Monday, March 20, 2017

Retirement affordability: a bigger problem than housing affordability?

Housing affordability is such a hot topic now that evidently a number of Federal backbenchers – along with Pauline Hanson - are urging that young homebuyers be able to access their superannuation to enter the housing market. This is not good policy and reeks of short term reactive opportunism. Hopefully the government will resist the idea - for the very good reason that an even bigger problem could be looming: affording retirement. The facts are sobering.

The retirement and superannuation industry likes to promote the idea of post-work lives that feature images of couples with groomed waves of silver hair, perfect teeth, dressed in pastel coloured knit wear and walking their Labrador along a deserted beach. It’s a nice image but so far removed from the reality for the majority of Australians that it’s bordering on deceitful. 

According to a 2013 OECD report, Australian’s aged over 65 were second only to Korea as having the worst seniors poverty in the world, based on the percentage of seniors with incomes below 50% of the median income. Australia came in at just over 35% of seniors with incomes below half the median – almost three times the average of 34 nations surveyed.

One in four retirees in Australia receives the full pension or close to it. A further quarter received a part pension. Two thirds of Australians aged over 65 earn less than $400 a week from all sources. Roughly one in four people aged over 65 are still paying off a mortgage or are renting. Superannuation is yet to deliver the retirement incomes promised.  The proportion of Australians aged over 65 with no superannuation at all if roughly 65%. The average superannuation balance for someone aged 70-74 is just $102,000. The median superannuation balance on retirement in 2016 was $100,000 for men and $28,000 for women. Estimates of what’s needed in superannuation at retirement vary but usually start at $500,000 and rise to $1 million. So we’re falling a long way short.

This picture may begin to improve if super contributions rise in the future, and as more people reach retirement with a lifetime of contributions behind them. But even then, the ability to look to superannuation as a retirement self-funding option for the majority of Australians is slim indeed. What’s going to make things worse is our success at living longer. If you’re a 65 year old woman alive today, the chances are you will live to nearly 90. An estimated 10% of you will reach 100. For men born in the mid-1970s, life expectancy was around 69. Meaning if you retired at 60, you needed to fund an average nine years of retirement. But for millennials, their life expectancy will be in the 80s. Meaning they will somehow need to fund 20 years of retirement if pulling stumps at 60, or 15 years if retiring at 65. For the high proportion that will live into their nineties or longer, it may not be anything to celebrate unless you're loaded. So while the next generation might have acquired superannuation over a longer period, it’s going to need to last a lot longer too.

This is going to become a much bigger problem in the near future, as the ‘boomer’ bubble ages. Australians aged 65 and over are now the fastest growing age group. They will represent a staggering one in every five Australians by 2033 – that’s just 15 years or so away. The current crop of 65 plus Australians number around 3.5 million. That will increase by nearly 3 million – effectively nearly doubling – in the next 20 years.

So not only are we living longer, but there will be millions more of us doing so. Which means spending longer in retirement and either drawing a pension from a depleting (relatively smaller) tax base or relying on superannuation. The latter looks improbable and the former is probably unaffordable.

And so into this worrying picture we have the wooly thinkers enter the debate about housing affordability by suggesting a national raid on limited superannuation balances in order to further stoke the buying capacity of an insatiable property appetite (focussed mostly on just two cities) while doing nothing about the cost side of the housing equation (which policy makers have studiously ignored for the best part of 20 years). It’s a recipe for disaster in the short term by effectively further fueling housing demand without addressing the fundamental supply side problems, and in the longer term by depleting future retirement savings, the demands on which will only increase as we continue to live longer.

You wonder where we get them from. 

Saturday, March 11, 2017

Cross your fingers on Cross River Rail


Earlier this year I wrote a story about the costs of Brisbane’s cross river rail, relative to the number of people who might actually use it. A number of readers – some of whom are in positions to know – corrected me. I was off by several billion dollars on the costs. The true costs of this project are much more than I had realised.

The Cross River Rail is a proposed 10.2 kilometre new rail crossing under the Brisbane River. It will include five new stations and is, we are told, essential to avoid passenger and freight rail networks choking. The proposal first emerged under the Bligh Government. Back then we were told the choke point would come at 2016. It was amended under the Newman Government to include a bus tunnel. And then amended again under the Palaszczuk Government, without the bus tunnel. The choke point didn’t arrive so the rail transit Armageddon date is being pushed back.

