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.

What price a roof over their heads?

If you’re a Baby Boomer or Gen X, talk of the problems of housing affordability might be of limited personal relevance. But for the following generations of Australians, the cost of housing - both rented and ownership - has escalated to a point that our society in the future may be significantly altered. For Families like the Kerrigans of the future, things will be very different.

Is there a problem?

No matter which measure you use (there are many published) it’s clear that housing costs relative to incomes have soared, especially since the late 1990s. As a multiple of average incomes, the median house price has escalated from around 4 to 5 times incomes for almost all of the post war period (or since records began) climbing rapidly in the late 1990s and continuing to climb now, reaching seven or even eight times average incomes for many capital cities.

Historic low interest rates have had only marginal impact on the affordability issue, because the size of mortgages are now so much larger, especially for first home buyers entering the market. In other words, housing was on average more affordable when interest rates were above 10 per cent or 15 per cent for the 1970s, 80s and early 90s, than when interest rates fell below 7 per cent - because houses were cheaper relative to incomes and mortgages easier to service.

Home ownership rates, especially in the generation of under 35s, are falling to historic lows, from 44 per cent a decade ago to just a third now (see here http://www.smh.com.au/business/home-ownership-down-renting-up-abs-20091106-i1t4.html for example). This leaves many in the rental market, where rental costs relative to incomes have also climbed and eat up much higher proportions of the household budget, making saving in turn harder and the idea of building a deposit that much more elusive.

Causes now undisputed

The causes of the decline in housing affordability are now better understood. Many economists, not trained in the mechanics of supply-side housing delivery, wrongly assumed Australians’ “love affair with housing” and growing demand fed by falling interest rates was the primary cause of rising prices. But now the price pressures on the supply side created by state and local government planning policies are better understood for their role in increasing house prices. Limited new land supply (the result of artificially imposed growth boundaries), compounded by new and exorbitant levies on new housing (the combination of which can readily exceed $100,000 per dwelling), plus the high compliance costs created by labyrinthine and uncertain planning regulations, have combined to create a generational price pressure on supply that simply did not exist prior to the late 1990s (after which point, unsurprisingly, prices began to escalate relative to incomes).

As much has been acknowledged by the Reserve Bank Governor http://www.news.com.au/business/story/0,27753,25847312-462,00.html himself, who has publicly complained that our inability to create new housing supply at such a time in our economy, while house prices continue to rise, is a cause of concern that policy makers need to address.

The consequences

If the extent of the problem and the causes are now widely understood (though there remain some in denial), it’s the consequences of this generational change that are worthwhile thinking about. Home ownership has been a cornerstone of Australian economic, social and family life for generations. What happens if an entire generation finds ownership so much more costly, or entirely elusive?

The first consequence is already apparent. Our parents, and for many of us aged 40 or more, probably coped with a mortgage on a single income. Today, young couples or families entering the housing market need to rely on two incomes to service the debt. Even then, the combination of two incomes allows little comfort room - a loss of work by one member of the family can lead to immediate financial distress. This places additional pressures on young families. It’s also hardly a coincidence that the rapid escalation of child care in Australia can be roughly traced to the point where house prices started to escalate out of proportion to incomes (roughly a decade ago). What the long term social impacts of dual income families with children in child care from an early age - and pre- and post-school care for their school years - will be, only time will tell.

Deferrment of children by an entire generation is already being observed http://www.canberra.edu.au/centres/natsem/about/natsem-news2/natsem-news/natsem_news_pdfs/NATSEM-News-29---Web-version.pdf (PDF 1.88MB). To some this is a sign of a selfish generation, splurging on the here and now. To others, it’s a sign that the prospects of starting a family, and buying a home, have become financially too remote for people in their 20s, so they defer these plans until their 30s. The health risks rise in proportion to the age at which women have their first child: what consequences will this create for health care costs and prenatal care, given the supposed ideal age for having a first child is in the 20s?

