Going underground

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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


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

Food for thought.

Planning’s cultural cringe?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Send in the clowns

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A new type of climate debate?

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

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

I think they’re deluding themselves.

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

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

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

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

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

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

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

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

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

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

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

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

Don’t panic!

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

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

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

State taxes

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

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

Cost of living

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

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

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

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

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

And then there’s housing.

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

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

Advantage lost

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

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

But the sun’s still shining, right?

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

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

So what if …

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

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

It’s the price, stupid.

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

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

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

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

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

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

You ready for this?

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

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

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

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

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

Population growth – why it’s different this time.

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

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

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

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

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

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

What’s different now?

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

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

What the figures tell us.

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

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

Implications?

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

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

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

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

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

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

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

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

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

Populate... and panic?

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

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

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

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

The Bligh Summit & others

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

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

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

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

Some perspective.

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

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

[table removed for print purposes]

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

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

Demand, or supply?

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

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

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

How ‘big’ is ‘big enough?

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

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

What will they conclude?

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

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

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

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