Saturday, November 24, 2012


We all hate it and there’s only one certainty about it: it’s going to get worse. In fact, I’d suggest it’s a mathematical inevitability. Things could be worse though: it could get better. Confused? Read on…

Nothing seems to infuriate the community at large more when it comes to urban growth than the consequence of rising traffic congestion. Getting to and from work and even shopping or recreational trips around the city on a weekend seem to take longer. We seem to spend more time stopped in queues of traffic waiting at traffic lights (often for two or three changes) before we move dutifully on to the next queue. Long-time residents recall fondly the days of easy mobility and, prodded by rising public annoyance, governments have rightly responded by approving new road initiatives to create more lane space.

In south east Queensland that’s meant the inner city bypass, the Gateway duplication, the Clem 7 tunnel, the Go Between Bridge, the Legacy Way Tunnel, and the M7 Airport Link - all of which have been green lighted with the intention of improving mobility around the city. With the exception of the ICB, nearly all of these have been initiatives of recent years, spurred initially by then Lord Mayoral Candidate (and now Premier) Campbell Newman’s ‘Trans Apex’ proposals. These won broad support at the polls from a community anxious for someone prepared to bite the bullet on doing something about congestion.

The ‘new ways not freeways’ brigade of flat-earthers, who had successfully scared off previous governments (witness the Goss & Beattie era opposition to virtually any new road projects), were out of favour.

But transport infrastructure investment wasn’t just limited to roadways for private transport. Billions have also been spent on busways and the bus fleet. Rail has been upgraded, and new lines are under construction south west to Springfield ($1.3bn) and north east to Kippa Ring $1.14 bn). Billions more have been proposed on public transport projects we really quite like the sound of but can’t afford. The $6 billion (or is it $7bn or $8bn?) cross river rail project is just one of those.

Yet despite this long overdue recapitalisation of our transport systems, congestion just seems to be getting worse. And there are very good reasons why it will continue to get worse. Why?

For starters, a city that grows is bound to experience more congestion. More people will equal more congestion. And when city plans are predicated on creating more urban density by increasing the number of people per square kilometre, congestion will get worse, faster. This is simple maths and it’s virtually impossible to deny. If there are ‘experts’ in urban planning trying to convince you otherwise, I’d suggest you think very carefully about the snake oil they’re trying to peddle.

The only way a city with rising density could avoid more congestion would be for every single extra person who is accommodated in a high or medium density dwelling to solely and exclusively rely on public transport, and not own or need a car, for anything. Either that, or we expand our road networks and public transport systems at a rate many times the scale of what we’ve already been doing, which we simply can’t afford (and indeed, just finding the space for the extra road lanes or rail lines is a physical impossibility in an already urbanised area, without going underground, which is massively expensive given our relatively small urban populations).

The reality is that even at the highest rates of public transport use on a global scale, you are not going to get more than half the population using public transport, or walking or cycling or staying at home. The other half will need and will use private transport and so will add to congestion.
But as targets go, 50% is well beyond the realm of possibility: it’s plain fanciful. This (50%) is the level of public transit in New York, famed for its subway system, mega density, and very large population (over 8 million). There are few cities like New York on the planet. And even by US standards, it’s unique in public transit patronage.

So for Australia, the most optimistic hope is that maybe, at the best, 30% of the extra population in higher density housing won’t need or depend on a private vehicle. That in turn means that roughly 70% will. So for every extra 10,000 people you add into existing urban areas under a density model, you will generate roughly 7,000 more people relying on something other than public transport to get around. Overwhelmingly that is the private car.  

You could always hope and pray that a high percentage of the existing population in established urban areas will swap their cars for public transport, alleviating road congestion in the process. You could also believe in Peter Pan. Here are a couple of neat little graphs which show long term patterns of public transport patronage in Australia.

(As an aside, the advocates of the “public transport will solve everything” school of thinking frequently resort to punitive public policy approaches such as congestion charging, parking levies, fuel taxes and other means in efforts to punish motorists for their chosen form of transport. The hope is that this will force people out of private transport into public. It won’t, it will only punish those in the economy for whom the private car is essential. This form of social engineering through pricing policy is worth another article in its own right, but not today).

Suburbanisation (‘sprawl’ to the ideologues) is also often blamed for rising congestion, the myth being that ‘all those people on the outskirts’ will want to commute into the CBD by car. But roughly 9 out of 10 jobs are actually in the suburbs already, so it fails the evidence and logic test to suggest that this can happen. The majority of jobs aren’t in the CBD, they’re spread throughout the urban and suburban network. Getting to and from most of those jobs requires a car, because public transport is so ineffective in serving cross-city commuters (though it works well for the minority who are CBD workers).

But rising density and a growing population alone aren’t the only factors that will increase congestion. Social change has played a huge part too, and trying to change society to solve congestion is something only Stalin might attempt. Consider the change in work in the last 50 years. The number of us working in centralised office ‘paper factories’ on rigid 9-5 hour shifts has declined. There are more dual income families, often with one part time job in the family. Employment has dispersed into various retail, industrial and service nodes throughout the urban fabric as the economy grew. Shopping for necessities is no longer a fortnightly or weekly trip, with stores open only Thursday night and Saturday morning (as they were). We now shop more frequently, often to or from work. We often have school pick up runs (something which I understand can add 20% to road traffic volumes in school terms), despite the availability of cheap, subsidised public transport for kids (partly because they’re spoiled and partly because as parents we’re scared of letting them out of our sight).

