Monday, August 30, 2010

Fortress Australia: ground hog day

Roughly ten years ago I penned a series of articles lamenting the sudden lurch to all things rural and the demonisation of urban interests. Pauline Hanson was in full flight and politicians the country over were happy to promise anything to disaffected (largely rural) voters to regain their trust. City slickers were persona non grata. I thought we’d made some gains since then, but the results of the recent federal election are shaping up as ground hog day for urban and regional policy. Only this time, it could be worse.

Two things are shaping in the aftermath of the 2010 Federal Election as portents of things to come for our economy and the future of our urban and regional centres. They are the combination of what seems now to be an orthodox view that Australia is close to reaching its maximum sustainable population, combined with the political tilt to the Bob Katterisms of rural politics. Together, this could mean we are about to usher in an era of low growth, high protection policies. Fortress Australia could easily become a reality no matter which side ultimately claims the keys to The Lodge.

This is in part because prior to the last Federal Election, both sides of politics became suddenly shy of the long term growth patterns of population in Australia. In September 2009, Wayne Swan released some early findings of the Intergenerational Report, which predicted Australia could reach 35 million by 2050. Although this rate of growth was pretty much the same as the preceding 40 years, the figure was greeted with alarm by media, the community, and much of the political herd. ‘Australia Explodes’ went the headlines and the lemmings followed. (See this blog post from a year ago).

A month later, then PM Rudd was proclaiming that he believed in ‘a big Australia’ but by mid 2010 his later nemesis Julia Gillard was proclaiming she ‘did not believe in a big Australia’ and as Prime Minister declared we shouldn’t ‘hurtle’ toward 36 million but instead plan for a ‘sustainable’ population, renaming the Population Minister the Sustainable Population Minister in the process. The word ‘sustainable’ in this context stands for ‘slow down or stop.’

Then came the election campaign with Abbot promising to ‘slash’ the ‘unsustainable’ immigration numbers (that his mentor John Howard had been responsible for) and to ‘turn back the boats.’ Population growth was to be cut to 1.4% (a long term trend) and migrants potentially forced to settle in rural areas (some dodgy form of postcode migration policy).

However you look at it, the message from both Gillard and Abbot was clear: support for a ‘big Australia’ (that being 35 million by 2050 or the same rate of growth we’d seen in the last 40 years) was gone.

Add to that the quixotic entrepreneur Dick Smith and his population documentary ‘The Population Puzzle’ where he alleged Australia was at risk of running out of food, out of space and out of control, comparing us (oddly) with places like Bangladesh. Smith might be mad but you can’t discount the impact he has on Australian popular opinion. People believe him, and plenty more people would be thinking we’re about to be overpopulated as a result of his documentary than before, politicians included.

Could it get any worse for the prospects of maintaining even modest levels of population growth? The last election outcome means the answer is yes. We now have the balance of power in the Senate controlled by The Greens, and in the lower house by a handful of notionally old school National Party independents. The Greens’ view is clear on population growth – they don’t support it (unless you’ve arrived illegally, by boat). "This population boom is not economic wisdom, it is a recipe for planetary exhaustion and great human tragedy” said Bob Brown when the Intergenerational Report was released.

The independents’ views on population are harder to work out, but it would be a fair guess to suggest they would lean toward the Abbot view: turn back the boats, and slow the overall rate of growth. They are quite likely to also push for a redistribution of economic riches to a range of projects for rural and regional areas, which could be fine provided these projects were subject to a rigorous business case (unlike the mooted National Broadband Network and its $40+ billion plan for faster porn, unsupported by any sort of economic analysis). The irony that the election result hinged on big swings in urban seats but that a handful of rural independents are now trying to call the shots shouldn’t be lost on anyone.

Not to be left out, the Local Government Association of Queensland’s annual conference this year will focus on population growth, leaning toward limits on growth unless bountiful riches are showered on local governments to cope with ‘unsustainable’ rates of growth. Association President Paul Bell says “councils cannot let population growth exceed infrastructure needs.”

"Where we find water supplies no longer match the size of the community, where we find roads are congested, where we're seeing other infrastructure whether it be health or education are falling behind," he said, population growth was by implication to blame.