At the other end of the scale, project this current generation forwards in time. The family home and real estate generally has proven the single biggest form of savings for Australians for generations. It’s been relied on to help fund retirement, and even to help fund people into aged care. If rates of home ownership decline substantially for a generation, this form of retirement savings is no longer there. Superannuation has been a revolution but for average wage and salary earners, remains largely insufficient to fund a generation of workers into retirement. Will this mean greater dependence on social welfare for the aged as a higher proportion of the current generation moves to retirement age?

The economic consequences of high housing costs are also apparent. With greater proportions of total household incomes being devoted to mortgage payments than ever before, this also means less is available for other forms of consumption, or saving. The paradox of thrift shows that reducing consumption in favour of saving has economy wide effects by decreasing demand and putting a brake on economic activity. The same surely happens if thrift occurs because housing mortgages are consuming so much economic energy that consumption elsewhere suffers.

Australians, the reports tell us, are working harder, longer and taking fewer holidays. Is that because of necessity, triggered mainly by the single biggest impact on household finances - the mortgage? The economy-wide consequences of less consumption generally, mean reduced leisure travel, less non-housing or business investment, and so on, simply because for a generation the cost of servicing the debt on the family home has become financially all consuming.

Consider this: if the combination of supply shortages, up front levies and red tape have conservatively added $100,000 to the cost of a new home, that additional cost by way of a larger mortgage is worth an extra $675 per month alone! ($100,000 at 6.5 per cent variable over 25 years). The total interest bill is over $100,000, plus the principal, over the life of the loan. If that money was directed instead into domestic consumption, would the economy be stronger and Australians more prosperous?

Limited economic growth is a further consequence that could derive from needlessly high house prices. For states like Queensland, for example, population growth has been driven not just by lifestyle seekers, but also by the lure of relatively lower cost housing and costs of living. That relative advantage has now eroded, interstate migration numbers have slowed (topped up for the present by international migrants) and - due to the slowdown in the building industry as public policy chokes new supply - new job creation has also slowed. Ironically, Queensland now trails the (more affordable) states of Tasmania and South Australia in terms of economic performance, according to this report http://www.news.com.au/couriermail/story/0,23739,26198157-952,00.html by Commsec. (West Australia is also concerned - see here http://www.theaustralian.com.au/news/housing-shortage-may-derail-states-recovery/story-e6frg6no-1225785217916?from=marketwatch_rss).

You could speculate forever on other possible consequences of maintaining this high price regime for housing via current public policy settings, but among the most worrying is that we are witnessing the creation of a new landed class structure in Australia. For Gen X and Baby Boomers, rising house prices have added equity to family balance sheets - which have been leveraged to acquire additional investment housing, often more than one. While this generation is building wealth through house price growth, the other generation is being denied that opportunity. They are becoming the rental generation, whose economic efforts will go in rents to the landed generation, whose wealth will rise further.

Australia has long held dear the ideal of a classless society, of equality of opportunity and ‘a fair go’. But are we now witnessing a new class structure, defined by those who own property (and quite a bit of it) and those who don’t? That this is occurring largely at the hands of Labor state governments who claim a charter of social equality, is just as worrying. And if we fail to remedy the problem now, what are the possible consequences of that new social division as we move forwards in time?

The demise of evidence

Has evidence-based planning fallen from grace in favour of catchy slogans and untested assumptions? Has ‘must – debating’ replaced the search for factual examination leading to workable strategies for our urban future? In the case of urban planning, arguably that is just what’s happened. The evidence, in Australia at least, is worrying.

“We must get people out of cars and onto public transport.” “We must stop urban sprawl and the consumption of valuable land.” “We must build higher density communities to achieve sustainable environmental outcomes.” Phrases like this are now de rigueur across many discussions about urban planning in the media, in politics and in regulatory circles in Australia. They have become defacto international statements of fact, rarely challenged on the basis of what the actual social, economic or scientific evidence is really saying. So chronic has the march of the ‘must-debaters’ become that attempts to question the assumptions on factual grounds can produce Animal Farm like dogma in response: ‘Four legs good, two legs bad.’ Or ‘Napoleon is always right.’ Denial, followed by ‘pass the buck’ and ultimately ‘shoot the messenger’ are responses to legitimate questions.

