A new geography of urban wealth?

US based urbanist Richard Florida - once described as an “intellectual Rockstar” – shot to fame with his 2002 book The Creative Class. He was on a global speaking tour that took in many Australian cities, arguing that the secrets to economic development lay in attracting legions of creatively motivated progressives working in new economy professions. This was best done by enhancing inner urban “hipsterness” measured by a “bohemian index” with investments in public space, recreation, culture, and various other “urban chic” accoutrements. Many city leaders rushed for the Florida gospel, applying its preaching in the hope of out-hipping competing urban centres for precious jobs in the new economy. 

But Florida has since re-canted, admitting that the focus on inner urban “cool” may have worked for the wealthy and privileged but at the same time created city wide disadvantage. His latest book The New Urban Crisis suggests an alarming wealth divide is opening up between inner urban and suburban landscapes.

“Across nearly every metro area, middle-class neighborhoods are disappearing. Our cities and suburbs are being replaced by a patchwork metropolis, in which small areas of privilege are surrounded by vast swaths of poverty and disadvantage.  The rise of a winner-take-all-urbanism, with a small group of winners and a much larger span of losers, signals a profound crisis of today’s urbanized knowledge economy that threatens our economic future and way of life,” he now says. Talk about a change of heart.

While much of this may be true for major cities in the USA (where hipster havens like San Francisco or New York are losing millennials to lower cost of living centres in flyover country) is it also true for Australian cities? Are we seeing a concentration of wealth in inner urban suburbs while suburban areas languish? Certainly, the infrastructure and policy focus in most Australian cities has, for the past 15 years, been very much on enhanced inner urban amenity. But has this been enough to draw more high-income residents to the inner city and cause professionals to abandon the suburbs?

The evidence is revealing. Here’s a quick wrap of the picture across Australia’s capitals as of the 2016 Census.

Brisbane.

The household income difference between inner urban residents of Brisbane and those of the wider metro area have widened in the 2006-2016 period. Over that ten years, inner city residents (roughly within a 5 kilometre radius) have gone from enjoying incomes that were on average 13% higher than the wider metro average to now 23% more than the metro average. In dollar terms, inner Brisbane households earn on average $357 a week more than the metro average for the city.

However, the traditional patchwork quilt of high and low income suburbs remains a dominant feature. The suburb you live in still tends to define your household wealth status – be it high or low. Brisbane’s western suburbs (Fig Tree Pocket, Pinjarra Hills, Brookfield etc) are still among the highest income earners. South eastern suburbs (Carindale, Wakerley, Rochedale) are fast catching up. There are inner suburbs on the high income list (Bardon, Paddington, Bulimba etc) but there are others (like Kelvin Grove or Herston) which are well below the city wide average.

So while it is true the inner city is gentrifying, the preference among many high income households still appears to be for traditional suburban neighborhoods, many in middle to outer urban areas.

Sydney

Sydney is different. In 2006, household incomes in the Sydney city and inner south region were roughly the same as the wider metro average. By 2016 they were only 8% more. The North Sydney-Mossman inner city region actually went from being 56% more than the metro average to 37% more by 2016, while the Eastern suburbs north region stayed roughly the same – from 37% more to 38% more ten years later.

In dollar terms however, the differences are more stark: the average North Sydney-Mossman household in 2016 was pulling in $642 a week more than the metro average; and it was $667 a week more in the Eastern suburbs North.

So inner city residents of Sydney earn a lot more than the metro average in both dollar and percentage terms but it’s been that way for some time – hardly any surprise. This is entirely consistent with Sydney’s long term role as financial and business centre for Australia, which has arguably been the case for some decades now. Research would need to look back to the 1990s or earlier to find a turning point where inner urban income disparity began to widen significantly from the metro wide average – if indeed it did (or has it been so since the 1960s?)

