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?

 

So many levers, why don’t we use them?

In the pursuit of suburban and regional renewal, have we fallen into the trap of thinking this is a responsibility for local governments? Have we become too reliant on local government powers to provide incentives to attract and stimulate development – things like density bonuses, rates relief, infrastructure charges relief – without lifting our thinking to wider opportunities to support targeted geographic areas? Are we relying on too few of the levers actually at our disposal?

Local government development incentives can be highly effective, as Brisbane City Council showed when it targeted the limited supply of 5 star hotel rooms across the city some years back, along with student housing and seniors housing. Each sector was offered specific incentives designed to bring forward proposals for adding to supply in that sector, in support of city-wide economic development objectives. It worked, although it wasn’t intended to support specific geographic areas within the city.

On a wider geographic level, these can become more problematic: some local governments lack the resources to provide sufficient stimulus options to make much difference to a project’s viability. And some location-specific initiatives within one local government boundary might offer region-wide benefits, but neighbouring local governments are unlikely to chip in out of a sense of noblesse oblige. There are many other valid reasons why the task of economic attraction shouldn’t be delegated entirely to local governments.

Let’s take a hypothetical example of an outer suburban or regional business district which has seen better days. Picture plenty of ‘For lease’ and ‘For sale’ signs – some of the signs old enough to warrant a heritage listing in their own right. Regional plans may identify it as a centre of wider employment potential but without strategic policy support beyond the reach of local government those sentiments are unlikely to be realised. Somehow the ‘planning’ and the ‘doing’ never quite align. Our business district continues to promise potential but nothing much changes.

If asked what’s needed to turn that around, I suspect many of us would think the first order priorities are physical – infrastructure and placemaking upgrades being top of the pops. These things are unquestionably important in business attraction and centre renewal but, for the sake of argument, what other levers could be applied? What other things could we do to make a particular suburban or regional business district more appealing as a place to base jobs?

For starters, we often overlook the impact of utilities providers on the costs of both doing business and developing new assets. Many years back, these were public utilities and some – such as water and sewerage – were local government owned. Today many utilities providers work to a set of objectives which do not include business attraction or incentivising development. Nor do they respond to the economic development wishes of their former owners. But their cost structures for new or upgraded infrastructure can add significantly to local project costs and hence detract from the ability of getting our hypothetical run-down centre up to speed. A new project in our renewal centre will be competing with other existing centres where services are already in-ground, and not as fully priced into the location costs; which puts us at an immediate cost disadvantage. If we are serious about making outer suburban and regional centres competitive, is it valid that we leave utilities off the team?

Another lever we usually don’t engage in incentivising regional or suburban renewal is the tax lever. Payroll tax for example is levied at the same rate whether you are major accounting or law firm in a CBD tower, or a mid-size business in a suburban or regional location. Same payroll value, different locations, same tax bill. (Payroll tax in Queensland kicks in at $1.3million per annum in wages and is 4.75% for up to $6.5m per annum and 4.95% for over $6.5m per annum. The Queensland Government introduced a regional discount in 2019 - of 1%. It's a start but unlikely to to be deal maker. It also doesn't apply to outer suburban or regional areas within South East Queensland). If our aim was to make our run down outer suburban centre or regional centre more attractive to a cross section of businesses, is there any valid reason we couldn’t offer payroll tax exemptions based on place of business? (Sure, there’s a risk that some will set up “post box” locations to exploit initiatives like this – there always are. But consider that the opportunity cost of the lost revenue is relatively small if confined to specific locations, plus the specific geographic location ought to make validity checks relatively easy? This could actually be an easier tax measure to police than many already on the statute books).

And if a “horses for courses” approach with payroll tax to favour specific places of work is a potential lever, why not a similar approach to things like land taxes, depreciation rates or the big one – income and company taxes?

Let’s imagine our run down regional or outer suburban centre given the collective support of Federal, State and Local Governments, along with utility providers. Bring your business here and pay a concessional rate of company tax, your workers will receive extra income tax rebates based on location, your payroll taxes are zero, you are offered accelerated depreciation on built assets and fixed equipment, land tax is half what you would pay elsewhere, while energy, water and other utilities are less than what you’d pay in a major centre. Plus the housing for your workers is plentiful and affordable. I’m writing the economic development pitch already!

