is 6 times median incomes.

The typical response of some commentators in Australia is to dismiss US cities with excellent affordability as “places where no one wants to live” but Utah and the Salt Lake region is growing fast – faster than any Australian urban economy. So that excuse doesn’t cut it.

Talking to some of the Utah planners it became clear that when they speak of increasing urban density, they’re having an entirely different conversation to us in Australia. There are no urban growth boundaries as such in Utah or the Salt Lake-Provo-Ogden-Wasatch area. They are promoting higher densities of residential development but this is largely a voluntary thing negotiated between developer and city planners. Some of those cities in the region have minimum subdivision sizes of three acres. Yes, three acres. Others promote higher densities but there is a strong cultural connection to the single family (detached) house on a large(ish) block of land. It sounds much like we were once - although the quarter acre block largely disappeared in Australia in the 1970s. A quarter acre would be considered small by many in Utah.

Land is plentiful - for now - and planning restrictions nowhere near as objectionable as they have become in Australia. Land is taxed differently and leniently. Growth is a good thing, not an evil that must be contained and brought to submission under the regulator’s rule book. The one thing that left many of the people I spoke to in Utah speechless was the idea that in Australia, the land can be worth more than the cost of building the house. When I pointed out the average lot size was getting down to around 400 to 500 square metres, the jaws dropped further.

However, there are some pioneers of housing density in Utah that are setting high quality benchmarks and winning the homebuyers over in large numbers. The master planned community of Daybreak (first developed as an initiative of our own Rio Tinto) at South Jordan (roughly 20 minutes’ drive south of Salt Lake City) is one such project. Covering 4000 acres (1600 hectares) it will provide 20,000 dwellings for 50,000 people and extensive retail and commercial space once complete. Connected to the region’s rail (‘Trax’) network and serviced by extensive highway connections (got to love the Americans for this) the masterplanned community puts impeccable eco-credentials to work and has been widely and professionally recognized for its innovation and leadership.

Designed along new urbanist lines by the renowned Peter Calthorpe (among others) Daybreak exudes a charm that is understandably attractive to young families and seniors alike. Over a quarter of the site is devoted to open space but this is woven throughout the neighborhoods in wide foot paths, pedestrian connections, shared common area lawns and other natural features, some which serve to help retain 100% of storm water on site.

House and land combinations here are priced from around $400k to $500k (Australian), which is higher than the regional median for Utah. Typical lot sizes for entry level three bedroom homes are around 460 square metres, up to around 550 square metres for larger homes. Attached town homes or town houses obviously are on smaller lots still (an attached ‘twin home’ might be on less than 350m2). So Daybreak is proving that smaller lot sizes and higher median prices are achievable, even in a region known for its love of large housing lots and its antipathy forwards multi-family housing (even townhouses are viewed with suspicion: our approach to high density would be viewed with horror).

Daybreak are meeting a community demand for quality neighbourhood environments and open space that is delivered in a relatively high density format for detached living. They are not being told to do this by regulators nor are they being forced to comply with some arbitrary minimum number of lots to the acre. In fact, I’m told Daybreak’s ‘new urbanist’ design principles met with significant regulatory opposition in the early days and there are still doubters in public policy circles.

The point is that the light regulatory touch in Utah has not prevented innovation or world leading design in urban development. While parts of the region pursue more traditional growth patterns, others (especially in and around downtown Salt Lake City) are pursuing higher density options while others still like Daybreak are successfully pursuing high quality community building around small lots which run counter to convention. The market is free to work, and consumers are free to choose. Prices are competitive and supply is not artificially restrained. Affordability is excellent by Australian standards and the economy powering ahead at rates of growth that leave many Australian urban regions for dead.

Utah has a lot to offer as an example of a less regulated land market with a strong and modern economy, substantial population growth and affordable housing. Australian urban planners would do well to expand their horizons and have a look for themselves at what can be achieved with minimal intervention.