However, proximity to the core does not preclude a number of middle and outer suburbs from joining the high income household list. Rouse Hill to the north west or Port Hacking to the south are two of several examples. In Sydney’s case, proximity to the core appears to have a significant relationship to high income households, but this has probably been the case since long before Florida published his first book.

Melbourne.

The household income gap in inner Melbourne compared with the greater Melbourne average widened from 5% more in 2006 to 10% more in 2016. The difference was greater in the Melbourne inner east area (14% more in 2016) but this was unchanged since 2006 (when it was 15%). In dollar terms, inner Melbourne households earn $155 more than the metro wide average and this rises to $213 a week more for the smaller Melbourne inner east area.

Overall, despite a widely reported acceleration of urban density programs in inner Melbourne over the past decade, this appears to have little impact on widening income disparity. In fact, it is possible to argue that Melbourne is more equitable in terms of inner urban versus wider metro household incomes than any other capital.

Melbourne also continues to exhibit a preference among high income households for a large number of middle and outer suburban areas. Any suggestion that high income professionals in Melbourne have abandoned the burbs for the inner city is not supported by the evidence.

Adelaide.

Households in Adelaide’s inner city (essentially its CBD) earned roughly 1% less than the metro average for the city in 2016 – which was down from 11% more in 2006. However, inner urban pockets such as Burnside inner (36% more in 2016) or Prospect-Walkerville (27% more in 2016) showed more disparity - but these differences seem for the most part unchanged since 2006 (when Burnside inner was 32% higher than the metro average and Prospect-Walkerville 19%).

So suburbs immediately adjoining the inner urban core of Adelaide appear to show more income differential compared with the metro average than the core itself, and these differences – 36% more in the case of Burnside – are substantial. But like Sydney, it would seem that this has been the case for at least the period since 2006 and there is no strong evidence of a widening income gap between inner and broader metro Adelaide - where the Adelaide Hills and foothills continue to be the preferred (suburban) environment for higher income households.

Perth

The gap between inner city household incomes and the wider metro area in Perth are widening – rising from 13% more in inner Perth in 2006 to 24% more in 2016. In dollar terms, inner city Perth households are now earning on average $386 a week more than the metro average for the city. At the time of the Census (August 2016) Perth was in the midst of a downturn in economic fortunes linked to the slowing resources sector.

You could speculate whether this had greater financial impact on inner urban or middle and outer urban households but without further study, this remains a topic of conjecture. For now at least, it remains the beachside suburbs north of the city that are home to the higher income households, much as it has long been.

So, what’s this all mean?

First, the Australian evidence runs contrary to suggestions that higher income professionals are abandoning the suburbs for “cooler, inner urban hipster” markets. Indeed, middle and suburban locations are where you are just as likely to find pockets of high income earning households (with the possible exception of Sydney where wealth does some more concentrated). The same, of course also applies to low income households but the point being that proximity to the core is not yet a key determinant for most cities – at least on the evidence. Larger homes and leafier environs remain for many a more powerful lure than higher density inner urban environments. There is evidence this may be changing and the gap widening, but the pace of change is not what some boosters have suggested. The suburbs have certainly not fallen from favour and remain very much desirable in the eyes of the higher income households that many inner urban markets covet.

It’s also fair to suggest that the income and wealth disparity Florida is now alerted to in cities like San Francisco and New York is of a scale that we are yet to see in Australian cities (again with the possible exception of Sydney). The enhancement of urban cores in many Australian city centres as so far mostly been insufficient to lure legions of high income creative class workers into those cores as places to live. Some will argue by pointing to anecdotal evidence (much of it owed to gushy headlines manufactured by eager boosters) but on the whole, Australian cities have avoided the problems that Florida now warns about.

For the time being at least.

Footnote: The maps used in this story came from a handy online tool published by The Guardian. You can have your own fun via this link.

2016 is Census Year. But why do we bother?