Modern life itself has made private transport much more the necessity. We aren’t as some suggest having ‘a love affair’ with our cars: we need them, and frequently more than one, just to operate at an employment and social level. Work, play, shop, live – all aspects of modern life are now more dependent on the private vehicle than they ever were.

Michael Matusik recently posted some interesting figures on this via his ‘Missive.’ Based on the census, “there are apparently about 7.8 million motor vehicles in Australia.  One in ten households does not own a car; two out of five (37%) dwellings hold just one vehicle, whilst a further 54% of our households own two or more cars. When it comes to those living in apartments, these proportions shift considerably: 14% of apartment dwellers don’t own a car; 52% only have one car and just a third own two or more cars, with 29% having just two cars.”

My take on this is that if overall car ownership is 90% of all households but still 86% of households in apartments own cars (albeit less of them), it isn’t really that much different. The form of housing choice is not highly correlated to a lesser level of car dependency. So changing the overall form of housing in society is unlikely to make much difference to our patterns of private vehicle use (and hence congestion). Modern society has more to do with it. 

So what can realistically be done about congestion? There is no silver bullet. We will continue to invest in new road transport networks as our city continues to grow, as we should. Likewise, we will continue to invest in more public transport, as we should. But as our city continues to grow and the economy develops, we will only at best be keeping pace. Our ability to invest at the speed required to decrease congestion is beyond our reach, and the potential of different forms of housing to alleviate congestion is limited, if it exists at all.

Increasing congestion will ultimately create opportunities for development in transit friendly locations which promise reduced congestion or travel times for residents and employees. This in itself won’t solve the broader issue, but simply allow some to respond to a market craving more convenience. To promise that town planning or public transport hold any genuine promise to substantially alleviate our great annoyance at other people using ‘our’ roads and slowing ‘us’ down, is to perpetuate a lie. 

There is one way congestion can improve, but maybe it’s the cure we don’t want. If congestion is a sign of an economy that’s alive with people making all manner of trips for work or social reasons, then quiet uncongested roads would surely be a sign of not very much happening at all. Think tumbleweeds blowing down the streets of your town. Empty shops and offices, abandoned factories, an empty CBD and a shrinking population. There are numerous US cities where this has happened to the city cores. There are also plenty of Australian towns and regional cities with a similar problem.

They no longer complain about congestion – they have more serious things to worry about. 

Monday, October 15, 2012

It's life Jim, but not as we know it.

A housing market recovery is now getting more airtime by the economic and real estate commentariat. Invariably, signs of life are almost exclusively referenced by movements in house prices. It’s reached the almost farcical point of minor monthly price movements making major headlines, on an almost daily basis, by the legion of analysts and data providers pouring over figures. But if life is returning to housing, are these commentators looking in the wrong place for the wrong thing?

The obsession with house prices as a general measure of housing market health is both misleading and quite unhelpful, but it doesn’t seem to stop even more commentators jumping the bandwagon. In part it’s understandable because the media will lap up content which its readers and viewers want to hear – and the ‘what’s my house worth’ motive is hard to deny. And the market commentators, working as most do for self-interest or corporate interest, are rewarded by the column centimetres and media airtime their house price comments attract. But as an indicator of general market health, these indices tell only part of the story, and for much of the industry, it’s not even the important part.

In the main, most price indices reflect movements in established housing stock, recorded by a differing range of methods. They do not indicate that prices per se are rising or falling, but that the halfway point of sales is rising or falling. In the market we’ve been through in recent years, the lack of interest in the top end of the market, compared with continuing turnover at the lower end, has seen the median pulled down. This has been widely interpreted as a general fall in prices (which have definitely occurred) but the extent to which the median price reflects real price movements is far from precise. Neither does the median price reflect anything in the way of market activity for new housing stock – sales of new detached houses, new vacant land sales, or new apartment sales. It’s a measure of second hand stock trading only, which is its second weakness. Further, movements in median prices on a month to month basis – as are now frequently reported – are ridiculously short term. Analysis even of annual movements is problematic but to read anything much into month to month median price movements, city by city, is taking it too far.

Another measure much loved by the media and some data producers are auction clearance rates. These don’t matter much in Queensland where very little actually sells by auction but even in Victoria and NSW where auctions are more accepted, clearance rates aren’t really a reflection of market health. You can have rising clearance rates on smaller volumes and in a falling market after all.

A final problem with our obsession with price indices is that rising prices are interpreted as good news. If you’re selling or an investor with multiple holdings, they are. But for new entrants they’re not. We’ve had an affordability problem of generational magnitude in this country for a decade now. Recent falls in prices, falls in interest rates and rising wages have helped close that gap. The last thing we really need now is for rapid price inflation and a return of a wider affordability gap.

So if median price movements or auction clearance rates which dominate media and industry commentary on the housing market aren’t really all that helpful, what is?

The answer I’d suggest is volume. Volume of activity indicates that buyers and sellers agree on pricing. It indicates confidence in the market, more so than micro movements in median pricing. It generates taxes for governments which right now desperately need them, allowing them in turn to spend, which the economy also needs. It’s like the blood in your body: things are much better when it’s flowing. You don’t need more but you have to worry when it stops.

The sort of volume indicators that will signal genuine signs of improvement for the housing market are things like housing approvals, housing commencements, the volume of new housing finance commitments, and the volumes of stock traded in the market – both new and second hand.