But given the far reaching social and economic changes which will invariably flow from some of the regulatory planning schemes now legislated, it does seem valid to ask whether the various policies will actually achieve what they say they will. After all, these regulatory planning schemes are intended to govern our urban growth over the next 20 years. It would be a shame to get it badly wrong, simply because assumptions weren’t tested.

The rise of the big plan

In Australia, there have since the late 1990s been a raft of regional planning schemes dealing with urban growth in our major centres. The common theme has been the creation of urban growth boundaries and increased density in established urban areas, with an emphasis on public transport as opposed to the private vehicle. These schemes have generally passed without considered public scrutiny or challenge, although Tony Powell – a highly respected urban planner – described them as a “sad parade of failing capital city strategic plans [which are] superficial to the point of ridiculousness.” Hardly big raps there but his was largely a voice in the wilderness.

One of the most recent of these schemes was ‘The South East Queensland Regional Plan 2009-2031’. It is the State Government’s ‘plan to manage growth and protect the region’s lifestyle and environment. The plan responds to issues such as continued high population growth, traffic congestion, koala protection, climate change and employment generation. The plan balances population growth with the need to protect the lifestyle residents of South East Queensland value and enjoy.’

Because it bears much in common with similar schemes around the country, the SEQRP serves as a reasonable model with which we can examine some of the underlying assumptions, and test them against the evidence.

First, some context.

Australia’s total population is currently around 24 million people, in a land mass roughly the size of continental USA. This puts us below Nepal and Uzbekistan but ahead of Madagascar in population rankings. Reports that Australia’s population may reach 35 million in another 40 years (the current population of Canada) have raised domestic fears that we might become over populated. (See my blog post ‘Australia Explodes’ for more on this).

The State of Queensland is the second largest state by area, but contains only 4.4 million people in total. Its population growth rates have in the past been amongst the highest of any region in Australia, growing at up to 1500 people per week (close to 80,000 per annum). Much of this growth has occurred in the south east corner of the state, surrounding the capital city – Brisbane. While modest by global standards, this rate of growth has thrown governments and some sections of the community into apoplexy. How will we ever cope? South east Queensland (population 3 million) has been compared to California (population 38 million) in terms of its growth rates and population pressures.

Against this context, the SEQRP identifies the need to provide a further 750,000 dwellings in the period to 2031, with roughly 50% to be developed in established urban areas via infill, and the balance through new detached housing development on land within an urban growth boundary. The challenge for infill is greater in Brisbane, where 138,000 new dwellings are expected to be developed in established urban areas, especially around transit centres (typically rail).

Against this context, it’s time to examine some of the many assumptions that underpin the core strategy of the SEQRP.

Assumption: We’re at risk of sprawl.

This is the ‘Mouse that roared’ assumption, somehow suggesting that modest and manageable growth rates of 1500 people per week are somehow tipping the big end of the global scale. The region’s current population of 3 million shows obvious signs of urban expansion as a result of growth to date, but if sprawl is defined as the unplanned and unserviced expansion of land for housing, there is no evidence of that. Growth to date has been orderly and regulated. With some notable exceptions in recent years, infrastructure has generally kept pace with the growth. Even at the urban fringe, new housing development has been at higher rates of dwelling density than in years past (lot sizes are shrinking). The region is largely auto-dependent, but there are reasons for that (we’ll discuss later).

Assumption: We are running out of land.