We are told the project will cost $5.4 billion, which is what I based my numbers in the last article on. Wrong. This does not include the cost of the five new stations. Nor the rolling stock, marshalling yards and other bits and pieces. Some of these stations are 60 metres below ground. They won’t be cheap. In reality, the actual cost of the cross river rail project will be closer to $10 billion – and that’s before the inevitable cost blow outs.

To allay fears that this very expensive project might in some way be out of proportion to current use, we have now been promised that “SEQ rail commuters will double in 10 years: Government figures.”  This story contained parts of the business plan not released publicly but selectively shared with that media outlet. But a doubling of passengers in 10 years? Seriously? Is there anywhere in the known universe where public transit under similar circumstances has doubled in the space of 10 years?

This is little more than a prayer, not an evidence based projection. To find it repeated in the media without challenge is a sign of our times I guess.  If the project feasibility is relying on this sort of faith based expectation, particularly given rail transit has been falling both in terms of its share of travel and the actual number of people using it, then some meaningful justification ought to come with it.  

Recent experience with traffic projections should mean that heroic promises of this nature are immediately viewed with extreme caution. Look no further than the predicted vehicle traffic through tolled tunnels and bridges, detailed in this story. The heroic inaccuracies of the Clem 7 tunnel predictions sent investors broke on that one. And the Airport link tunnel opened with 56,000 vehicles against a predicted 194,000. It was still in 2016 sitting at 57,000 against a predicted 221,000. That’s some margin for error.

Maybe we shouldn’t start with much in the way of expectations. Queensland Rail happily cut the ribbon on the $1.2 billion Moreton Bay rail line but forgot to have enough drivers to drive the trains. You’d like to know how many people are using this new service but that information is not publicly available. Are we not to be trusted? I am told though that the actual number of users, relative to the cost, is horrifyingly small.

It also emerges Queensland Rail have ordered $4.4 billion worth of New Generation Rolling (NGR) rolling stock but oops… the new rolling stock won’t work with existing platforms. Which means each of every 143 platforms that form part of the city train network will have to be upgraded before the new rolling stock can be used. And what will this cost? Dunno.

So let’s do a quick tally. New rail link to Redcliffe $1.2 billion but a fiasco in the opening months. New $4.4 billion of rolling stock but woops, we now need to upgrade all the platforms. Proposed $5.4 billion cross river rail – “essential to avoid system collapse” we are told (as if it hasn’t collapsed already thanks to mismanagement) – is actually closer to double that price. But trust us, we know what we’re doing.  Hardly confidence inspiring and outright worrying given that tally of projects comes to $15.6 billion.

Project proponents will claim the cost of the cross river rail will be less because they will recover the cost of the stations through ‘value capture’ – which means a benefitted area levy that taxes property owners in the vicinity of the stations. These owners will be so happy with a new station that this won’t be a problem. There are also proposed hikes to motor vehicle registration fees, a car park levy (because parking’s so affordable already isn’t it) and for good measure a public transport infrastructure levy that property owners will also pay, irrespective of whether they are near a station or not. But these are all just extra tax measures, designed to make the $10 billion project sound a lot more digestible. Like suggesting that train users will double in 10 years, it’s very hard to believe.

There are some big corporate names earning massive fees to support this fantasy. How much would you think we taxpayers have spent so far on various consultants and seconded staff, reports, office space etc – all in the name of Cross River Rail? That figure, I’ve been reliably informed, is conservatively around $100 million. No wonder there are some people so keen to see the project proceed – this could be a cross river gravy train carrying consultant gold by the carriage load.

So back to our $15.6 billion in commuter rail investment – recent and proposed. Who benefits, other than the consultants? Based on the last Census and supported by QR figures, there are around 65,000 people using the trains. (That’s people – not trips. It’s a trick to multiple the number of people times the number of trips they make each day then multiple that by a weekly number and that number in turn by 52 to get an “annual trips” number. Once again, exaggerate use and underestimate costs seems to be the preferred model). Train travellers – again based on QR figures – are overwhelmingly inner city workers. The current six inner city stations account for 84% of all boardings and alightings.  The inner city workforce of around 160,000 to 180,000 people (depending on how you want to define inner city) represents only one in ten of south east region workers.