The bottom line? Population growth is now a dirty word and for any business which relies on growth for its prosperity, this is not good news. Everything from airports to property to construction to farming to retailers, manufacturers and tourism will be affected by slowing growth. For Queensland, which no longer relies on interstate migration for its growth, it could be worse: any slowdown in international migration will hit state growth quickly and dramatically. (See here for why).

Even social services could suffer if growth is deliberately slowed by this cabal of anti-growth movements. Why? Because in 50 years time, without migration or natural growth, there may only be two working adults for every five retired. You wouldn’t want to be one of those two and paying their tax bill in 50 years’ time.

How has this come about? The answer is pretty simple: growth itself has never been the problem. Note to Paul Bell and others – it’s been a notoriously inefficient planning approach which has misdirected precious infrastructure spending, which has pushed up housing prices, which has caused frustrations at rising congestion, which has seen hospital wait lists grow and which has been the root cause of much of the community angst about the symptoms of growth where policy not only can’t keep up, but tries to slow everything down. In the last decade, can anyone honestly claim that our planning schemes are now more efficient and quicker, or more easily understood, or better targeted, than a decade ago? I doubt it.

Would it be too much to ask for a sensible, evidence-based approach that ties population growth to urban and regional strategies, which emphasises economic progress while maintaining lifestyle and environmental standards? How about some decent plans to link regional urban centres to major cities, based not on pork barrels to influential independents but based only on the business case and community mutual benefit? Or how about putting the ‘growth’ back into smart growth, with some policies that allow our urban areas to expand in line with demand matched to infrastructure spending, rather than policy dogma?

Those same questions were being asked a decade ago. Welcome to ground hog day.

If you’re interested, here’s a couple of yarns from 10 years ago.

Slicker Cities for City Slickers. October 1999.

Nation Building and a National Urban Strategy. May 2001.

Monday, August 9, 2010

Office market glasses at least half full?

The recent release of the Property Council’s Australian Office Market report was greeted by several media outlets as an opportunity to focus on ‘soaring’ vacancy rates. But what if, for a moment, we focussed instead on the occupancies, not the vacancies? Would that tell a different story?

The office vacancy rate statistic is a pretty straightforward measure of the gap between supply and demand. The Property Council, and most market commentators, have traditionally focussed on the vacancy rate as a barometer of market health. But the vacancy rate can fall in a shrinking market if older, redundant stock is removed from the stock survey for a variety of logical reasons. Equally, the vacancy rate can rise in a healthy market, if additions to supply exceed total new demand.

Another way to look at the health of the office market is to disregard the total vacant space (both direct and sublease) and simply focus on what’s left. That is, what’s really happening to overall demand – the space that’s actually occupied? After all, an excess of new supply can simply reflect bad timing or an over exuberant development market – it doesn’t necessarily mean that demand has weakened dramatically.

An analysis of the Property Council figures on this basis produces a different picture to that painted by the media headlines. What it shows is that total occupied space – or if you like, total demand – has done little more than plateau since it’s peak in January last year. There has been a minor fall in overall demand, of just 150,000 square metres of space, but that’s across the entire country and all the various submarkets covered by the Property Council Survey.

What is just as obvious is that office markets around the country have remained remarkably resilient to the effects of the global financial downtown. If you had believed the Nostradamus-like warnings of impending doom, or followed the share price of any number of listed A-REITS heavy in the office market, you’d be forgiven for thinking there’s been something of a calamity at play. Not so.

If demand had dramatically softened, as some have suggested, you would expect to see a significant fall in total occupied space. A plateau is not a significant fall (unlike global share indices may be used to).

Of course if you’re in the business of leasing new office space in a market which isn’t expanding, that’s another story. But traditionally, vacant space has migrated itself from lower standard buildings to higher standard (ie new) ones. And an interesting thing also then happens (or at least, it has in the past).

As new buildings are added to the stocks of office space, they have rarely over the past 20 years opened fully let. But as they lease up, they do so at new levels of benchmark rents. It stands to reason – new buildings cost more to develop than older ones did, and usually feature higher standards of technological features or sustainability virtues. ‘New’ always comes at a premium to ‘old’ so waves of new building construction have tended to correspond (albeit with a lag) with cyclical spikes in market rentals. And the cost of new construction is not about to fall.