It’s only a crazy idea because we’ve never really been fair dinkum about supporting the efforts of suburban or regional business districts wanting to refresh their appeal. We have tended to assume that the inner cities are where it’s at and directed the bulk of our infrastructure investment there for that reason. We’ve also benchmarked and tuned our statewide and nationwide tax and regulatory settings to the economic environments of major centres. Little wonder that they have thrived while many suburban and regional centres have struggled.

It isn’t enough to be able to offer cheap land as the prime location incentive for regional or outer suburban areas – a tactic we often see resorted to. It’s cheap for a reason, and land cost itself is rarely the deciding factor. The cost of building in an outer suburban or regional area is either no different or (often) more expensive than building in a major centre – so you are effectively at a disadvantage from the outset. If the tax and regulatory framework is also designed on a ‘one size fits all’ basis, whether you are regionally or city based, then the odds start to become well and truly stacked against you.

We might stand a chance if we factored in the very high costs of inner urban infrastructure needed to support a highly centralised economy. For example, mass transit projects designed to ferry people to inner city workplaces are eye-wateringly expensive, but those costs are borne by taxpayers, usually without much dissent. Providing a similar ‘leg up’ to regional or outer suburban centres, in the name of a more resilient and dispersed economy that shares benefits more widely across the country, shouldn’t prove as problematic as it seems.

Nothing in this is new of course. The notion of a ‘Northern enterprise zone’ to develop the economy across the north of Australia gets a regular airing, but rarely any traction. It’s an idea that has now been floated so many times that it almost invites ridicule when it gets aired again. But surely the idea can be no less ridiculous than the notion that the tax rates and other government costs ought to be the same for businesses located in the CBDs of major cities - where they are surrounded by taxpayer funded amenity - as it is for outer suburban or regional business centres?

We need to begin to think more broadly about ways to support a more geographically diversified economy. Continued concentration of our economic fortunes into a handful of cities is a strategy fraught with risk, as we are watching play out now in Melbourne thanks to Covid-19. Geographic diversification is no longer an economic or planning pipe dream – it’s a matter of national economic security.

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. 

Are Australia's suburbs ready for post COVID-19 opportunities?

There’s no shortage of speculation about how the global Coronavirus pandemic, which has seen cities the world over in partial or full lockdown, might impact city planning and development in years to come. Much of that speculation falls into the category of what USA President John F Kennedy once described as “the comfort of opinion without the discomfort of thought.” 

Whatever your opinions and however well thought through, it does seem likely that sufficient sections of the community will have developed a lasting aversion to crowding and will have formed a renewed attachment to the suburbs in which they live. This won’t apply to everyone, but it will only take a proportion of the populace to change their behaviours to have city wide implications. If that happens, it looks as if the winds of opportunity may blow more strongly in a suburban direction than before. Hopefully, public policy will follow the people and their preferences will be supported where possible. 

This would mark a turning point in many decades of urban policy which have favoured the inner city over middle and outer suburbs. But one of the questions that needs to be asked is: “Are the suburbs ready?” 

If what may be about to happen is a drift of jobs and opportunity to suburban and regional business centres in response to the Coronavirus impacts on society and business, the answer in many cases would be “no.” It is hard to turn around 30 years of focus on the inner city and suddenly flick a suburban or regional light switch on. You might find the cabling lacking, the bulb blown and the switch no longer compliant. Our suburban business centres across Australia have largely been overlooked and their needs underfunded for a long time. Our love affair with all things inner city permitted a distorted approach to planning and to the funding of city-wide infrastructure – much of which was concentrated within a couple of kilometres of various CBDs. Inner city amenity has improved no end, while many of Australia’s suburban centres resemble their unfashionable and now daggy 1980s (or worse, 1970s) selves. 

To be attractive as potential suburban collaboration hubs for some former CBD office workers, or to support revitalised high street retail, or growth in professional services, the sciences, technology, or to facilitate the inevitable expansion of health and education opportunities, suburban centres need the very things that the inner cities now take for granted. In simple terms, the once run-down inner-city areas were renewed with a combination of public and private capital to make them attractive places to live, to work, and to play. That investment was initially led by public policy and public capital, but private capital quickly followed, ultimately dwarfing the initial public stimulus. It worked. We have created a lasting legacy of inner urban renewal across many of Australia’s major cities such that it’s world class, without question. 