Simple back of envelope sums reveal we have spent and plan to spend something like almost a quarter of a million dollars per user. In reality, that cost should be spread across the increase in travellers we will achieve as a result of this investment. A 50% increase – itself almost fanciful – would mean the cost of each additional user is half a million dollars.

Yes, this isn’t very scientific and no, it isn’t very fair. There are network wide implications. Benefits to road users (which it seems they will pay for via increased registration fees anyway), freight (although I am told that freight – which is where heavy rail can be so effective moving bulk goods long distances – could actually be worse for some users under the CRR proposal), and the economy generally.

We absolutely need to reinvest in infrastructure to keep our cities and regions functioning. Efficient transport infrastructure is central to that. But with so many competing needs and money so scarce (or so we’re told) the business case for each needs to be robust, economically justifiable and transparent. The money for Cross River Rail needs to compete with plenty of other projects, and their merits weighed equally in terms of greatest public benefit.

There are some legitimate questions the public might feel entitled to ask:

- What is the true full cost of the Cross River Rail, including stations, rolling stock, marshalling yards etc?

- What key assumptions have been made about how many additional rail users will be serviced as a result, and how many vehicles will come off the road network as a result?  

- What is the cost of not proceeding with the project as envisaged? How were these assumptions arrived at?

- Were alternative infrastructure proposals considered? (This 2012 report for the SEQ Council of Mayors “proposes a new vision for SEQ Public Transport that puts the commuter at the heart of the system.” It suggested that rather than a Cross River Rail, there were better alternatives to create a more efficient regional public transport system).

- How much is planned to be raised from motorists via registration fee increases to fund the project? How much is planned from parking levies? How much is planned for by way of property taxes and who will be asked to pay these property taxes?

As taxpayers, you would think we’re entitled to a bit more transparency when it comes to spending some $15 plus billion dollars on an outfit that forgets about train drivers or matching rolling stock to stations. It reminds me of that famous episode of “Yes Minister” when Jim Hacker opens an empty hospital.

Sir Ian Whitchurch (hospital chief): "First of all, you have to sort out the smooth running of the hospital. Having patients around would be no help at all."

Sir Humphrey: "They’d just be in the way." 

Wednesday, February 8, 2017

Is housing affordability the egg we can’t unscramble?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

Tuesday, January 17, 2017

The pain with trains lies mainly in the brains (or lack of them)

Unless you’ve been on holidays in some remote place over Christmas you’d have noticed that trains have been making the news a lot lately in south east Queensland. Mainly it’s because of the lack of them running, which it seems in turn is because there are not enough people to drive them. Much of which was triggered by the opening on one extra line of just 12 kilometres in length, which has been talked about for close to 130 years and which has been in detailed planning or under construction for the past decade. Kind of snuck up on them all I guess.

Having so many scheduled services pulled at no notice has given the hapless Queensland Rail every appearance of being utterly unable to organise a round of drinks at a brewery. Steeped in olde worlde tradition, it’s not hard to imagine the departmental mandarins enjoying a regular cup of tea at work delivered by a tea lady, her trolley complete with lace doilies as it rattles along the corridors of rail power. 

It’s not just management which gives the sense of something scripted around Reg Varney in “On the buses” (a British sitcom of the early 1970s) but the Rail Tram and Bus Union too seems rooted in a bygone era. According to the Union’s website “The RTBU was formed 1 March 1993 through the historic amalgamation of three railway unions and one tram and bus union... These unions have a strong tradition dating back to the nineteenth century.” It seems that’s a tradition they are intent on keeping alive and well in the 21st century.

There are always more accurate back stories than sensationalist headlines, and no doubt there have been many contributing factors behind the latest embarrassments. Some of these date back many years, some date back only a few years, and others just a few months. Not all have been due to decisions of QR Management either. However, as generous as we taxpayers can be, it is hard to have confidence given the opening of the new $1.2 billion Redcliffe line seems to have been quite predictable, while there was no heads up that services could be impacted in the slightest way.

The Redcliffe line came in at $100 million per kilometre, which is hardly small change for the taxpayer. We are entitled to question how well our taxes are being spent.

With this in mind, it’s very hard to have much confidence in the proposed $5.4 billion cost proposed for the 10.2 kilometre cross river rail link. This one’s $530 million per kilometre – five times as costly as the new Redcliffe link (going underground a large part of the reason). But here’s the rub: we are being asked to trust the same crowd who seemingly can’t staff the trains we already have, and who insist that without this extra $5.4 billion of our money (that’s us, the taxpayers) that the whole network will choke and congestion costs will escalate.