Every five years Australia holds a census of its people and housing and next year it’s our turn again. The five yearly interval was introduced back in 1961 and it has over time become the essential reference point for demographers, economists, researchers, planners, governments and industry.  The last one in 2011 cost $440 million. It’s a small price to pay for such a high quality image of the reality of Australian society. So why are so many keen to ignore it?

Evidence geeks (myself included) love Census data because it’s almost impossible to refute. Myths and theories can whirl around in a drunken dance together with ideology and blind faith, but there’s nothing like a Census to bring them crashing to the floor with a sobering thud. It’s the indisputable authority on our people, housing and habits that make us Australian. On the evening of the 9th August 2016, wherever you are in Australia, as one of 24 million Australians and some 10 million dwellings, you will be counted and your demographic, economic, social, religious, education and transport profiles (to name just a few) will be taken.

And according to the Australian Bureau of Statistics “The 2016 Census will be Australia’s first Census where more than two thirds of Australia’s population (more than 15 million people) are expected to complete the Census online in August 2016. New delivery and collection procedures will make it easier to complete the Census online.” Which is going to be way more fun than an hour of Fruit Ninja, Subway Surfer or killing time on Snapchat.

Some more Census basics from the ABS Website: 

“In 2016, the ABS will:

• Mail 13.5 million letters to households and establishments across Australia
• Count all of Australia’s 10 million dwellings and 24 million people
• Employ around 39,000 temporary field staff across a variety of roles, including up to 500 people to process the data
• Scan paper forms as they arrive using industrial scanners operating 12 hours per day, 5 days per week, over 10 weeks, scanning close to 88 million pages
• Produce and publish over 3 trillion cells of data as a result of the information collected in the Census.”

The level of detail provided by the census findings allows almost microscopic analysis of populated areas – down to groups of around 400 people (called a Statistical Area 1, or SA1). Combined with powerful GIS data mapping, the results can be displayed in a graphical way that is both intuitive and highly informative. 

But despite the best quality of data and the most advanced tools for interpreting and communicating that data, you can almost guarantee that sections of industry, media, think tanks and various lobby groups will either turn blind eyes to the findings, or find ways to contort the findings to suit their various agendas. 

Frustratingly, urban myths will persist despite the abundance of fresh, resolute data provided by the Census. Which makes you wonder why we bother with the expense and effort of gathering hard evidence only to find ourselves confounded by public policy which owes more to perception and prejudice. 

What are some of the myths that might prevail despite evidence to the contrary? Here are some nominations but we’ll have to wait until 2017 to see for sure:

• The myth that all the jobs growth, and all the jobs, are in the inner city. The past several Census’ have stubbornly revealed that CBD and inner city shares of metro wide jobs are stuck at around 10% to 15% of the total, depending on the city. City centre jobs are growing, but so are suburban ones – and generally at least as fast if not faster. Some will ignore the relative balance between city centre and suburban market, and by only focussing on changes in the smaller city centre market, make distorted claims that appeal to kindred booster interests. Those claims get repeated without query, and the myths get a new lease of life.
• The myth that millennials and Gen Y overwhelmingly favour apartment living in the inner city. There has been a very significant increase in the supply of new housing in the form of inner city apartments in the inter census period and there will be even more completed by August 9, 2016. The Census will reveal how much of that stock is occupied and by what types of households, and will prove an interesting reference point in the debate about the type of housing we are building, and for whom. 
• The myth that families have turned away from the traditional suburban home. There have been numerous reports in recent years suggesting that young families have abandoned the ‘dream’ of a detached home with a backyard for the kids. I doubt this is true and suspect the Census might reveal how untrue this is. Sure, if you’re a young single or young couple with few ties and big city careers, the downtown loft is a lifestyle solution. But once children come along, or certainly by the stage they are ready for pre-school, my suspicion is that Census data will show young families still overwhelmingly choose the detached housing form in a suburban location. This is not to suggest there won’t be an increase in families being raised in apartment style living but I can’t see the scale of social change being predicted by some commentators being borne out by the evidence.
• The myth that the traditional family model is dying. I know it’s de rigueur to talk about the growth of single person households, gay and lesbian couples (“not that there’s anything wrong with that”) increasing divorce rates and so on, but the Census is a reality check on what can become a runaway debate.  Unless I’m terribly mistaken, the idea of mating and producing children hasn’t suddenly gone out of fashion for the overwhelming majority of Australians. Much to the frustration of some social campaigners, I suspect the Census will reveal a stubbornly conservative majority still prevails. 
• The myth that retirees are generally all wealthy boomers with money to burn. I know it’s an appealing thought, but I suspect the income data sets for seniors and retirees will paint a sobering picture of household incomes for this cohort. Assets are another thing of course and the Census doesn’t ask about assets like the value of the family home. But still, it’s cash flow that pays the grocery and other bills and most seniors, I suspect, will be shown to be on lower incomes than we’d like to think.