The same can happen to suburban centres. High on the priority list must be transport connectivity. Rail level crossings, highly congested suburban road arteries, pedestrian-unfriendly intersections or high streets – remedying these are initiatives that public investment needs to lead because they are public assets and public issues. Often, they are State or Federal Government responsibilities. Additional investment in the public domain with streetscaping, landscaping, pedestrianisation, the addition of cycling friendly routes, enhanced parklands and open space are also public responsibilities needed to enhance the appeal of suburban business centres across the country. The private sector’s role will follow as demand returns – with the creation of new or improved suburban commercial buildings, improved cafes, shops, and upgraded buildings – all of which support future jobs growth in suburban centres. 

The Suburban Alliance recently ran a community survey via Facebook and 400 people responded. The questions asked what they most wanted to see happen in their suburban centres. Without giving the results away too much, the responses read like a checklist of what the inner city already enjoys: quality infrastructure, quality buildings, quality places and ample parking (the latter more a required feature of suburban centres which unlike the inner city are not well served by public transport). 

The benefits of supporting the appeal and infrastructure capacity of suburban business centres are many:

• They can support multiple work options for different occupations, closer to where people actually live
• Being closer, they can lead to less congestion and more active local commuters (such as walking or cycling to work)
• Being closer, they can save commuting time (and costs) meaning more family or personal time
• Middle or outer suburban areas of our major cities offer typically more affordable housing than inner areas
• They encourage and nurture a sense of local community and neighbourhood
• They can be more affordable for multiple business types with lower cost rents, lower regulatory fees and charges, and cheaper more accessible parking
• They can mean more health, education and community services closer to the communities that require them
• By encouraging a more dispersed economic model, we gift ourselves a more resilient urban model – one that is potentially less prone to localised natural disasters (like floods or severe storms) that can have big impacts if they occur in highly concentrated economies
• They deliver a lot more bang for the buck: $100 million spent in a suburban precinct goes a long way and has a major impact, with much of the value going to local professionals and contractors or suppliers. 

As Governments around the country crunch their numbers on post Coronavirus recovery measures, we can only hope that we are wise enough to recognise an opportunity when we see one. Renewal of the suburban and regional centres of Australia is that opportunity. While much of this responsibility has traditionally fallen to local government shoulders, we can also hope that State Governments – and the Federal Government – are alert to their capacity to help shape our cities for the benefit of the wider community, and to the more prosperous suburban future that quite possibly beckons. 

Turn and face the strange ch-ch-changes.

For decades we’ve lived with a range of accepted truisms around city planning, urban development and infrastructure planning. Then along came a virus. Some suggest the long-term impacts of the current pandemic will turn fundamentals on their head. Others – myself included – are more sanguine. But changes there will be and, as Bowie sang, we need to face them.

This article tries to sum up some thoughts of my own and distil a good amount of reading over recent weeks. Nothing here is a given, but simply offered to encourage us to think carefully about what lies ahead. The first thing to keep in mind is what Indeed.com’s global Chief Economist Jed Kolko pointed out to me a few weeks ago: "Many of the post-pandemic predictions are really just statements of how the prediction-maker has always wanted the world to change. The virus doesn't kill cognitive biases!" I will try avoid that trap.

Population growth:

Australia’s population growth has been driven by direct overseas migration, and much of that has concentrated itself into three capitals, each of which was predicted to grow by close to a third in the 2016 to 2030 period. That rate of growth was ahead of many world cities. Would we have managed, without falling further behind on infrastructure? Growth has taken a short term hit thanks to closed borders. It remains to be seen if those growth rates will slow over the longer term. A slower rate of growth may not be a bad thing: it could allow us to catch up with infrastructure, hence improving quality of life, rather than being in constant lag mode. This in turn could support property values by making places more desirable – as opposed to just crowded. Remember,  some of the most highly prized property markets around the world are actually in low growth areas. It is their desirability, environment and placemaking qualities that makes them so.

If growth is to slow, would that change a wide range of urban policy settings, with the dial turning from volume to quality?

Housing:

Predictions that housing demand will change quickly from inner city apartments to suburban housing are I think wrong. For starters, inner city apartment demand for much of recent history was driven mostly by speculators who had no intention of actually living in the one-bedroom, low cost apartment they were buying off the plan. That frenetic level of speculator activity created a false impression about the extent of real demand for inner city apartments. There are now more two and three bedroom inner city units being designed which are more likely to meet with owner occupier needs. But being larger, they will also be more expensive.