The cross river rail is not a new proposal and dates back many years. Successive governments have been told the same story: that without an additional crossing, the network will reach capacity. The date for that capacity breaking point keeps getting extended and the project delayed. The fact that Brisbane has only one river crossing is a real issue. But what’s at stake here is a question of trust and given the latest series of debacles, can we trust that an extra $5.4 billion is going to be well spent and well managed?

If you look for details on the business case you can find a five page PR document which calls itself a ‘cost benefit analysis summary’ but which is preciously short on evidence and long on promise. Have a look for yourself. It’s not much given the sums of money we are being asked to part with. There’s an older business case by Deloitte in 2011 which assumed a 50% increase in public transport mode share from 2009 to 2031 (from 8% to 12%); a 23% increase in rail patronage by 2031 with cross river rail, and which attributed 39% of the project financial benefit to “perceived” public transport benefits. Would you call these heroic or conservative assumptions?

All of which prompted me to check on the actual numbers of people across Greater Brisbane – an area with a population of around 1.8 million – that actually use rail. Based on the last Census, the number of people who used rail – either in whole or in conjunction with some other form of transport – was 65,212. Not a big number. That’s 65,212 out of the 925,385 employed persons in the region of 1.8 million people. The number correlates with QR’s ‘Passenger Load Survey’ (the most recent one of which was in 2009). It showed that the network carried 65,752 people in the morning peak and 57,286 people in the afternoon peak.  Which however you cut it is a small number and less than 5% of the population.

What’s more, the rail network is mainly designed around servicing inner city employment. There are around 180,000 jobs in total in the inner city – one in ten jobs of the broader metro region. Nine out of ten of us work in suburban areas which are largely not serviced by train. The same QR survey shows that, of 65,231 total boardings and alightings in the AM peak, 33,738 (52% of the network total) were at Central Station. Roma Street came next with 9,319 followed by Fortitude Valley (4,757), Bowen Hills (2,116), South Bank (2,790) and South Brisbane (1,751). Put these together and you have 84% of passenger movements across the network being at these six inner city stations.

But we are told by the rail experts that unless we spend another $5.4 billion on a transit service that moves less than 5% of the population - almost all of whom are travelling to six inner city stations to access the 10% of metro jobs that are in the inner city – then we are facing a transport meltdown.

I know it’s not fair to divide the proposed $5.4 billion for the Cross River Rail by the 65,000 users (but if you did, the answer would be $83,000 per user) or to add the $1.2 billion cost of the Redcliffe Line (which would bring the answer to over $100,000 per user) because these investments have network wide implications that benefit both public and private transport, as well as freight. It would be equally unfair to divide the project cost by just the additional number of people projected to be carried as a result of the extra investment, because that’s the sort of number crunching business people do; it’s not meant for transport businesses. It would also be wrong to point out that these are just the capital costs and that each trip – per person per direction on a CityRail train – is subsidised by the taxpayer to the tune of $10, or $20 for a round trip.

I am not suggesting an additional river crossing is not a good idea. But based on recent performance, and given the very large sums involved – all of which is taxpayer money not privately funded – then you’d hope for a bit more detail than what’s in a five page PR document for a project promoted by a government agency which seems incapable of managing the existing network.

Maybe management of the project and the network should be given to someone else? How about the aviation sector? Our airports were privatised in the late 1990s, as was our airline Qantas. Both the airline and the airports are now vastly more modern and efficient, and serve the travelling public far better than when they were basically government organisations. Plus they aren’t going cap in hand to the taxpayer on a regular basis to keep them afloat. (The privatisation of airports and Qantas, by the way, were originally decisions of the Keating Labor Government). Aviation is a type of public transport and freight business, as is rail. So why not drag some aviation experience into the rail sector?

Queensland Fail (aka QR) and the government’s insistence that we need to spend a further $5.4 billion on a network managed by the same people behind the recent debacles is just not confidence inspiring. It leaves you with the sinking feeling that they’ve based their business case and management model on an episode of the ABC’s satirical ‘Utopia’ – a “multi award-winning satirical comedy about a group of people charged with building this nation – one white elephant at a time.” 