And when it comes to looking at the various volume indicators, month on month movements are just as flawed as they are for price movements. Look instead for 5 and 10 year trends and compare where we are now relative to previous peaks and troughs.  For example, the graph below shows home lending trends nationally since the 1991. (Full story here). The steady decline in owner occupier lending since the onset of the GFC puts us at generational lows, which can also suggest we have some significant upside once confidence returns. 

A similar graph, this from a recent UDIA bulletin (full story here) suggests things have been picking up in Queensland since early 2011 but also points to significant potential for improvement. A longer term time series would have helped put this into a clearer perspective.

Long term housing approval data tells a similar story. This chart by Macro Business’ ‘Unconventional Economist’ (full story here) was released early this year and shows long term data to the end of 2010. The subsequent fall in the Victorian market seems obvious now in retrospect. Reasons for optimism that activity will increase in the Queensland market, based on this long term trend, seem equally justified based on the historic perspective.

If volume indicators are perhaps the ones to watch, what are the things that might drive volume?

Falling interest rates clearly are starting to stimulate market interest. Further falls will hopefully trigger rising inquiry levels and greater volumes of market activity. Employment remains relatively strong and those with jobs have enjoyed, mainly, incomes that have kept pace with inflation (apart from rising utility costs and their impact on household budgets). Falling house prices have also helped close the affordability gap and stamp duty incentives on new construction and various planning policy undertakings in different states will help lower the delivery cost of new stock. All of this points to an improvement. Confidence in our national government and in our economic future remain significant brakes on enthusiasm but confidence can shift up or down quickly. Resolving the political impasse of our national government would help confidence immeasurably and that opportunity is coming increasingly closer.

But there’s one more ingredient which I don’t hear many people debate, and it’s neither economic nor political. It’s biological.

Consider for a moment the generation of people in their early twenties when the GFC first arrived. Housing prices were still rising (fast) and stories were everywhere about a generation happy to rent rather than buy – a generation that had ‘given up’ on ‘the dream of home ownership.’ That generation has been deferring that housing decision for what will next year be five years. If they were in their early twenties then, they’re in the late twenties now. If they were in their late twenties then, they’re in their early thirties now.

If they’re still living at home, or sharing a house with others, or renting some dive, they’re quite possibly over it by now. The longing to find a mate and to raise a family in a home of your own, much as it’s unfashionable to talk about in this age of gender neutrality and same sex couples, is as irresistible an urge as humanity itself.  The world population would not be growing if it weren't.

That compression of demand in recent years due to the deferment of decisions on family and housing must, at some point, decompress.

The hope is that this decompression when it happens leads to rising volumes of activity and rising new housing construction, and not simply to rising prices. The signs of life we should be looking for are those which point to just that. 

Saturday, September 15, 2012

Not waving, drowning.

The Queensland Government’s first budget attracted plenty of attention. Now, as the budget reaction settles, it could be time to turn attention to some of the non-budgetary measures which won’t cost the state anything but which have the potential to stimulate the economy quickly and start generating much needed cash flows and taxes in the economy.

The fiscal measures contained in the new LNP Government Budget have drawn an extraordinary amount of media and public attention. The reality of cutting costs though really shouldn’t have come as any surprise. Mr Micawber (from Dicken’s David Copperfield) knew the formula well:

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

The reality which seems to have been lost is simply that you can’t pay for public services (or public servants) unless there are sufficient taxes generated by the private sector to pay for it. You can’t have the public without the private. And the private sector in Queensland has been weakened – construction is down, confidence is down, tourism is down and agriculture has had a rough trot at the hands of some variable seasons (the latest being an exception).  The government either raises taxes or cuts costs. It did a bit of both.

Some industry groups had pressed for tax cuts, including in the property sector. As justified as lower taxes might be, I never really saw how this new government could deliver cuts given the economy and budget it inherited. They will hopefully come in future budgets but there are in the meantime plenty of things the government can now turn attention to, which won’t cost the budget but which will have just as big an impact on restoring confidence and stimulating the appetite for risk.

As I pointed out back in April (read it here) tax cuts alone are only a part of the solution. The bigger challenge in many ways will be to cut the excessive burdens of regulatory compliance which have so effectively stifled development in the property and tourism sectors – for nil apparent gain.

Red tape (or green tape as much of it is now called) has grown exponentially in the last decade and as it grew, the willingness to continue by those subject to it, diminished. Development activity (the supply of new houses and apartments, the creation of new retail infrastructure or the creation of new tourism assets) has reached a generational low.

(I always thought the colour coding approach adopted by bureaucracies is an insight into where it all leads: a ‘green paper’ gets drafted for comment which later turns into a ‘white paper’ and this then turns itself into ‘red tape’ which leads us all into a ‘black hole.’ You see, it’s easy once you understand the process!)

Here’s one example. The current ‘Sustainable Planning Act’ in Queensland runs to nearly 750 pages. That doesn’t include any number of consequential regulations or referral legislation. Quite a page count! (I’m told the brag by some members of the previous government was that a KPI of the Sustainable Planning Act was that the word ‘sustainable’ appeared on nearly every page. Sustain-a-babble more like it).  By contrast, the Local Government (Planning and Environment) Act of the 1990s ran to 170 pages.  So we now allegedly need 750 pages of legislation to do what 170 pages used to accomplish at less cost, faster and with more certainty 15 years ago. Are the outcomes today any better? No. So what was the point?