Suburban housing has tended to dominate urban settlement in Australia and while the pandemic may remind us that the burbs may not be so bad a place for a lockdown, those who live there now do so by choice, and because 8 in 10 of us actually work in suburban locations. The same applies to inner city apartment dwellers who choose where to live for work or other reasons. There may be some changes in preference if more people seek out suburban work locations (as opposed to densely populated inner-city ones) but I can’t see wholesale change here.

Neither can I see prices collapsing in the long term. The cost of new supply – land plus building costs plus taxes – tends to be fixed. Unless there is a major change in those supply side drivers, any movements in house prices will reflect shorter term economic circumstances (more owners needing to sell than buyers able to buy).

Finally, the argument that housing design will change to better facilitate home offices for work from home needs to be kept in context. This may happen on some new product but as this only affects new supply (and renovations to existing supply) we aren’t likely to see a wholesale change of our housing stock to accommodate work from home (which only works for some occupations anyway). There is also speculation that home isolation will mean a move to larger balconies in townhouses and apartments, as we appreciate the importance of space more. You could counter that this was always the case, but larger balconies and home offices mean larger floorspaces and townhouses and apartments are expensive to begin with. This prediction, if it eventuates, will simply make new product significantly more expensive. Will there be a sufficiently large market to pay?

Work from home?

No doubt the future will see more people working from home, either on occasion or routinely, than in the past. Some companies may direct that this change happens in pursuit of cost savings, and some individuals will request it for lifestyle or other reasons. But for the vast majority, my thoughts are that once a return to the workplace is allowed, many will return with enthusiasm. Productivity, creative engagement and the social value of work are genuine positives for that proportion of the workforce who do work in offices (and for whom work from home is possible).  As this article in Bloomberg wryly observed, the whole work from home thing has soured quickly for many:

“Many mapped out plans to fill time they would’ve spent commuting to take up new hobbies, like learning a foreign language, baking or getting into the best shape of their lives. It looked like the beginnings of a telecommuting revolution… A month and a half later, people are overworked, stressed, and eager to get back to the office. “

Offices: 

The office market could be in for some changes but these may take time. Markets like this will tend to be quite ‘sticky’ because of things like long term leases and fixed fitouts, which make quick adaptation difficult. However, it does seem likely that things like an 8 square metre per person benchmark - which was becoming common - could reverse and the trend head in the direction of more space per person. 

Imagine a company of 100 staff ready to lease new premises. Where once they would have needed 800m2 they may soon be thinking more like 1500m2 (15 or even 20 square metres per person were more typical in the 1990s through to early 2000s). Will they actually lease that 1500m2 or instead reduce their workforce for those premises to around 53 people for the 800m2 tenancy and instead send staff for whom a CBD location is non-essential to suburban collaboration hubs, or have some of them work from home? 

Less density of workers in expensive CBD offices makes them more expensive, per worker. Suburban business centres may benefit from this. How this change plays out will have a long-term impact on office space demand.

Retail: 

Hard hit even in the lead up to the spread of the Coronavirus by flat wage growth and online competition, shopping centres and retailers have been frontline victims of the viral shutdown. As we emerge from our burrows into a post viral world, industry consensus is that there are big changes for this sector going forward. Tenants may have taught themselves that the value of paying to be close to centre-generated foot traffic can be traded off against more aggressive online strategies with a neighbourhood shop front presence. And a proportion of consumers may equally have adapted to sourcing their immediate retail needs more locally, rather than travelling to major centres. There are potential lasting changes too in the types of consumption habits of consumers.

Major mall owners have survived multiple predictions of the end of bricks and mortar retail in the past, and I have no doubt they will innovate and survive again – but as in the past, it will likely mean significant changes to tenancy profiles and to the nature of the centre itself. Typically very well located, with public and private transport connections, these assets will always find a market. My money is on more health, education and community service functions increasingly making their presence felt.

For the suburban strip or neighbourhood centre though, the changes in retail could be a positive – provided they can provide a high standard of amenity (placemaking appeal) and convenience (eg ample parking) and affordable rentals. Given that many have received little government investment in their improvement for decades (governments were too preoccupied with the inner cities) and given that many landowners have likewise invested little in some of their assets, many centres may miss their opportunity for renewal. How governments and private owners might work together to avoid that happening will be interesting.

Public transport:

What happens with public transport in the future will be fascinating. Having already faced flat or falling mode shares, will a post-viral world see more commuters recoil at the idea of joining fellow travellers in crowded trains or buses, coughing and sneezing in close proximity? 