Tuesday, November 22, 2016

Manufacturing: "not dead yet"


There’s a famous scene in Monty Python’s Holy Grail where dead bodies from the plague are being heaped onto a cart. One body, about to dumped on the cart, protests that “I’m not dead yet.”’ “I’m getting better… I might go for a walk” he protests, until the collector of dead bodies clubs him on the head and gets on with his business. The way we dismiss the future of our manufacturing sector reminds me a lot of that scene. 

Manufacturing, we are told, is largely finished in this country as the art of making things is lost to low labour cost countries against which we simply cannot compete. Disciples of the ‘new’ economy would have you believe that all the jobs worth having are now in high value professional services, which are mostly located in our inner cities. 

Only last year, Prime Minister Malcolm Turnbull called for an “ideas boom” for Australia to replace the mining boom and provide growth, prosperity and jobs. A national “Knowledge Nation” summit was held to support the Federal Government’s “National Innovation and Science Agenda” and a host of ‘rock stars’ of ‘the innovation economy’ were announced as part of “Knowledge Nation 100” – the “visionaries, intellects, founders and game changers” destined to drive our future prosperity. 

Our urbanisation agenda aligns with this future vision of work and industry, by planning for centralised economies and highly educated inner urban workforces of the professionally qualified, clustered around urban cores. The preferred urban form to make this happen, we are told, are cities like London or New York or San Francisco or Singapore – centres of global commerce, technology and finance. 

In all this, it seems there is now little room for industries like manufacturing. 

But despite the widespread predictions of manufacturing’s demise, the sector is still surprisingly resilient. The graph below plots employment by selected industry for over 30 years. (Click graph to enlarge). 




The gradual demise of manufacturing is undeniable, although it has far from collapsed and still employs some 800,000 plus Australians. By contrast, the much celebrated rise of the information, media and communication (ITC) sector looks a bit lame by comparison. There are still four times as many people employed by manufacturing as the ITC sector. 

Big growth has occurred in white collar professionals in the professional, scientific and technical sector, as well as education. Nothing however can match the growth of the health care and professional assistance sector (which includes a very high proportion of part time jobs). 

Even by 2020 (graph below), according to the Federal Department of Employment, manufacturing will still be our seventh largest employer, responsible for over 800,000 pay checks nationally. That’s more than four times the number of people directly employed in mining, to put that into context. The much-hyped tourism industry, for further context, is predicted by Tourism Research Australia to employ 656,000 people by 2030 – which is 150,000 fewer and ten years later than manufacturing is predicted to employ by 2020.



What’s the point of this? Simply that the rush to embrace new industries centred around the services sector which offers high incomes linked to technological or particular professional skills can distract attention from less glamourous sectors which continue to chug away, with limited public policy support and even official disinterest. Manufacturing has been one of those. A ‘smoke stack’ industry now generationally removed from the lives of urban elites, it has been largely written off as uncompetitive and with little future. Yet it is one of our largest employers and one which offers longer term full time jobs, as opposed to shorter term part time roles (as you might find in for example tourism, or health care and social assistance). 

It could be that public policy attention (and the industry support that accompanies it) reflects the political favourites of the day. If that is the case, the manufacturing sector might need to revisit its public advocacy and somehow demonstrate to policy makers that Australia’s economic engine cannot just rely on publicly funded ‘bed pan’ industries or high glamour tourism jobs where low wages and part time status are the norm. These industries may indeed absorb large numbers of people who would otherwise be unemployed and they have a tremendously valid role to play in our economy. But it’s always a question of balance and what seems to have been a dismissal of manufacturing’s potential or its future by a cross section of policy leaders and commentators while ‘innovation’ and almost anything to do with technology are heaped with praise is a telling sign that the economic debate needs some rebalancing. 

Note: The “information media and telecommunications industry” includes businesses involved in newspaper, magazine, book, and directory publishing; software publishing; motion picture and sound recording publishing and distribution; radio and television broadcasting; internet publishing and broadcasting; telecommunication services, internet service providers & web search portals; data processing, web hosting and electronic information storage services; and library and other information services.