Why bother with the Census? Some will ignore it and others will twist its findings into all manner of statistical contortions to prove a theory they’ve decided to believe in, no matter what. But that doesn’t detract from the fact that it’s a terrific investment in the truth of what makes us tick. Bring on August 2016!

Is it time for suburban renewal?

Addressing infrastructure deficits in our nation’s major cities has gone from drought to flood in recent times. For residents and business of inner city locations of many of our major cities, it’s now almost an embarrassment of riches. The same can’t be said for suburban communities of those same cities. Yet it’s the suburbs where most of us live, where most of us work, and where we largely play. Maybe it’s time to bring some focus back to our suburbs?

I’ll start this with a confession. In the late 1990s, as one of a number of leaders of the industry lobby The Property Council, I was an active proponent of building a national agenda for revisiting an urban renewal agenda. At the time, our cities were looking tired. Infrastructure deficits were widening. If cities were to be the engines of the new economy, those engines needed some major surgery to keep Australia competitive.

What followed was a minor flood of industry-driven policy initiatives focussed on rebuilding the cubic capacity of our city engine rooms. And mainly, that meant a focus on the inner cities of our major centres. Industry policy fell into step with public policy and the re-birth of a nation-wide “urban renewal agenda” – led first by former Labor Minister Brian Howe (of ‘Better Cities’ fame in the early 1990s) and later supported by Prime Minister Keating.  The case for ‘Building Better Cities’ found renewed support in almost every major urban centre, to a greater or lesser degree. 

In some centres, particularly Brisbane and Perth, the urban renewal agenda became a driver of planning policy, and other cities later followed. Brisbane’s then Mayor Jim Soorley was a particularly efficient advocate, and his appointment of former Lend Lease executive Trevor Reddacliff to the role of leading an Urban Renewal Task Force, funded under the Building Better Cities program, saw a massive inner city transformation begin to take place. Without those early initiatives in Brisbane and elsewhere and without subsequent bi-partisan public policy support from Liberals and Labor alike - Australia’s inner city areas would be nothing like they are today.

It all made economic sense. It was good public policy (with some notable failings – particularly the idea that urban renewal would lead to more affordable housing for working people, when it actually led to the opposite) and it was good politics too.

Fast forward to today. In almost every capital, there are a multitude of projects and even more planned, which are building further on the urban renewal agenda. Many are transformational, exciting and even overdue. But the price tag for these projects is becoming increasingly daunting, and the relatively few beneficiaries are becoming – to me at least - increasingly obvious. In short, there seem now to be no shortage of publicly funded initiatives focused on delivering a better quality of urban existence within a five kilometre ring of the CBD, and too few focused on the hard and soft infrastructure deficits that our suburban areas are still living with. 