How could this affect demand, and will public transport providers respond with less passenger density (as some airlines already seem to be proposing)? And will this in turn mean even higher costs for PT given lower passenger density? And will more people drive instead, leading to a spike in congestion? Or will the whole idea of commuting en-masse to centralised workplaces served by public transport start to pale in favour of local commutes – including by walking or cycling - to suburban business hubs for collaboration and the social aspects of work? This is city changing stuff. Watch with interest for the short term response once the economy opens up again, and for long term changes.

Health:

Health was already predicted to the fastest growing industry in Australia prior to the pandemic. I can only see this accelerating. Health services are typically not centralised so this growth is likely to benefit suburban and regional centres – not just in the capital value of the infrastructure but also the jobs that come with it. Australia’s investment in health is good by world standards but not (I was surprised to learn) world leading. The graph below shows the number of hospital beds per 1000 of population, as just one metric. Will we move to lift this level of provision? How will we fund it if we do? (And from the graph, you can see in part why the UK and USA have struggled, and why India is so worried).

Education:

Education – especially tertiary – became one of our leading export industries in recent years. It was also a ‘clean’ industry and ticked a lot of boxes in terms of international relationships. There is no question that education sectors heavily reliant on foreign fee-paying students have hit a virtual brick wall – the question really is to what extent this will recover and how long it might take if it does?

Failure to quickly recover could jeopardise billions of dollars in proposed capital expansion and improvement plans, plus put pressure on fees for domestic students. It would also mean we would need to find a replacement source of foreign income. More coal anyone?

Manufacturing and industry:

A possible beneficiary of changed international trade arrangements could be the local manufacturing and industrial sector. Employing 20% of Australian workers, this sector has been in slow decline over the long term but can rapidly retool to replace a wide range of imported products. Skilled and affordable labour isn’t the issue it once was – the issue now is the high cost of energy. Australia’s energy costs have hurtled ahead of inflation to become some of the most expensive in the world. Given we have a small domestic market and international markets are a long way away, lower prices for longer is what this sector needs from the energy market, and a subsidised and expensive renewables market just isn’t ready to provide that yet. Again, more coal anymore? Or nuclear? Hmmm.

Finally, to end with something from a mate who was once head of planning for Brisbane City Council, ran his own business, later becoming a key part of the ULI growth story into Europe and Asia and who now teaches planning and real estate development at Texas A&M University – Professor Geoffrey Booth. As Geoff said to me in a recent note, changes from this pandemic are inevitable because our patterns of human interaction will change:

“Never forget that all real estate is place and it is people that create the enduring value of real estate – take out the people and there is no market, no demand, and no one to buy it or pay in one way or another to use it, and as a consequence, you the real estate developer, left with no raison d'être, starves to death. There will be a world after Covid-19 but as our patterns of repeat visitation have been severely disrupted, as a consequence, the real estate market will be forever changed.”

If only we knew how, and where, and when this will happen.

How the future of work will reshape our cities

The growth industries and professions of the future will shape our cities in very different ways to the industries and professions that shaped our cities in the past. There are profound implications for urban planning and property, if we’re ready for them

The biggest growth industry for coming years and for the foreseeable future, the official forecasts all seem to agree on, will be in health care and social assistance. This includes professions from surgeons to GPs to nurses to child care or aged care, various therapies and counsellors, dental, and even laundry workers, cleaners and administrative support roles. Already our biggest single industry, it employs more than 1.5 million Australians. It grew by over 20% in the five years to 2015 and that rate of growth is unlikely to change going forward. Nearly half of everyone in this industry has a bachelor’s degree or some higher education qualification so they’re not all hospital cleaners – many will be skilled professionals.

This will be followed by the professional, scientific and technical services industry and very close behind that, the education and training industry. Construction, manufacturing (yes, still growing despite all attempts to kill it off) and accommodation and food services round up the top six biggest growth industries of the future.

This is important because the nature of growth industries of the future - and more particularly where they will be located - is going to reshape our cities in a very different way to the industries that grew with and shaped our cities in the past. This was highlighted in a recent report on employment in the growing region of South East Queensland, prepared by Macroplan for The Suburban Alliance.