“I’m not dead yet” scene - Monty Python and The Holy Grail: Youtube clip here: https://www.youtube.com/watch?v=Jdf5EXo6I68

Dialogue:

Dead Collector: Bring out yer dead!
[A large man appears with a (seemingly) dead man over his shoulder]
Large Man: Here's one.
Dead Collector: Nine pence.
"Dead" Man: I'm not dead.
Dead Collector: What?
Large Man: Nothing. [hands the collector his money] There's your nine pence.
"Dead" Man: I'm not dead!
Dead Collector: 'Ere, he says he's not dead.
Large Man: Yes he is.
"Dead" Man: I'm not.
Dead Collector: He isn't.
Large Man: Well, he will be soon, he's very ill.
"Dead" Man: I'm getting better.
Large Man: No you're not, you'll be stone dead in a moment.
Dead Collector: Well, I can't take him like that. It's against regulations.
"Dead" Man: I don't want to go on the cart.
Large Man:' Oh, don't be such a baby.
Dead Collector: I can't take him.
"Dead" Man: I feel fine.
Large Man with Dead Body: Oh, do me a favor.
Dead Collector: I can't.
Large Man: Well, can you hang around for a couple of minutes? He won't be long.
Dead Collector: I promised I'd be at the Robinsons'. They've lost nine today.
Large Man: Well, when's your next round?
Dead Collector: Thursday.
"Dead" Man: I think I'll go for a walk.
Large Man: You're not fooling anyone, you know. Isn't there anything you could do?
"Dead" Man: I feel happy. I feel happy.
[The collecter paces for an idea, then whacks the body with his club, solving the problem]
Large Man: Ah, thank you very much.
Dead Collector: Not at all. See you on Thursday.
Large Man: Right.



Tuesday, November 8, 2016

Affordable housing in plentiful supply

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

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

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

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

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

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

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

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

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

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

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


Tuesday, November 1, 2016

What Utah could teach us about affordability, growth and density


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

…………

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

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

The Daybreak development’s web page is here.

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

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

Tuesday, September 20, 2016

What really makes cities liveable?


So called city liveability rankings are proliferating like rabbits before Myxomatosis. And like rabbits, they can be pest. A couple of recent liveability surveys beggar belief, not just in their method but also their conclusions. Here’s what’s wrong with them, and some ideas for alternative measures of city liveability.

In August this year, that journal of inner city indulgence The Sydney Morning Herald published a front page story boldly declaring “Sydney’s ten most liveable suburbs revealed.” Attention grabbing headline? Tick. Rigorous methodology? Fail. In fairness the study wasn’t by the SMH but a research consultancy, whose approach to assessing what is liveable and what isn’t says a lot about how some in our community are becoming besotted with wealth and privilege at the expense of opportunity and equity.

If you think that’s harsh, first consider their top ten, and where they are:

Sydney's top 10 most liveable suburbs
Rank
Suburb
Region
1
Lavender Bay
Lower north shore
2
Milsons Point
Lower north shore
3
McMahons Point
Lower north shore
4
Kirribilli
Lower north shore
5
Waverton
Lower north shore
6
Wollstonecraft
Lower north shore
7
North Sydney
Lower north shore
8
Millers Point
City and east
9
Elizabeth Bay
City and east
10
Darling Point
City and east

Yes, it’s a list of Sydney’s most expensive suburbs, all of them inner city.

In a remarkably narrow methodology, the researchers assessed liveability on 16 qualities which are most commonly found in inner city areas where high real estate prices prevail and where wealthier members of the community tend to live. Talk about confirmation bias.

The criteria included: access to employment (the nearby CBD employs a lot of very highly paid people); being close to light rail and trains (most concentrated in the inner city and “essential” they claim for any functional modern city); bus stops (fair enough); ferry access (limited to being close to water which is also where the high priced real estate is); culture (being close to theatres, museums and art galleries – most of which are centralised in downtowns, meaning inner city locations are bound to win); main road congestion (the further from slow moving traffic the better, but inner city residents working in the CBD have less of this problem); education (agreed - the more primary and high schools the better, and the closer the better); shopping (fair enough to a point); open space (agreed); tree cover (nothing quite like those leafy inner city suburbs with the spreading old  deciduous trees imported from the UK); topographic variation (hills are great for expansive views and also high priced real estate); cafes and restaurants (I kid you not, this is word for word: “Access to a decent short black and a sushi train should be a no-brainer.” Yep, they’ve nailed Maslow’s hierarchy of needs with that one); crime (obviously best avoided); telecommunications (“We’ve come to expect five bars and speedy broadband at all times and this has never been truer than in today’s world of Pokemon Go and Netflix”- so they obviously have life’s priorities sorted); views (“The more water views – whether it’s of the harbour, a bay or the ocean – the better”); beach access (well of course, life’s a beach in a multi-million dollar home with harbour views and beach access).