The same story could be repeated across any number of local governments whose planning administrations have grown exponentially in that time, delivering in the process only the same outcomes but costing vastly more and taking a great deal longer and with a good deal less certainty. (I wonder on that score how the nearly 300 staff of the Sunshine Coast Council ‘planning directorate’ are faring? They would be immune from State Budget cuts but surely something will have to happen… having more planners per head of population than doctors is a sign that things aren’t so sunny on the Sunny Coast).

Some simple observations point to the extent of over exuberant regulatory controls. For example, why is building a residential house in a residential area now subject to a costly and lengthy development assessment process with the local council? Why does this simple act of building a house invite people to ‘Have Your Say’? Surely the relevant building or design codes are enough. If neighbours don’t like the architectural style of the house you want to build on your property, it’s none of their damn business, provided it meets code guidelines. Private certification, not assessment teams at the Council, should be all the process required.

It used to be that the simple question of ‘what can I do on that particular block of land’ was answered in a pretty straightforward way. Now, it all depends – it depends on what ideas you have, it depends on how the regulatory planners and local politicians feel about those ideas, it depends on how tenacious you are in pressing for the most permissive approvals possible, it depends on what your neighbours think, it depends on what any number of other government departments think, it depends on what the green movement thinks, and it can also depend on what the local media think. Get all those unknowns lined up, and you can get moving. 

All that the additional regulation has done is create more ambiguity. More words equal less clarity. My suggestion to the government and to local councils is to dust off the planning laws of 20 years ago, give them a modern title and use that as a starting point.

If clarity is one objective we should aim for with less red tape, so too is flexibility. That may sound counter-intuitive but it doesn’t need to be. Planning laws can be more specific about the types of outcomes they will support in certain locations. For example, converting standard detached residential to small lot housing for seniors in areas surrounding shopping centres seems a no-brainer.

So too does encouraging an expansion of competition in the retail sector. The dominance of Woolworths and Coles and of shopping centre owners under ‘centres policy’ has created a significant barrier for entry for new retail businesses. Aldi, for example, is on the record for targeting Victoria for expansion because its planning laws are superior to Queensland. Having some of the highest retail rents in the world is not a good thing, and more competition in retail by allowing more retail space to be created outside the existing rigid footprints is one way to fix it.

And when it comes to flexibility, let’s tackle the iron clad provisions of the unworkable South East Queensland Regional Plan. The flawed maths behind the targets of the SEQ Regional Plan have been covered before, but there’s also the nonsense of a rigid urban boundary, one side of which allows development, while the other preserves historic uses. This ultimately comes down to one side of the street or another. Inside that boundary, competition (demand) for land rises (as do costs) due to the artificial scarcity imposed; outside the boundary land is arguably undervalued and under-utilised.

There have already been some alarmists warning of environmental doomsday if this were to change (read a few of them here) but change it has to. There can still be some general intention of an urban boundary but maybe rather than using a thin black regulatory line, try some very pale watercolours instead, so that the transition zones are bit less defined? This could even appeal to the advanced finger painting set which have colour coded pretty much every parcel of land in Queensland according to rigid land use thinking. Now they can do it all again but with water colours?

Improvements though are starting to happen. Recently, COAG released a good report on Housing Supply and Affordability Reform (well worth a read, click here if you’re interested) and last week, Deputy Premier and Planning Minister Jeff Seeney announced some initial moves to reform planning legislation. (View it here in case you missed it amongst all the budget noise).

But most encouraging for me was getting a phone call from someone in an office of regulatory reform (can’t recall the exact title) who was doing some homework for the Queensland Government on regulatory overkill. He had read the recent Pulse on tourism and was looking for some case studies. We had a good chat and I pointed him in the direction of a few people with some pretty sorrowful stories to tell, and even shared my own frustration at the banning of septic tanks and how even going to the toilet has now become a costly victim of regulatory overkill and a disincentive for micro tourism development.

Maybe it’s a sign?

Wednesday, August 22, 2012

Tourism's long green miles

It’s one of the Government’s ‘four pillars’ for recovery in Queensland but potentially one of the hardest. Queensland’s tourism industry was once the pride of the nation and the envy of destinations internationally. Those heady days are remembered for booming Japanese and Asian inbound tourism combined with a strong domestic market. New resorts and attractions were opening up along the coast and also inland. Then it all seemed to stop. What went wrong?

There’s plenty of attention focussed on tourism marketing campaigns as a salve for the industry’s limited domestic demand and strong international competition. Some of those campaigns have attracted deserved criticism. Remember the ‘Yo, Let’s Go’ effort of the 1990s? in 2009 we came up with ‘Hey Hey This is Queensland’ which was quickly labelled one of the worst campaigns ever. Actually, many enjoyed the parody better – watch it here. And then in 2010 we had ‘Queensland, where Australia Shines.’ Or yawned, as it turned out.

But there have been successes, in amongst the wasted millions of ad dollars. ‘The Best Job in The World’ campaign was inspired. And ‘Beautiful one day, perfect the next’ will stick to the state’s reputation like glue, forever.

However, despite the generally woeful tone of the marketing efforts, I’m going to suggest that neither this nor throwing more money at marketing is going to make much of a difference. Even the strong Aussie dollar, which is luring domestic travellers overseas, may be blamed for too many of the industry’s present woes.

So if not the marketing and not the dollar and the international competition, then what?