South east Queensland has vast tracts of land suitable for urban expansion. Established regional centres at the edges of the urban fringe (from Kilcoy in the north to Beaudesert in the south) are readily capable of servicing new housing development to varying degrees as the infrastructure and town centres are largely in place, and capable of upscaling. Any quick examination of the region via Google Earth will reveal swathes of land suitable for urban development. The urban growth boundary imposed by the SEQRP is approximately 300 kilometres in length as it curtains the urban area. An expansion of this boundary by as little as a kilometer (under a mile) would create a notional land supply suitable for an additional 500,000 detached homes at 15 to the hectare (or six to the acre). No, we are not running out of land.

Assumption: We can no longer afford the dream of the quarter acre block.

Australians have a folklorish attachment to the notion of a house on a quatre acre block. The evidence, however, suggests this is now ancient history: lot sizes have not been anywhere near a quarter acre since the 1960s. The typical lot size now is 400 square metres, or around one tenth of an acre. Hardly an irresponsible over-consumption of land for housing. As for the dream of a quarter acre block, that’s been long dead.

Assumption: Broadacre growth will consume valuable farmland.

This assumption seems to be most favoured by latte lovers in inner city coffee shops, with only a vaguely remote understanding of farming practices. In the south east corner of Queensland, typically two types of land have been conserved for this reason. The first is land devoted to growing sugar cane. The farming of sugar cane in the south east is no longer economically efficient. Farmers are given government subsidies to continue, despite the local sugar mill having closed years ago. Sugar is efficiently farmed in the state’s tropical north but for some reason, the biodiversity desert that is a sugar cane farm needs preservation in the sub-tropical south east corner. The second type of land conserved under this rationale is land historically devoted to cattle grazing. This was always marginal grazing land in the main – dry, shallow soils that struggle to hold moisture or grow pasture. As technology improved and transport economics developed, more efficient grazing country has been opened up further from city markets. But as farmers are prevented from selling their land for housing, despite its logical location for that purpose, herds of bony cattle continue to roam the urban fringes of the metropolis.

This assumption also seems to hold dear the notion that, for sustainability reasons, regions should source their food needs from within a nearby catchment, minimizing transport costs (and hence saving the planet). Were that the case however, Queenslanders would not enjoy apples (grown in southern temperate zones) and neither would Tasmanians (our cool climate southern state residents) ever enjoy bananas (two thirds of Australia’s crop of which are grown in Queensland). It would also mean our agricultural industries, which rely heavily on export, would fail.

Assumption: infrastructure is more economically deployed in established urban areas.

The cost of infrastructure provision is a subject that preoccupies governments in growth regions. Perhaps for this reason, the suggestion that infrastructure is more economically deployed in established urban areas, as opposed to newly provided in outer growth areas, found much support in treasury corridors. However, the evidence suggests otherwise. In established urban areas, underground services (water, sewerage, stormwater) can be approaching 50 or 100 years since built. These were not initially designed for higher usage levels based on higher urban densities, and anyway are approaching the end of their shelf life. The replacement and upgrade cost of retrofitting these services is demonstrably higher than the cost of installing new services in new growth areas. The same applies to roads, rail systems, schools, hospitals. Ironically, as if to counter their own arguments about the alleged efficiency of exploiting existing infrastructure capacity in established areas, local councils and state authorities still charge very high per-dwelling infrastructure levies in infill areas (levies which can now total more than double the cost of the land for an infill unit housing project).

Related to this assumption has been a concern that migration away from the inner core would deplete population numbers, rendering existing infrastructure (from schools to hospitals to transit and so on) under-utilised. That may have been the experience in a number of US cities, but here the evidence in Australian cities is to the contrary: school class sizes in inner areas remain high, hospital beds in short supply, and infrastructure generally reported as over whelmed by demand.

Assumption: Outer suburban growth will mean worsening urban congestion.