…………

For a gallery of some images of Daybreak with captions, please click here.

If you are interested, I can also put you in touch with the lovely people from the American Planning Association, Utah Chapter. The people at Daybreak have also told me they are happy to show Australians around their project. Let me know and I will put you in touch with their External Relations person.

The Daybreak development’s web page is here.

There is a ULI case study (slightly dated but still good) on Daybreak here.

There are countless stories on the strong economy and growth story of Utah. You can find them all here. 

Is heritage going too far?

The built form of cities reflects the demographics and economic structures of their eras. In the great age of rail, we built elaborate central train stations. In the age of mail, we built impressive post offices in central city and suburban locations. When cities functioned mainly as trading ports, we built wharves, warehouses and cargo handling facilities and CBDs effectively grew up around these functions. Many of these structures remain long past their economic use by date, and are often re-adapted to contemporary uses. The recent decision by Australia Post to sell its central GPOs for adaptive re-use is a case in point.

Re-purposing quality heritage structures ensures an ongoing economic role for these buildings, and in the process means they will be maintained and protected, as well as enjoyed by their tenants and the public. It allows cities to grow and develop and to adapt the built environment to the demands of contemporary economic life.  Preserving features of the past connects us all to our history and enhances the sense of place and belonging.

But is the drive to preserve past structures now going too far? Are we now locking down swathes of our urban landscape and preventing sensible adaption to modern lifestyles and economic change? Is it true that the notion of preserving anything ‘old’ has become so widespread that the merits of preservation go largely untested while any benefits of redevelopment are assumed to be nothing more than development profit for demonized ‘greedy developers’? Has it become, in the case of the preservation of built form, a matter of guilty until proven innocent?

This came into focus for me when some dilapidated pre-war homes in Highgate Hill – an inner suburb of Brisbane - which were approved for demolition suddenly became a cause celebre of a small but passionate and very vocal protest group. Yes, there was a local government election in the air but it’s a story that could be repeated in many Australian cities. Despite holding a legitimate license to demolish the properties in order to develop a five storey unit project - in line with the local plan for the area - the local and state governments succumbed to pressure and combined to issue a temporary stop order on any demolition.

Keep in mind these were dilapidated properties, allegedly riddled with termites and with significant amounts of asbestos. Any aesthetic value had long since disappeared after decades of being subject to multiple changes, partitions, and neglect. They had served their purpose for multiple generations of different types of occupants, but their use-by date was up.

They had sold in recent history to a developer with plans to follow the local planning scheme – a scheme endorsed by both local and state government. Evidently, when the properties were available for sale, our committed band of protesters did not buy the properties themselves. Concern for their protection did not extend to investing their own money in acquiring the properties and undertaking very extensive structural and design changes to restore them to some former glory.

What also became apparent from some media reports was that a number of the protesters, as nearby residents, were not ratepayers but renting houses or even just rooms in the area. You may think this too harsh, but it seems that not owning a nearby property (and hence not paying property taxes) is no obstacle to protesting that someone else’s property should be dealt with in a certain way. “No taxation without representation” was a slogan during the American Revolution. Now we have representation without taxation.  This group seemed to hold the view that a purchaser of these properties had some community obligation to undertake very extensive and costly renovations to restore derelict houses in line with what a small number of the nearby community believed should happen, irrespective of holding a valid license to demolish the properties and irrespective of the local community passing on the opportunity to buy the properties themselves.

And for what? Why this obsession with preservation even when it comes to structures that are clearly redundant or structurally deficient? We are not talking about highly significant heritage buildings of unique architectural or historic merit. We are not talking about public buildings in which the community has a legitimate say. We are talking about basic dwellings, privately owned, built of low cost materials available at the time and designed to suit a community and an economy that expired long ago.