Take the Sydney light rail extension for example. The cost has now blown out by an extra $600 million to $2.2 billion. Oops. That’s billion with a ‘b’. And the length? Just 12.2 kilometres. This project is almost entirely about improving circulation in and around the Sydney CBD, where the highest paying jobs are. That’s something like $180 million per kilometre for NSW taxpayers. Lovely stuff if you’re a resident within shooting distance of the light rail (in which case your home is probably worth millions) or a CBD worker likely to make use of it (in which case the evidence says you’re probably earning at least 50% more than your suburban counterparts). Even though you could quite probably afford a higher priced ticket to ride than the average punter, you won’t be asked to do so because public policy somehow now presumes that all public transport – even where it benefits a privileged few – should be massively subsidised by the taxpayer. 

So just this one transit initiative will cost NSW taxpayers $2.2 billion to build (not including the operational losses it will also need taxpayers to cover) but will only benefit a small number of relatively privileged passengers who won’t even be asked to pay an economically justifiable fare. "People are agog that they have managed to get away with it," one source said in a recent news article. I’ll bet they are. 

I could point to a number of other examples of bike ways, pedestrian bridges, parks and transport initiatives which will largely benefit residents and businesses within a 5 klm ring of our major CBDs. Some don’t stand close scrutiny in terms of ‘cost-benefit’ analysis. It’s as if it’s become accepted wisdom that spending tax payer dollars on the inner city is a good thing. Minimal justification required. Minimal public objection likely.

My problem isn’t with investing in our cities, or even with inner cities. It’s been a transformational period and what we have achieved in terms of urban renewal has been world best practice. My question is now whether we haven’t forgotten the importance of supporting and nurturing our suburban economies and our suburban communities: have we become preoccupied with cutting yet more ribbons on projects of inner city fiscal largesse?

There are three reasons we could think about returning some focus to the suburbs:

1. It’s where nearly all of us live. You can take all the column centimetres written about ‘inner city café lifestyle’ and the ‘inner city apartment boom’ and put them all in a pile and it would mean nothing compared with the raw statistics of where we actually live. Forget the hype and agenda-based marketing spiel; we remain a suburban nation and the overwhelming majority of us live not just in a handful of major cities, but also in the suburbs of those cities. 

2. It’s where most of us actually work. I have written before about the suburban nature of our economy, and where the jobs actually are. Across our major metro areas, only between 10% to 15% of jobs are in the inner cities. 85% to 90% are in suburban locations. Fact.

3. It’s where we mainly play. Inner cities are logical locations for major cultural facilities because they’re central, but for most Australians, weekend recreation involves backyard BBQs, or visits to a local suburban park, or (increasingly it seems) mixing recreation and retail at a suburban shopping centre. There are large proportions of our suburban community who have no interest in travelling into our inner city areas and dealing with congestion and exorbitant parking prices in exchange for the privilege. On special occasions (fireworks seem a big drawcard) they will come in droves but to suggest that continued investment in inner city recreational facilities benefits people who live 10 or 20 or 30 kilometres away, is stretching things.

So have I re-canted earlier views on the importance of cities to our economy? No. But I also equally believe that there are many worthy projects and initiatives, capable of better economic and social justification in suburban locations – projects and locations which maybe just aren’t getting the policy or financial attention they deserve. 

Urban renewal has been a fine and worthwhile policy pursuit and our city centres are better for it. But there are only so many taxpayer dollars available and we need to ask if we’re now at risk of imbalance. Has the time for suburban renewal come? 

More on this subject throughout the year. 

What we earn.

Discussions about housing affordability focus almost exclusively on the price of the real estate, movements in which are monitored by multiple organisations on a seemingly daily basis. There is comparatively little discussion about people’s incomes, which are equally as important as prices in determining what can and can’t be reasonably afforded. The income profile of what most Australian’s actually earn paints a sobering picture which could more often be taken into account in debates about housing and affordability.

It’s becoming fashionable again for business lobbies to complain about Australia’s high wage structure. It explains, they’ll argue, why we lost Holden, Ford, Toyota, and (almost) Qantas, among other things. And yes, Australia’s wages are high by competitor standards - but so are our costs. One of the most fundamental of needs, along with food and clothing, is shelter. And it’s the cost of shelter relative to incomes which has been stretched to beyond reach for a large proportion of young Australians.