Stunning isn’t it? According to this survey, liveability equates with the lifestyles of the Sydney rich and famous. The rest of you mug punters can only watch on in envy. The higher social order has, like some twist on The Hunger Games, spoken.

Another equally vapid survey is by the Economist Intelligence Unit. Their latest world survey concluded that Melbourne was the world’s most liveable city. Their league ladder was as follows:

Rank
Rating
Melbourne
1
97.5
Vienna
2
97.4
Vancouver
3
97.3
Toronto
4
97.2
Calgary
5
96.6
Adelaide
5
96.6
Perth
7
95.9

You can read about their criteria here but it will be obvious to many of you that, like the survey lauded in the Sydney Morning Herald, there’s a preference for cities where wealth and privilege rule (except Adelaide, whose presence on this list given its failed economy is anyone’s guess). Vancouver, for example, is among the world’s least affordable cities but that’s obviously not a liveability problem if you are in the minority for whom that isn’t an issue.  

So what’s missing from these sybaritic surveys of liveability? And what should we be thinking more about? My suggestions are follows:

Affordability. The elephant in all the rooms is housing affordability. How can a city be liveable if that definition really only applies to a minority of the population on the highest incomes or with the greatest wealth? That housing affordability, and the cost of living generally, should so easily be overlooked in measures of city liveability is an indictment on much that passes for urban policy and the thinking that goes with it.

Housing choice. Cities that offer their citizens housing choice, by type and location, surely fair better as more liveable than ones that dictate the form and location of housing by decree? This applies as much to ensuring young people have access to types of housing that suit their needs, and equally for seniors, who are too often shunted out of the areas they grew up in because housing types are locked in stone to uses and a society whose era has long since passed.

Dispersed employment. Highly centralised city economies force more of their residents into longer commutes, which tend to be more costly for those on lesser incomes than the more generous incomes earned by inner city residents. Encouraging employment centres to disperse so that opportunities for work are closer to where more people live is a liveability angle that deserves recognition.

Full or close to full employment. Immunity from unemployment or the risk of it is more likely to be found amongst residents who already enjoy a degree of economic privilege by way of education or otherwise. Lesser skilled city residents are less likely to find quick transitions into new or different jobs so a city with full or near full employment ought to be regarded as more liveable than one where strong employment and ongoing certainty is confined to a minority.

Equal access to economic opportunity. Equality of opportunity is different to equality of outcomes. Cities that offer their residents broadly equivalent opportunities for education, employment, and advancement ought in my view to be considered more liveable than those where inherited wealth or opportunity are the norm. This is different to equality of outcomes – if residents have opportunities and they don’t pursue them or squander them, that is their responsibility at the end of the day.

Tolerant and rational. Free speech and a tolerant, rational approach to social issues is a precursor to liveability, surely? The antithesis of this is residents fearing to speak their mind or venture their opinions. There seems an increasing tendency for self-appointed and unelected urban cognoscenti to dismiss or talk down to others, which is disappointing. The next step on that path is censorship – something no liveable city should tolerate.

Clean and unpolluted. This should go without saying but a city that pollutes its own waterways, skies, or open space isn’t as liveable as one that doesn’t.

Shared benefits. Cities which spread the benefits of their urban infrastructure improvements throughout the metropolitan area are logically more equitable than those that focus all their energies on inner urban domains. If residents in outer metropolitan areas are denied access to transport improvements, open space, schools or other forms of infrastructure because the budget’s been spent downtown, that’s not what I call a formula for liveability.

Innovative and enterprising. Not sure how you could measure this, but I suspect the answer lies somewhere in the support for new ideas as opposed to old established formulas and traditions. Starts ups are the KPI of an innovative economy but how to encourage and facilitate more of this is something we are yet to learn. Unless the answer lies somewhere in the suggestions above?

There are many more suggestions I could add but none would promote the idea that liveability is best measured by some connection to high priced real estate in a limited number of areas enjoyed by a limited number of people. Cities are as much suburban as inner urban and measures of liveability need to recognise the broader measures of what makes life in cities most enjoyable, wherever you live and whatever your income or lifestyle.