A clue lies in a recent media report which dealt with the Newman Government’s plans to re-open some national parks to recreational activity by horse riders and mountain bikers. This fairly innocuous proposal drew instant fire. “THE State Government has started development in national parks, yesterday opening a destructive mountain bike trail in Conway National Park rainforest” was how a story in the Courier Mail opened. To describe some mountain bike trails as ‘development’ and to imply it is essentially ‘destructive’ is probably going a bit far. National Parks Association President, Tony O’Brien wouldn’t think so, describing mountain biking as a cause of ‘enormous erosion’ and an activity not suited to National Parks.

Really Tony? I suppose the mountain bikes might run over some cane toads, scare the feral pigs, squash some fire ants, hit a feral cat or a wild dog, or even crash into some lantana which is overtaking many of our parks.
These are just mountain bikes we’re talking about. Eco-friendly pedal pushers, whose tracks are narrow and shallow. Much less narrow than the many miles of fire trails which need to be maintained to prevent the likes of another Black Wednesday bush fire. (You’d have to worry that the lessons of the ACT and Victorian fires haven’t been learned. Fire trails were not maintained and undergrowth build up allowed to occur due to a lack of controlled burns thanks to pressure from hard green lobbies who want forests locked up, but that’s a another yarn altogether).

It’s a real ‘FFS’ moment to have such limited and innocuous proposals as this attacked so quickly, despite what they might do for stimulating some new tourism experiences. But sadly this has been the attitude to many forms of new tourism activity or development for more than a decade. Green tape is putting it too kindly. A suffocating blanket of ideologically driven enviro-political agendas has made doing anything new in tourism in this state all but impossible.

And here’s one of the biggest problems, I think, for tourism. How long is it since you can remember a new resort opening? A new tourist attraction? A new tourism experience? They are preciously few and far between. Despite the abundance of opportunity to develop and create new product – be it accommodation, tours, theme based attractions or even micro tourism – the hurdles seem insurmountable and act to deter new investment. Part of the reason may be that, with the exception of the places like the Gold Coast, new destinations within Queensland tend to be located in areas deemed by environmental lobbies to be too ecologically sensitive. By which they mean pretty much the entire coastline and much of the forested inland.

Even on the highly developed Gold Coast, similar attitudes opposed to developing new tourism product seem deeply entrenched. Recently, a Singapore based consortium proposed a $4.9 billion cruise ship, residential, marine and tourist precinct for Wave Break Island on the Broadwater. They claimed it would bring an additional 264,500 visitors to the Gold Coast by 2018. You’d think they’d be greeted with open arms and a red carpet, but no, voices of opposition quickly emerged. Take this from ‘Save Our Spit Alliance’ which slammed the proposal as 'frightful and ridiculous': "Wrong place, wrong design, wrong idea. It would forever destroy the heart of our city - the Broadwater - and make us a national, if not international, laughing stock." said Kate Mathews, SOSA VP.

Now, for the record, Wave Break Island is an artificial island. The Seaway is a man-made rock wall for shipping, to replace the former dangerous, shallow, and shifting bar entrance. The Broadwater itself is regularly dredged and connected to it are countless miles of man made canals.  We are hardly talking a pristine environment here. It’s nearly all been developed into what we see today. But the proposal, using private money to create a cruise port for the Gold Coast, is getting clobbered on environmental grounds?

Queensland mining magnate, Clive Palmer, came up with a similarly grand plan for the now dated Hyatt Coolum Resort on the Sunshine Coast. Whatever you think of Clive, someone who says they’re prepared to throw ‘a couple of billion’ into redeveloping a tourism facility doesn’t come along every day. Not even once in a decade. Yet his proposal has it seems been greeted with the usual wall of non-committal platitudes, and promises of town planning reviews, environmental impact studies, open invitations to any NIMBYs to object and ultimately, to fail. Sorry Clive. I wish I could be more optimistic.

So even in places that are already heavily developed, opposition to tourism development is just as heated as it might be in undeveloped areas. If even letting some mountain bikes and horse riders re-enter our national parks draws criticism, what hope is there for developing new product for the industry state-wide.

Without new product, there are insufficient ‘new’ experiences to promote. Without new product, there are fewer new businesses with advertising budgets, which collectively do more than any state endorsed tourism campaign will ever do at taxpayer expense.

All of which perhaps explains why Australia, it seems, is a touch bored with the Queensland tourism proposition. It’s the same beaches, the same rainforests, and same theme parks, largely the same natural and man-made attractions we keep promoting, over and over again. Ad nauseum. The hotels are tired, the theme parks have a ‘been there done that’ flavour and the basic business infrastructure of the industry is in desperate need of recapitalisation and new product development.

Because, at the end of the day, there’s no ‘industry’ in a wide expanse of sandy beach. There’s no ‘industry’ in a rainforest. The ‘industry’ bit of ‘tourism industry’ means businesses which employ people to take money off tourists who need places to stay, to shop, to eat and to entertained and educated about the places they visit. Without that, we can have all the natural attractions in the world but still find our tourism industry struggling. 

Saturday, July 21, 2012

Just plain unfair: the taxation of new housing

Housing starts continue to slide to record lows and the HIA and other groups warn of worsening supply shortages but the taxation approach to new housing seems to escape policy attention.  Euphemistically called’ developer contributions’ (rather than new home buyer taxes), the notion of up front per-lot levies took hold in the late 1990s and the beneficiaries – local councils and state governments – show little intention of weaning themselves off unfair and very damaging tax. If we want to stimulate activity in new dwelling supply (which most policy makers say they do) then starting with this pernicious tax could be a good idea.