If it was true that residents of new outer suburban growth areas were predominantly employed in inner city areas, this might follow. But according to the Census and other official government data, most jobs are in suburban locations – 90% of all jobs in fact. Teachers, nurses, shop workers, manufacturing and transport, professional and personal services – all are predominantly suburban by nature. The CBD (our downtown) is a high density focus for many headquarter operations, but at 2 million square metres of office office, it cannot by any stretch of the imagination provide sufficient space for the majority of the region’s workers. Congestion has worsened in the south east corner, but arguably this has been from under investment in transport infrastructure – public and private - in the past 20 years (including the absence of ring roads such that the historic hub and spoke arterial road pattern continues to direct traffic into the city, even though more than half of it is trying to get to the other side). The private vehicle is for most not a modal choice of transport but an essential requirement of daily life.

Assumption: infill and higher density will get more people using public transport.

Perhaps this is true to an extent. Current public transport usage represents under 15% of all trips. With higher density housing in established areas, especially in and around transit nodes (TODs), that figure could theoretically increase. But even the most heroic of assumptions would put the future rate at little more than 30%. Meaning that 70% of future trips by the new residents of inner city locations would continue to be by private vehicle. Based on the infill targets for the city of Brisbane, that could mean another 150,000 people using cars on already congested inner city roads. This is hardly likely to diminish congestion. There is also an unanswered question on the capacity of existing rail and bus services to cope with additional demand (frequent reports mention chronic overcrowding) combined with the high level of public transit subsidies per passenger, which will somehow have to be funded.

Assumption: Higher density in established areas is better for the environment.

Again, the evidence here tends to suggest the opposite to what is assumed. Unit and townhouse dwellings, based on several University studies, actually consume more energy than equivalent detached dwellings. Common area lighting, lifts, clothes driers and airconditioning are all more commonplace in high density dwellings than detached (where natural light, cross flow ventilation and solar power for drying clothes are the norm). Factor in the higher number of persons per dwelling in detached housing, and the per person energy consumption of inner city, high density housing looks ordinary.

No less an authority than the Australian Conservation Foundation actually proved this in their Consumption Atlas which revealed that inner city high density residents had much larger carbon footprints than their suburban cousins. Built form was part of the explanation – the rest was explained by wealth (inner city residents tend to be wealthier, buying the privilege of inner city real estate prices, and thereby able to consume more). Wealth also tended to mean that these people eschewed public transport, despite its ready availability.

Assumption: it works in Europe, it will work here too!

This is my favourite assumption, especially when trotted out by a new convert to the density matra, recently returned from an overseas ‘study tour’ which took in all the sights of various European downtowns. The reality of course is that European cities were largely designed (in their inner areas) during the middle ages. Walking was not a choice but an economic necessity, and density was a by-product of both this and the prevailing economic systems (such as they were) and also the climate. Studying the downtowns and inner urban areas of European cities and applying those observations to the Australian context is patently silly. If more study tours instead took in the middle and outer areas even of European cities, where the majority of the ‘workers’ (as opposed to elites) live, they might return with different conclusions. (Wendell Cox has produced a series of ‘rental car’ tours which are worth reviewing in this context).

And so the evidence says?

On balance, many of the assumptions that underpin the central strategic intent of regulatory planning schemes such as The South East Queensland Regional Plan, just don’t stand the test of evidence. Indeed in many cases, the evidence suggests the opposite of what is assumed. But evidence, it seems, is out of favour and slogans are in.

The consequence of this demise of evidence based rigour though is becoming immediately clear. Despite the global economic downturn, policy induced housing shortages due to land supply constraints, accentuated by high and extortionate infrastructure levies, layered on deficient and largely incomprehensible local planning laws, are seeing house prices rise even further. In Brisbane, the median house price is now around $450,000 – or close to 7 times average incomes. Dual income households are now the norm, and minor fluctuations in mortgage rates are enough to send shudders through the entire economy as household budgets are tightened. Even recent warnings by the Reserve Bank Governor (see this for a summary) that we are failing to produce new supply at a time when it is most needed, have so far fallen on deaf regulatory ears.

Four legs good, two legs bad. Napoleon is always right. Why consult the facts when mantra will do?