The new buildings command more rent, and those rents are then used as benchmarks for the Grade of building below that, and through the market the ripple flows.

So when new buildings arrive on the market, they obviously add to supply which can tend to bump up vacancies (especially given the ‘lumpy’ nature of new supply in large commercial buildings). But they can also tend to lead rental growth. It is a mistake, or can be, to interpret rising vacancies and stable or falling rents as a sign of weak demand – these things can reflect temporary surplus of supply.

So the short version of all this is that maybe the glass is more than just half full? Total demand for office space hasn’t collapsed or even significantly shrunk, despite the tsunami of economic events endured by global and domestic markets in recent years. Plus, the new additions to supply now coming on stream may just portend the next wave of rental growth in office markets generally, as the economy inevitably improves?

You can read what you like in the daily papers. But believing them is another thing altogether. It’s worth contacting the PCA and buying their Office Market Report, and doing the same analysis yourself for whatever local market interests you. You might just be surprised.

Monday, August 2, 2010

A good decision - but where to from here?

The decision by Brisbane Lord Mayor Campbell Newman to compulsorily (if necessary) acquire a major inner city development site so that it can be used for public open space might have plenty of people in the planning and development industry shaking their heads in disapproval. I won’t be one of them.

Lord Mayor Campbell Newman’s bold move to purchase the disused Milton Tennis Centre site in inner city Brisbane for public parkland has been welcomed by a host of so called NIMBY groups in the area, who opposed high density development. The 3.5 hectare site had been acquired by a prominent developer and had existing planning approval for a range of development to around seven storeys in height. The developer was in the process of seeking planning approval to increase the development density to closer to 20 storeys in height, for the tallest towers. That proposal was generally consistent with the stated intentions of the State Government’s infill strategy under their regional plan, which sought to deliver much greater density throughout the Brisbane area, especially for sites close to transit infrastructure (as is the Milton site).

But the scale of development proposed did not sit well with local residents. Community opposition in the area was widespread – it was the talk of the supermarket aisles on the weekends and school pickup zones during the week. An active NIMBY group campaigned aggressively against more high density development in the area and they’ll be congratulating themselves on a win right about now.

But the decision goes deeper than simple local community opposition, however vociferous. It highlights some of the inevitable conflicts of a State imposed regional plan which mandates higher density, and a community which hasn’t bought the talk. The decision, I think, was a good one for this local area, given the scale of development which will take place in and around the Milton area in years to come. It signaled that the Mayor is acutely aware that higher densities will mean more pressure on open space. And it also signaled that there is still a place for democracy in public policy, as opposed to the imposition by elites of mandated policy dogma.

On the flip side, it reinforces the legitimacy of political intervention in planning matters. In this instance, a Mayor made a good decision, in the community interest. But other politicians have notably made some very poor interventionist decisions, and not always in the community’s best interest.

The decision also exposes the failures of the density advocates to win public support for their case. This is ultimately the highest test for public policy in a democratic system. The alternative is a Soviet style system where elites dictate direction without reference to the will of the people (or without reference to basic fundamentals of economics, or of market demand).

But perhaps most of all, the decision throws into question a range of issues which have yet to resolved, except for the ‘pro’ and ‘anti’ rhetoric of the protagonists. Clarity, and community agreement are, it seems, a long way off. Consider the following:

· The Milton Tennis site is only 500 metres away from ‘The Milton’ high rise residential tower, by another developer. This tower has been approved for 30 storeys, after being ‘called in’ by the State Government Planning Minister as a ‘matter of state significance.’ Ironically, the existing town plan for the area permits less than 20 storeys, but a draft neighborhood plan by the Council would have allowed 20 storeys. It’s now approved for 30, because the proponent succeeded in convincing the State Government that this was something of great importance to the state. Will other high density proposals required to meet the density targets of a regional plan be equally important, and receive the same treatment?