It’s an alarming fact that taxes, charges, fees, levies, and compliance costs now account for one third of the cost of a new home or home unit. That’s a situation which simply didn’t exist in the 1990s or at any other period in Australia’s history. This sad situation owes much to a number of things: the arrival of the GST (which at 10% is only applied to new housing); policies which have deliberately restricted the supply of land; excessive regulation of the development approval process for little if any gain; and the imposition of upfront taxes by councils and state governments.

This latter ‘initiative’ took root under the guise of ‘user pays’ policy principles and received little opposition from the industry at the time, mainly because the levies were modest. But governments were not so modest and they quickly saw these levies as a means of taxing the development industry to enrich the budget position, allowing more election promises to be made.  Greed drove levies up quickly to the point that they reached anywhere from $30,000 to $50,000 per lot or unit, from almost nothing within the space of a few short years. Subsequent reforms have sought to ‘cap’ these levies at around $30,000 (in Queensland) and other jurisdictions have made similar overtures. But the levies themselves are not in the spotlight, and perhaps they should be.

Just plain unfair.

The problem is simple. By taxing new housing under a prejudicial scheme, governments are creating an additional disincentive for the supply of new housing (which they claim they want more of). And more to the point, they are taxing the people (new homebuyers) who are least capable of paying, which in turn is producing a widespread downturn in new housing activity, along with the commensurate loss of jobs, which seems to have some policy makers and economists puzzled.

Here’s an example to drive the equity problem home. A young family, with a combined household income of $80,000pa, is looking to buy a new project home for $400,000 (which is nothing fancy these days). The GST means that 10% or $40,000 of that price is a tax levied by the federal government on behalf of the state (which is returned to the state).

(You could argue fairly that, because it’s levied on the price of a new house, it constitutes a type of infrastructure levy which states could use for that purpose. Of course, they don’t tend to see it that way).

In addition, let’s say there’s a $30,000 upfront per lot levy built into the price and for the sake of keeping our maths simple, let’s say there’s another $30,000 in stamp duty (about $13,000 before first time buyer discounts etc) plus various application fees, charges, and process-related costs in there too. (Plenty of studies have been done to confirm these sorts of numbers, and you can search the archives of the HIA, UDIA or PCA for corroboration).

So our young homebuyers are about to pay hidden taxes of $100,000 on their new home (not including the regulatory costs of planning law and supply constraints nor the costs of time delays in the approval system). That’s an extra $100,000 they’ll borrow for, at 7% per annum or an extra $706 per month or $8,500 per annum in repayments just for the tax component. That’s actually a big chunk of their combined income (something few if any proponents of this tax approach to housing ever seem to take into consideration).

Contrast this with another couple, looking to purchase an inner city home in an established area for $1.5 million. Because they’re buying an established home, there is no GST and there are no upfront levies or planning related red tape costs. They will however be up for stamp duty, which on a $1.5 million house will be around $68,000.

So, our young couple on a modest income buying a new home for $400,000 will be up for over $100,000 in taxes fees and charges. But our other couple with money to spend (their income would be considerably more) and paying $1.5 million for an inner city residence will actually pay less. They’ll pay less in dollar terms, they’ll pay less in percentage of purchase price terms, and they’ll pay vastly less in terms of their combined income.

Where’s the equity in that?

The argument in support of these upfront costs on new housing was always that housing growth placed a high burden on local and state governments to provide communities with infrastructure. But in reality, these taxes are largely finding their way into consolidated accounts and it is developers providing the infrastructure which home buyers are being taxed for (bikeways to new schools are all on the list of developer provided amenity).

But where the argument, I think, fails in spectacular fashion is that much of the infrastructure focus in all of our cities tends to be on projects within a five or at most ten kilometre radius of the CBD. This is where people are trading million dollar homes for a fraction of the tax burden that new home buyers in largely outer suburban areas are paying. In addition to which is the fact that the existing infrastructure network – both social and economic – in established areas was only ever funded through broadly based revenues such as general rates, and is already of a high standard. Libraries, schools, swimming pools, parklands and public transport networks – none of these existing infrastructure assets were paid for by upfront levies. So arguably, the people buying the $1.5million house are getting a bargain as they’re not being asked to contribute in anything like the same way our young couple are.

Pointless anyway?

If the inequity of this approach wasn’t bad enough, there’s the fact that it doesn’t even raise that much money. There are so few new dwellings relative to total stock (additions are made at only around 1% to 2% per annum) that the capacity of these levies to raise much relative to total council rates revenues is miniscule. The Gold Coast City Council, for example, collected almost $1 billion in revenues in 2010-11, of which roughly half was from general rates. Only $24.9 million came from ‘developer constributions’ which is piddling by comparison. Yet the effect of these levies, applied as they are to such a select section of the market, has been to stifle activity and depress the construction industry. They have a highly disproportionate effect on depressing new housing and on exacerbating the affordability problem.

The Gold Coast (continuing with this example) could abolish these levies altogether, which would add only $25million to the $500million general rates revenue needs of the council, meaning that the broader community will pay through their rates for the infrastructure they will enjoy, instead of assigning the burden to those least capable of paying.  And by abolishing the levies, they’d be making a significant step in the direction of approving affordability and stimulating the industry – both subjects which they’ve had much to say about.

A similar approach to more equitable taxation of housing, if adopted more broadly by governments state and local, might just achieve the sort of stimulus that wasted millions of grants and incentives have failed to deliver.

I wonder if anyone’s prepared to make the first step or even if anyone really cares?