Reducing minimum wages or reducing wage growth further, if at the same time allowing housing costs to further escalate, will only make this situation worse. Arguably, if we could substantially reduce the cost of supplying new housing, this would relieve upward pressure on wages and work towards improving our global competitiveness – along with repairing living standards for working and middle class families, rather than eroding them.

First, here are some of the facts on the infrequently discussed income side of the equation. (I am again indebted to the team at Urban Economics for making these available. These are top line numbers only: if you want more detailed analysis, please contact Kerrianne Bonwick).

Nearly two in three of all Australians earn less than $52,000 per annum. It doesn’t much matter whether it’s Brisbane, Sydney or Melbourne; the proportion is roughly the same.  It’s not much. Slightly more than another one in every eight earn from $52,000 to $78,000 per annum. Roughly eight in ten Australians earn less than $78,000 per annum.

Personal Incomes

	Brisbane	Sydney	Melbourne
< $52,000	64.4%	62.8%	65.4%
$52,000-$78,000	15.0%	13.8%	14.1%
$78,000 to $104,000	7.0%	7.2%	6.4%
> $104,000	6.3%	8.2%	6.5%
Not Stated	7.2%	8.1%	7.7%

Source: Urban Economics

Problem? It is if you’re trying to buy into the housing market. Take a modest house of say $400,000 (very modest depending on location). A worker on $50,000 – and these represent nearly two thirds of all workers remember – is facing a price multiple which is 8 times their gross pre-tax income.  Basically, two thirds of us are stuffed in terms of affording even a modest $400,000 property if we weren’t already in the market. A more reasonable price multiple of say 5 times income would require an income of $80,000 per annum or more. But there are less than 15% of Australians who fit this category.

But wait, shouldn’t we count household, as opposed to personal, incomes? A good point, particularly for younger families and young couples, where dual incomes are the norm due to necessity.

But even based on combined household incomes, a third of all households earn less than $52,000 per annum. Another 14% to 15% earn between $52,000 and $78,000 and another 11% or 12% earn between $78,000 and $104,000. A reasonably healthy 30% of all households bring in a combined $104,000 per annum or more, but seven in ten bring in less than that.

Taking our modest $400,000 home again, and  roughly half of all household incomes fall short of the $80,000 mark required for a price-to-income multiple of five. For one in three of every households, their combined income means a price to income multiple of eight times. They are pretty much stuffed, still.

Household Incomes

	Brisbane	Sydney	Melbourne
< $52,000	32.8%	32.2%	34.3%
$52,000-$78,000	15.5%	14.1%	15.5%
$78,000 to $104,000	12.3%	11.3%	11.8%
$104,000 - $156,000	18.1%	18.0%	17.1%
$156,000 - $208,000	7.7%	8.7%	7.3%
> $208,000	3.6%	5.5%	3.8%
Not Stated	10.1%	10.3%	10.4%

Source: Urban Economics

Hang on, isn’t it more relevant to focus on the demographic that’s more likely to be trying to get into the property market, because older people and retirees, who already own or are paying off homes, may skew the figures? Absolutely: this is the key demographic, especially if you’re a developer of new detached housing product - which is what this cohort mainly wants to buy to raise a family in (as opposed to the apartment they might rent while pre-children).

Personal income profiles of the 25-34 year old age group are pretty much in line with the Australia wide picture. More than half earn less than $52,000 and roughly eight in ten earn less than $78,000 per annum, which means eight in ten of this age group – who are at the peak of their family formation potential – would be faced with a price multiple of more than 5 times incomes on a $400,000 property, and more than half would be faced with a price multiple which is eight times their income, or more.