· Part of that argument no doubt rested on the need for at least some ‘Transit Oriented Developments’ to see the light of day. A decade of discussion has achieved precious little, which would be an embarrassment to the succession of plans and planning reviews which have hailed TODs as the urban planning equivalent of a second coming. Having faith is one thing, but there’s a desperate need for TOD advocates to attend at least one ribbon cutting ceremony, at some stage, to vindicate themselves. ‘The Milton’ looks like it will be ‘the chosen One.’

· Anyone who thought that actual planning permission for a particular site could be found in a local town planning document would be mightily confused. The 30 storey Milton tower gets an OK despite community objection and a planning scheme which provides much reduced height restriction, while 500 metres away a site with existing approval for around 7 storeys gets the opposite treatment – it’s to be resumed and turned into parkland.

· Proponents of high density living have cited many promised virtues as outcomes. These have included less traffic congestion, a cleaner environment, a more environmentally sustainable approach to urban growth, and the list goes on. But the limited evidence offered in support and the affront to common sense suggested by some of these arguments run counter to community wisdom. Even schoolchildren were smart enough to realise that more people per square kilometre will mean more congestion, more crowding in shopping centre carparks, more crowded buses, and more people wanting to walk dogs or play cricket in parks. So while the planning elites maintained their mantra, the community saw through it and called ‘bull.’ Here is where the density advocates have failed. Until they can support their arguments with hard evidence, and until they can mount convincing arguments that win community support, what they are proposing is in effect anti-democratic.

· The realities of higher density housing will inevitably mean more people, more cars and more congestion, and more demands on open space for inner city and middle ring neighborhoods – not just in Brisbane but everywhere that the density mantra has taken root (which is most Australian capitals). To what extent should community opposition be written off as ‘NIMBYism’ or, alternatively, treated as their democratic right to influence public policy? This alienation of local community opinion from the preferred patterns of urban expansion (or ‘in-spansion’) outlined in most of our urban planning schemes is a real problem. Planning elites cannot expect political leaders to fight a tide of community opposition, unless they have in mind a more determinist political system.

· This problem will only get worse, as more pressure is placed on our urban areas to grow within confined, existing boundaries. As it gets worse, the primacy of planning schemes will be further eroded. Unless some fundamental changes are made to planning schemes, more and more politicians will seek to intervene, case by case and site by site, in planning matters because of community confusion and neighborhood opposition. Given the average standard of an Australian politician, this won’t be a good outcome for the developers, for planners, or for the community at large.

So where’s the resolution to this? Solutions aren’t so hard to identify. Here are a couple of suggestions:

· The backyard may or may not be a ‘right’ but it is considered to be one by a majority of the community. Backyards of detached houses, as a place for children, for pets, for BBQs or family gatherings are important to a wide cross section of people. Density advocates may need to give some serious thought to how high density living will ultimately affect family living, and give serious and open thought to the consequences of their preferred policy approach. The same serious consideration to the management of increased demand for road space and open space would go a long way to answering legitimate community concerns. Just dismissing the concerns or ignoring their legitimacy won’t solve the problem.

· Planning schemes based on a democratic and transparent agreement of future development have a stronger chance of meaning something to all parties. The Brisbane City Council recently announced a ‘virtual’ 3D model of the CBD and inner city, which will ultimately be used as a tool for assessing future proposals. There’s no valid reason and no technological obstacle to such a tool becoming the planning scheme itself. A visual realisation of future planning intent has a better chance of clearly communicating with the community at large. Widely accessible and readily understood equals transparency, not just for the community but also for the industry. The archaic regulatory and legislative nature of current planning instruments, with their convoluted terminology, only serve to confuse and alienate, which leads to distrust.

· Finally, elitism in planning whereby policy decisions are made by a collective of highly placed officials or industry professionals, with only limited reference to evidence of market preferences, to broad community opinion or even to accepted ways of life, can only fail. Democracy has its place in planning. That place should be in first determining an agreed overall strategy, right down to the local implications. Communicate that via a transparent and ‘virtual’ model widely accessible to all, and then leave the plan to do its job.

None of this is new but if we’re to avoid a future of even greater confusion in planning policy, it’s now time the spin of planning reform was replaced with substance.

[Disclaimer: Yes, I’m a resident of the area affected by the Milton plans. No, I didn’t take part in any of the protest activities].