Thursday, June 28, 2012

Modern families: fact from fiction

I sometimes struggle with our willingness to look straight through evidence to see only what we want to see, or what we believe we should be seeing. Some recent interpretations of the Australian census and conclusions about housing form and consumer choice regrettably fall into this category.

Early results from the Australian census may have disappointed some boosters who have actively promoted the view that the typical family household is a thing of the past. The argument has had many forms but usually includes one or more of the following: that single person households are the fastest growing household type; that lifestyle choices mean that more people want to live closer to city centres; that the suburban housing block is an environmental calamity and is no longer even suited to what households want; that high density, multi-level housing with high reliance on public transport is a preferred housing model for the ‘new’ generation of family types. And so it goes.

Sadly for the promoters of rapid social change, the census reveals that the facts aren’t on their side. Indeed, in terms of housing form and family type, nothing much has really changed. There have been movements at the margin and movements in both directions, but nothing I would interpret as conclusive evidence of fundamental social change.

Housing form

Across Australia, 73.8% of us live in a detached house. In the last census, it was 74.3%. Hardly a seismic shift. In 2011, 14.6% of us lived in apartments compared to 14.7% five years earlier. Townhouses account for 9.9% of households versus 9.3%.  Don’t hold the front page, nothing much has changed.

There are regional differences. In Sydney, detached housing is at 58.9% from 60.9% while apartments represent 27.6% of households against 26.4% five years earlier. This higher proportion in apartments comes as little surprise given the highly restrictive planning policies of NSW in that period and prior (which included a virtual prohibition on suburban expansion), combined with the long established tendency of Sydney to accommodate more people in apartments than other capitals. But for all the hype about Bob Carr’s ‘brawl against sprawl’ and subsequent planning regimes, the actual change in housing has been minimal. (Instead, what happened is that the industry stopped supplying much of either).

In Melbourne by contrast, detached housing represents 71.1% of housing from 71.6% five years earlier. Apartments are 16.6% versus 16.4%. Melbourne, and Victoria generally, has had a less deterministic approach to planning whereby detached suburban expansion hasn’t been as vigorously opposed, so the higher dominance of the detached house is no surprise. But it also shows little change over recent times, which doesn’t support the view that a majority of consumers would prefer higher density over lower.

In Brisbane, detached housing is at 77.6% versus 78.7% five years earlier, which is a very small change and also one of the highest proportions of households in detached housing in the country. Once again, the evidence isn’t pointing to massive social change. It isn’t even pointing to modest change.

Family type.

Also regrettable for the promoters of widespread social change has been the fact that family types have remained largely unchanged. There are 43% of people living as a couple with children (it was 43.3% five years earlier) and there are 39.5% living as couples without children.  Remember also that ‘couples without children’ includes couples in the pre-family formation stage (young, and starting out in life in the main) and also ‘empty nesters’ (parents whose children have left the family home). A further 16% are single parent families. 

The Census this time also went into some detail about same sex couples. But set aside the media and political hype and the facts show that the proportion of same sex couples across the country is 0.7%. There’s been a lot of media comment and public policy attention recently about that 0.7%

The inevitable conclusion from this evidence is simply that the overwhelming majority of people in Australia remain families who either have children, who plan to have children, or who have had children who have left home, and that this proportion hasn’t changed to anywhere near the extent promoters of social change might have wished.

This also has implications for housing choice and style. There will be a market for higher density, inner city housing but our policy makers need to keep in mind that the detached home remains the overwhelming preference for families as a place to raise children. That also includes couples planning to raise children (not all of whom live in apartments until the first child comes along – many prefer to plan ahead) and it also includes couples with children who have left home but for whom a third or fourth bedroom is needed for grandparent child minding or children returning to the family home.

However, the evidence hasn’t stopped some sections of the media or social commentators from reaching entirely different conclusions. “Up not out for housing” declared one writer who wrote: “Australia is increasingly favouring higher density living, according to the 2011 census.” Really? Based on the same evidence above? You’d be seriously pushed to draw that conclusion. Add to this that supply side policies have restricted the choice of detached housing in preference to the promotion of higher density, which means that increasingly housing choice has been restricted, and what there is of it, much more expensive. To conclude anything about ‘favouring’ one type of housing or another, without assessing the supply side policy constraints which limit choice, is a bit like saying more people prefer mangoes in summer than in winter. Duh.

The Grattan Institute is another that seems committed to turning the evidence on its side to support pre-determined points of view. In this opinion piece, Grattan Institute cities program fellow Peter Mares concluded that: “that despite paying significantly more to put a roof over their head than they were five years ago, many are not ending up in the kind of housing that best matches their preferences.”  Describing the “popular view that we are wedded to the suburban block” as a mismatch, the conclusion is that ‘we’ (being, I presume, the unelected policy makers)  need to have “ a serious, if difficult, conversation about what type of housing we should build and where it should be built.”

Well, that would be difficult if it means imposing a form of housing on a population that might prefer to make its own choices about what type of housing it ‘should’ have and where they ‘should’ be living. 

These aren’t the only examples and as more Census data becomes available, plenty more commentators will seek to extrapolate minor changes at the margin into claims this represents evidence of fundamental social change. It doesn’t and we can only hope our policy makers know the difference between evidence and a sitcom.

Wednesday, June 13, 2012

Out of touch, lost the plot and just plain dangerous.

Common sense reforms to housing policy which might make new homes more affordable for young families are under attack. That attack is coming from sections of academia and also the Labor Party, both of which are proving their fast diminishing value in public policy and confirming their colours as inner city elites, dismissive of the aspirations of working Australians in suburban environments.