The health care and social assistance industry is predicted by government authorities to grow more than any other industry in the years to 2041, producing around 220,000 extra jobs. But this industry has very different spatial needs to, say, the legal industry which has the highest inner city concentration of any occupation in the region. In health and social assistance, 200,000 of those 220,000 jobs will likely be in suburban business districts or otherwise scattered across suburbia. The biggest growth industry has little need or preference for clustering in the inner city.

Consider the implications for transport networks, property development and urban planning. What will it mean in terms of additional medical centres, hospitals, professional and consulting suites, new aged care and child care, and all the peripheral jobs that hang off these occupations? Where will they go? Will we see existing shopping centres morph from a largely retail focused offer to embrace a wider range of mixed uses? And if not in existing centres, what planning changes will be needed to accommodate this growth in new centres?

Our urban model, reflecting a 100 years of employment centralization, is changing to one of employment dispersal. Jobs are not moving from the city centre to the suburbs but the industries which fuel growth are changing, and with them, the patterns of employment location.

Even in the professional, scientific and technical services industry – one you would presume is largely centralized - much of that future growth (based on current spatial preferences) will occur outside the inner city. Take for example the generically titled occupation of “professional.” There were 284,300 of these in the South-East Queensland region but only 24% of them in the inner city. A further quarter were in a number of defined suburban business districts and the balance – half – elsewhere in suburbia. This is our second biggest growth industry and those patterns of employment distribution are unlikely to change meaning of the 146,000 new jobs in this industry to be created to 2041, the clear majority will likely be suburban based.

The third biggest growth industry (education) also shows little evidence of centralization – only 7% of educators are inner city workers the rest are suburban. Even of those professionals who describe their occupation as “Chief executives, general managers or legislators” delivers a surprise: there are only 21% of them in the inner city. And for clerical and administrative workers, it’s a similar picture: only 22% are inner city workers. The rest are suburbia based.

Engineers appear to have a preference for central locations with 42% of the 16,639 engineers of South East Queensland in the inner city as do the lawyers with 65% of them in the entire region to be found in the inner city. But there are only (fortunately?) just over 9,000 lawyers in the entire region so unless there’s to be an unpredicted explosion of work in the legal profession in the future it’s hard to see this occupation fueling demand for space and transport in the inner city of the future.

Fifty years ago, cities were full of clerical and administrative, managerial and professional workers, shuffling in to centralized offices in their cars or on trams, trains or buses to clock on at 9am and clock off at 5pm. The suburbs were centres of manufacturing and heavy industry, and retailing, wholesaling and transit related industries. That pattern is still there but in another fifty years’ time, our cities will have different industries generating the bulk of jobs and many of those jobs will need to be based in suburban centres to be closer to their markets or regional transport arteries.

And what are the implications for our city centres? Will they continue to evolve to embrace yet more entertainment, recreational and culture based hubs for the regions they serve, rather than largely just places of work? And how will different cities behave, given the economic drivers can be so substantially different?

There’s much more to be explored in this because the implications are profound. Sadly, much of our thinking around urban planning seems firmly rooted in traditional models which owe more to a sentimental rear vision view of urban development rather than a forward looking one.

Footnote: If you or your organization is interested in exploring what this means in more detail, or for specific regions, please just drop me an email. I’d be very interested to discuss this with you. I’ve got a useful presentation which runs through all this in a bit more detail which I’d be happy to share. You can download the entire report prepared for The Suburban Alliance here.

New Economy, New Jobs, Old Thinking?

The changing nature of our economy is making itself felt across the business sector, and this in turn is changing the nature of work and where it takes place. But is our urban thinking keeping pace with this change or are we too sentimentally attached to old patterns of urban development to allow the new economy to thrive?

Urbanists (or new urbanists or their various incarnations) have celebrated the role of the city throughout history. They have been ardent supporters of urban development, particularly inner urban development, and have traditionally favoured century-old models of place-making, social collaboration, work and play.

Traditional European or US urban models of urban development have been studied diligently and even modern cities that developed well into the age of the private automobile have been urged to mimic initiatives that reflect traditional forms of the urban – be that in transit, housing form or other aspects of a city. The sentimentalism was the backdrop for the enigmatic movie "The Truman Show" – itself shot on location in a ‘new urbanist’ community of Seaside, Florida.

But then along came 21C digital technology and it looks like the urban party is at risk of being spoiled. The pace of growth in technology and its ready access has been responsible for everything from a rapidly ageing population (extended lifespans thanks in part to technological advancements in medicine, early disease detection and treatment) to the globalization of work, and lately for the increasing ability for work to take place where it suits us.