The risk is that blanket preservation across swathes of our suburban and commercial centres prevents common sense rebuilding in line with contemporary needs. For starters, new housing tends to be more thermally and environmentally efficient. Anyone who has tried to cool, heat, or maintain an older style home will attest to that.  Further, modern housing is designed around the needs of today’s occupants – not households of more than 50 years ago. Plus, the local demography of many areas has entirely changed. Where once neighborhoods were busy with children playing in the street, some areas now house a large number of elderly who remain in homes that may no longer suit their needs because little is allowed to change (ie be redeveloped) in their neighborhood that might actually meet their needs. More important it seems to preserve dwellings that have outlived their purpose and insist that elderly relocate to somewhere else, than accommodate a changing community need.

Before you start sticking pins into a voodoo doll fashioned in my likeness, this is not advocating a ‘slash and burn’ of heritage properties. But it is trying to identify a clear difference between what constitutes a significant building or structure that is worthy of protection or adaptive reuse, and ones that are simply old.

It also raises a question about who should pay for this protection. Landmark public buildings are often paid for through adaptive reuse which identifies a new, alternate economic purpose. Failing this, taxpayers are generally willing to protect or maintain significant historic structures. But private homes are another thing. Only some are so significant that they have a market value which makes their preservation in private hands worthwhile to the owner. Run of the mill houses which are simply old may be more valuable for the land on which they sit than the structure above it. If these are to be preserved, unwillingly, by private owners – what compensation do we offer? None. Instead, the community is growing accustomed to the idea that they are entitled to have a greater say in what can and can’t be done with other people’s private homes in held in private hands for private use.

A city governed by excessive intervention in private property rights – all in the name of heritage protection – could find itself with large areas increasingly ill-suited to the modern world. We aren’t forced to keep driving around and maintaining old cars simply because they’re old – we are allowed to choose convenience and comfort and make fit-for-purpose decisions ourselves. Why is this increasingly not the case for the humble house?

Don't mention the war (on negative gearing).

If truth is the first casualty in war, then the current ‘debate’ on negative gearing is the policy equivalent of World War III. There are lies on both sides but as arguments and accusations are tossed liked grenades from the trenches, the underlying problems of housing market dysfunction are forgotten.

There’s nothing new or inherently wrong about negative gearing but concerns about the extent of its use for speculative property investment use have been raised by economists for more than a decade. Those concerns were heightened when in 2014/2015, the value of loans to property investors for the first time exceeded loans to owner occupiers.  Further, it was obvious both from official statistics and casual observance that investors were fighting with first home buyers for established lower to middle priced homes in the suburbs: typically the types of homes sought by young couples and families.

We were eating our young. While on the one hand governments and various industry groups mouthed concerns about housing affordability, we at the same time applauded ever increasing housing prices and the wealth creation that on paper went with it. Mid last year, then Prime Minister Tony Abbott went as far as to suggest that he hoped prices were increasing – on the very same day that the head of Treasury expressed concerns about a housing bubble in Sydney. 

Fast forward to 2106 and a new Prime Minister: Malcolm Turnbull. In February, Bill Shorten - a Labor Opposition Leader (who few give any chance of actually winning the next election anyway) – suggests that negative gearing should be pulled back to apply to new property only and that the capital gains tax concessions should be pulled back from 50% to 25%. In response, PM Turnbull suggests this might lead to a form of economic Armageddon.

Supporters of the status quo are claiming that ‘average mums and dads’ are the biggest beneficiaries of negatively geared property investment, which many indeed are and have been. But equally, there are some obvious excesses which even the most ardent supporter would struggle to hold up as models of equitable tax or housing policy or lending practices or indeed economic policy generally. 

Take the now famous example of ‘Property Investor of the Year’ from Your Investment Property Magazine of 2012. Kate Maloney and her partner, at the age of just 24, won plaudits from various judges (some of them still high profile housing market commentators) for amassing a substantial property portfolio.  (The full copy of the article announcing winners and runners up is here).