“Just because the cost of the house itself is cheaper does not mean the property becomes more affordable.” Now, which particular species of public policy commentator do you think was responsible for this little gem? It may not surprise you to learn it was a quote (AFR, 25 May) from RMIT planning professor Michael Buxton, arguing against reductions of infrastructure levies in Greenfield areas in Victoria.  

The brilliant Professor Buxton’s slim grasp on household economics 101 is a bit of a worry, especially if he’s responsible for teaching and grading the next generation of university graduates. (His background “includes 12 years in senior management with [former] Victorian Government Planning and Environment agencies, and with the Victorian Environment Protection Authority. He formerly headed the intergovernmental process for developing Australia’s National Greenhouse Strategy, and the group responsible for the development and implementation of environmental policy in Victoria.... He is former chairperson Premier’s Green Wedge Working Party which advised the Victorian government on the introduction of a legislated urban growth boundary.” Say no more).

To make such a blatantly silly statement highlights just how far from reality sections of the academic profession have drifted. Housing affordability is a chronic problem for a generation of young Australians. One third of the price of new homes is now tax and regulation. This wasn’t the case when Mr Buxton was young (which was several decades ago judging by his pic) nor was there then a planning policy dogma which promoted centralised density over the suburban form, accompanied by a form of anti-suburban snobbery which views suburban family living in detached houses as an inferior life form.

But affordability is the reality now and as Liberal governments in Victoria and New South Wales announce significant and very welcome policy changes to address those problems, the chorus of criticisms from the elitists is getting louder.

In Victoria, the state government has announced the release of an additional 35,000 lots around the Melbourne fringe, to stimulate the supply and choice of new housing and to reduce price pressure from limited supply. In NSW, the government has announced a range of tax and planning measures which include increases in grants and reductions in stamp duty for first time buyers of new housing along with planning measures which will stimulate urban fringe supply. Similar announcements will hopefully also be in the minds of the new Queensland government, once it works out how to deal with the issue of the state’s significant debt legacy. 

The changes announced recently are long overdue and reveal a stark contrast between the policy approach of the Liberal governments which have introduced them, and their Labor predecessors who opposed them.

Victoria’s Labor spokesperson for planning, Brian Tee,  warned of ‘semi rural ghettos on Melbourne’s fringe’ and trotted out the tired (and false) allegation it would lead to more congestion and ‘parents stuck in traffic for longer rather than at home with their kids.’ Well Mr Tee, there are two problems with your claim. First, is it at least preferable these families have homes they can afford to own? Second, with less than 10% of Melbourne’s employment in the CBD, precisely how will your congestion nightmare eventuate? Do you envisage the majority of factory workers, shop assistants, tradies, teachers, suburban professionals and other jobs being arbitrarily relocated into the CBD?

Tee’s ignorance of economic reality could be based on a paper by his Federal Labor colleague, the Hon Tony Burke – Minister for Population (a subject on which he’s had precious little to say). According to Burke, families on the urban fringe risk psychological damage:

“Increased congestion and  longer travel times place the populations in outer suburbs at clear disadvantage in terms of access to employment opportunities and services as well as having a detrimental impact on the psychological, social and cultural wellbeing of the populations” his Sustainable Australia-Sustainable Communities report says. (See AFR, 14 June for its excellent coverage of the issue).

What’s so remarkable about these sorts of comments isn’t just that they defy available evidence and consumer preference, or that they are based almost entirely on ideology, but that they also avoid any mention of their concerns for housing affordability.  It would seem that it is now acceptable for Labor party spokespeople and ministers to parrot planning ideology which has demonstrably increased new housing costs, particularly in new suburban locales, and to disregard the impact this is having on a constituency which Labor once claimed as their heartland.

Housing costs on a professor’s wage or on the income of a highly placed planning mandarin in a government department aren’t really a problem. These people can afford detached homes in which to raise their families (yes, they invariably live in the type of housing form which is opposite to the density prescription they preach) and they can afford them even in established inner city areas. But if you’re a school teacher, policeman, fireman, ambulance man, child care worker, retail assistant, factory worker or similar, and your average individual income is under $60,000 or under $80,000 combined, housing costs are an issue. This demographic still prefers the detached home in a suburban environment if they plan to raise a family but that choice has been increasingly demonised by elites.

Those elites, it seems, are now clearly also the Labor party, which is attacking the legitimate aspirations of young families by adhering blindly to policy mantras which are proven failures. One look at the dismal figures for new housing construction in many states of Australia ought to be sufficient reason to conclude that the policies which got us to this point simply don’t work and have failed an entire generation.

What’s been proposed in NSW and Victoria is nothing more than a fresh look at stimulating new home construction and making it easier for low to middle income workers to afford the types of homes they want, in locations they prefer. All that’s been proposed is the return of choice and balance and equity to the housing markets in these states. It does nothing to prohibit high to medium density projects in established areas nor to deter them. It simply removes some of the heavy obstacles currently attached to the supply of detached housing and land, in newer suburban locations. This is hardly revolutionary stuff. It’s certainly not worthy of the vehement criticism it has attracted from Labor spokepeople or from sections of the academic community. 

Little wonder there has been such widespread change in political fortunes across the states in recent years. It is equally little wonder the community waits with such fervour to meter out the same punishment to a national Government which is completely out of touch with the people and which continues to draw comfort from policy mantra and irrational, illogical academics, social engineers and the inner city pseudo literati set.