Personal Incomes 25-34 year olds

25-34year olds	Brisbane	Sydney	Melbourne
< $52,000	55.2%	52.9%	56.2%
$52,000-$78,000	23.1%	21.7%	22.9%
$78,000 to $104,000	9.3%	10.0%	8.4%
> $104,000	5.6%	7.4%	5.4%
Not Stated	6.8%	8.0%	7.0%

Source: Urban Economics

None of this is great news. For developers trying to provide affordable new housing in new greenfield estates in urban fringe locations, the reality of these income profiles can’t be escaped. I had the privilege of visiting one such estate in south east Queensland recently and what I saw was absolutely first class product at very good entry level prices in a very well designed environment. No ‘McMansions’ here – just quality new detached three and four bedroom homes, on small lots, priced from around $350,000 - and in some cases less.

But even at $350,000, only around 15% or so of the target 25 to 34 year old demographic could afford to get in with a price multiple of less than 5 times an individual’s income. That proportion would rise taking into account combined incomes for this age group, but it won’t rise beyond around a quarter or a third.  The reality is that more than half this age group would find an entry level $350,000 home would be six times their combined incomes or more. It would be tough going.

Granted, interest rates are currently very low and some governments are offering stamp duty and other concessions to first time buyers. But these are having next to no impact on this market. Rates of first home buyer activity are at generational lows.  And interest rates won’t stay this low forever. A significant rise in variable home loan rates could tip a substantial number of families in this age group from the ‘just making it’ basket into the ‘we’re stuffed’ basket.

Since the ‘do nothing’ policy approach doesn’t seem to be working, what could be done to turn the situation around? Basically, it’s a simple formula between incomes and prices. You either increase incomes or reduce prices. The first probably isn’t an option unless incomes can gradually creep up with inflation and with productivity gains over time.

But what could also happen is the cost of supplying new housing (not referring to existing stock) could be reduced. New housing is heavily taxed and over regulated (the same cannot be said of existing stock). Something like a quarter to a third of the cost of the new home in an urban fringe location is due entirely to various taxes, charges and compliance costs (which do not apply to existing stock). It is also affected by the rapid escalation in land costs due to policy induced supply constraints in areas of ample available land (the same can’t be said of existing stock in mostly built-out inner or middle ring areas). Most of these additional costs of supply owe themselves to policy changes made since the early 2000s – precisely the time when the affordability gap began to widen.

It does seem a compelling place to start.

We should aspire to a more competitive Australia but this policy effort cannot just focus on labour costs because our incomes, while high by competitor standards, are now generally insufficient to cover one of the basic necessities of life: shelter. We have made this happen because policy makers have deliberately increased the cost of delivering new housing with new taxes, charges and compliance costs, all justified on esoteric planning or sustainability principles but impossible to justify on social equity or economic grounds.

These policy changes were made to suit political agendas at the time: they were not needs-based or market-based policy changes. (It also has to be said the political agendas at the time were in the hands of Labor State governments, starting with Bob Carr in NSW but which spread rapidly to other jurisdictions. Why Labor Governments introduced policies which hurt people on working wages is as mystifying to me as to why Liberal Governments have continued to maintain the same policy positions, with minimal amendment).

The gap between the cost of supplying even relatively basic housing on the urban fringe, and the incomes of the people who in past generations could afford it, will continue to widen unless regulators and policy makers begin to grasp the wider economic consequences of policy-inflated costs for new housing supply.

Footnote: why a five times multiple? There is no strong reason. The authors of the global housing affordability report Demographia will argue that affordable housing should be around three times incomes. Moderately unaffordable they define as between 3 and 4, and between 4 and 5 is defined as ‘seriously unaffordable.’ The multiples of 7 or 8 times incomes, which we’re seeing in Australia, are off the scale. But for the purpose of argument, if even relatively high (by international standards) multiples of 5 times incomes seems like a utopian dream, it illustrates how far incomes need to rise or costs of new supply should fall before we get even close to the situation that prevailed for most of our history. It’s a big challenge.