“Three years later,” she now writes, “if we were to sell our properties, we would still owe the banks about three million dollars not including arrears interest and selling costs. We are currently in the process of sorting out the debts. The outcome at this stage is uncertain.”

Or what of the story in the Australian Financial Review of the 15th of February, which was intended to paint a picture of some ‘average mums and dads’ using negative gearing, who would presumably in the future not have the same opportunity should Shorten’s proposals get up? The story, entitled “Investors to lose under Labor’s gearing plan” profiled a young couple, Simon and Rebecca Cooney, with two young children and who “are nurses who both earn more than $100,000 and bought their first unit in Darwin in 2006. They now have four properties in the Northern Territory capital, Brisbane and Katherine and owe $1.7 million on the homes worth about $1.95 million.”

That’s right – this level of indebtedness is put forward as an example of people who will ‘lose out’ should negative gearing be changed. If owing $1.7m on a $1.95m portfolio when pulling in a combined $200k with two young kids is now a good thing, then everything I learned at high school economics and accounting was wrong. Everything my parents taught me was wrong. Plus the lessons of history are also wrong. Hell, even the leadership of the country is wrong. Yikes, what a dope I’ve been!

Another frightening yarn (unlikely to be the last) in the Australian Financial Review of the 24^th February told the story of a hedge fund manager and an economist who posed as a gay couple with a combined $125,000 in income who toured the western suburbs of Sydney looking for property, to see what was really happening at the coalface. Like a scene straight from the movie ‘The Big Short’:  “both men encountered many investors who were able to get revaluations on their properties to increase their equity for speculative purposes. ‘We met one who was able to do this 20 times in a year with their portfolio… They (mortgage brokers) wanted to put you into 10 to 15 apartments… (and) the only way they could do that was getting the bank to revalue the property so you could revalue properties quickly.”

Yep, it’s all good. Nothing to see here. Move along.

Sadly, what has become obvious is that we have become a nation divided. There are those exposed to the property sector who will fight against any policies which could even hint at cooling markets and lowering prices. Our ‘battlers’ from Darwin would be just another round of casualties - like Ms Maloney - should that happen. But at the same time, we have a pressing problem with affordability and know that the very high prices of housing in major centres is leading young couples and families – including our own children - to defer entering the market, or to be entirely precluded from it. Their housing choices are being forcibly compromised by social engineers who have deemed it only fair that in the future, we raise families in (mainly small) inner city apartments and abandon private transport in favour of public (or cycling). Evidently, detached homes in the suburbs are now for high income earners or investors, actively accumulating ever bigger portfolios.

Meanwhile, the entire supply side of this discussion has (again) been pushed to one side. We have artificially inflated land prices by creating contrived growth boundaries around urban centres, intensifying competition for development sites to dizzying levels which flow directly to the consumer. Then we choke that limited supply with byzantine planning controls that even senior lawyers struggle to interpret, leading to high compliance and delay costs. For good measure we then tax that limited supply with excessive “user pays” levies for infrastructure that doesn’t yet exist, while buyers of established homes in pampered inner city areas are surrounded by quality infrastructure they pay comparatively little for.

Our housing markets, the policies that guide them and the way in which new supply is controlled, have been allowed for successive years to get progressively worse, with little intervention other than to add complexity. We stand idly by and ‘tutt tutt’ the mounting generational affordability problem, all the while clipping the ticket as our existing portfolios rise in value.

It’s as if the Property Council’s latest campaign to defeat even the mention of changes to negative gearing – posed as it was by an opposition leader that few give a chance of winning – was spot on by picturing our housing markets as one big collective house of cards. Touch or tinker with any part of it, and the entire house of cards might come crashing down. Even raising this as a proposal from opposition benches is apparently perceived an act of war.

I’m not sure whether that was the intention or not but it’s a scary thought to think that our markets might now be so distorted and vulnerable that even a discussion about changes to one aspect of housing policy is something to be attacked with hostile intensity. 

Better it seems to instead cry havoc, and let loose the dogs of war.