How is this challenging our traditional thinking about cities and urban development? The evidence is starting to appear in official employment data. Based on some analysis recently by Macroplan, if 2006 is taken as a base year, the changes since then are worth thinking about. 

Traditionally, cities (and particularly CBDs) grew off the back of white collar employment. Business, finance and property related professions were closely linked with growth of office space demand. But since 2006, the index for this category of employment across Australia is sitting at 63.7 as of January 2016. In other words, despite growth in the wider economy, this category of employment has declined. It is entirely possible that offshoring (via technological advance) has seen some of these jobs move to lower cost locations (perhaps driving office space demand in Delhi?) and also that technology has meant that fewer people can accomplish more tasks. There has also been a decline in ICT roles (sitting down from 100 at 87.2) and even legal, social and welfare professionals are down slightly at 94.

By contrast, medical practitioners and nurses are at an impressive 225.7 on the index. Similarly, health diagnostic and therapy professionals are at 207.8 and carers and aides are at 150.9. Health-related professions have been the big drivers of jobs growth in Australia, followed closely by hospitality and retail (123) or sales and marketing/PR roles (133.8).

This doesn’t mean that all the traditional white collar office job roles are disappearing – just that without growth in the health sector, our jobs market as a whole would probably be shrinking.  What does this mean for city development?

Health industries are unlike traditional white collar office industries. They rely on being close to the people in need of their services. Many services are increasingly mobile. They are certainly decentralized. They do rely on proximity to each other, other than some evidence of medical related clustering for consumer convenience.

Office workers and CBD jobs, by contrast, have relied on proximity to each other for the creative energy that follows and the professional networks that proximity thrives on. But it is precisely this type of function that is increasingly being liberalized from the need for proximity, either because the nature of work can be performed just as well elsewhere (in suburban centres or offshore) or because some aspects of technology are rendering it redundant altogether.

If this continues to happen, our CBDs will increasingly become less about ‘central business districts’ and more about ‘central amenity districts’ which are enjoyed for their access to recreation, entertainment, or cultural virtues. But this will also mean wholesale changes to our thinking about urban development are required.

Transport systems designed on 19th or 20th century models of suburban commuters clocking in at their CBD office may have to give way to widely dispersed models of employment where the place of work and the hours of work simply cannot be serviced by traditional public transit models. We may need to look to partnering with the Ubers of the world to make more of our investment in roadways without adding to congestion. We may need to rethink our planning mindset which allocated fixed uses to particular sites – such as retail – and instead encourage greater flexibility in land uses to respond to the fast changing nature and location of work.

The pace of technological change will demand nimble, responsive urban development and flexible approaches to land use planning if we are to grow our national prosperity. Our cumbersome governance structures, arcane planning laws and sentimental attachment to traditional forms of urban development might all need to change to allow that to happen.

Some themes for 2016?

What will we be reading about this year? What mega trends will dominate discussion? What markets are going to shine, and which ones will wane? Everyone has their own ideas on a topic like this, and below are some of my suggestions. Hope you all have a good 2016.

Suburbia.

I’m declaring 2016 the Year of Suburbia! Why? Because I think the penny will start to drop that the CBDs and inner cities are not the be all and end all of what it means to be ‘urban.’ The suburban and even peri-urban economies of some large urban areas have been growing stronger than their inner cities, and the ‘burbs’ are also where most of us continue to choose to live and raise families. I know this runs counter to trendy policy debate which would have us believe that everyone wants to live as close to the CBD as they can, because (supposedly) this is where all the jobs are. But the facts say otherwise (though few bother with the facts these days). Later this year, the MIT Center for Advanced Urbanism is running a conference on the theme ‘The Future of Suburbia’ and they have launched a multi-year project ‘Infinite Suburbia’ which will examine aspects of suburban improvement. I’ll be relaying as much of that thought leadership work, plus ideas from other sources, as I can. Watch this space. 

Apartments. 

There is going to be oversupply in some key markets and it but will increasingly emerge that the flood of one and two bedroom stock is not what was wanted by residents, but rather what was saleable to investors (and their advisors). Rising vacancies and falling values are going to be inevitable as supply and demand rebalance over time. The boosters who claimed that ‘Australians have abandoned the dream’ of a detached suburban home in favour of an inner city micro apartment will no doubt contort themselves with retrospective explanations for settlement failures and rising vacancies – neither of which would happen if the product was supposedly so much in demand in the first place. This at least will prove entertaining. 

Housing prices. 

The Sydney market is going to cool. It has to: sustaining the sort of irrational exuberance we’ve seen in recent years over the long term just doesn’t happen without a hangover to follow. Demographia’s annual survey of world housing markets puts Sydney at the global pointy end of plain nasty when it comes to affordability, at 12.2 times incomes. Only Hong Kong is worse. Pundits who are predicting that as Sydney cools, property appetites will shift to markets that haven’t tested the limits of sanity – like Brisbane – may be disappointed. Queensland’s economy is drifting along in the doldrums, ranked by Commsec as only marginally better than South Australia or Tasmania. Oh, the shame. Without a strong economy, the property sun will struggle to shine brightly, with some regional exceptions. As always, the media obsession with housing will mean we’ll continue to read a lot on this subject. Much of it rubbish. 

India. 

India and talk about India I am guessing will increase this year as markets look for ‘the next big thing.’ And India seems to have it: their population will soon overtake China’s, and their economic growth is forecast by the IMF to reach 7.3 per in 2015-16 and 7.5 per cent in 2016-17, which is more than China’s. Their GDP per capita has a long way to go – it is currently only around US$1,500. China by comparison is around $7,000 and Australia around $50,000.  So maybe the only way is up? They have a western democratic system (much of it, like ours, dysfunctional) and a Prime Minister in Narendra Modi who by all accounts is a good leader and keen to see the economy grow. Which should mean they will need the things Australia is good at – low value add resources which are just waiting to be dug up and sold to someone who knows how to add value. Expect to read more of what India means to Australia in coming years. 

China. 

We’ve become obsessed with China and that’s unlikely to change much. Reports of ‘China’s slowing economy’ are misleading but that never stopped our media, or dimwit analysts in search of a headline.  China’s economic rate of growth has slowed to a reported 6.9%. But this is still growth. It is not a slowing. It may be the slowest rate of growth in 25 years but it is still growth. The global growth forecast, by way of comparison, is just 3.4%. The USA – the world’s largest economy – is forecast to grow at 2.7% and Australia by only around 2%. China’s growth forecast for the year ahead is 6.3%. I’m sure if Australia was growing by even 5% we’d be very happy little Vegemites with roses on our cheeks, but it seems we are paralysed by talk of China’s rate of growth slowing to over 6%. That’s like telling someone doing 100 kph they’re going too slow when you’re only doing 50kph yourself. Logical? No.

Oil. 

It recently fell to below $30 a barrel and is now climbing to the mid $30s but that’s a long way down from over $100 less than 12 months ago. So whatever happened to all that ‘peak oil’ talk and where are those forecasters now? It’s hard to see things staying this way, despite what the hopeful and the faithful believe might happen with renewables. Oil is used in everything, from fertilizer, to plastics, to energy. Plus it’s an unbeatably efficient form of energy and the world seems to have plenty of it, and the ability to find more once the price gets to around $60 a barrel. I’m no expert on commodities but the price of something so essential to our economy is going to have to figure prominently in the news media as the year unfolds, surely?

Ageing.

Demography is destiny. In Australia, we are still to confront the realities of how our ageing population is going to impact on us all. More retirees – the majority on limited incomes or who are pension reliant – being supported by relatively fewer taxpayers, is not a good formula but it’s what we are faced with. Plenty of businesses will find opportunity servicing the upper income end of the retiree and aged care cohort but few are talking solutions for the majority on lower incomes for whom commercial solutions are simply unaffordable. There will have to be significant changes to retirement policy and tax treatment of the family home for pensioners will probably become part of that. Expect this debate to become increasingly prominent as taxpayers resist tax increases to pay for pensioners and pensioners vehemently resist any dilution of their benefits. 

Immigration and population. 

Angela Merkel looked at Germany’s shrinking workforce and population predictions and opened the door to arrivals on an unprecedented scale. Was she hoping to plug a workforce gap? Will Australia likewise look to importing a solution to its need for more working age taxpayers (and maybe in the hope that some rapid fire population growth will stimulate the economy) by increasing immigration intake? The ‘big Australia’ debate never really went away and perhaps it will make itself felt again this year. Given our strong views both ways, and the racial nerve that often flares, this is a topic that will at least bubble away, occasionally surfacing in a blaze of heated opinion.