Tuesday, September 9, 2014

Never mind the bollocks! (Growing old disgracefully)

If you were aged 25 when The Sex Pistols first crashed onto the music scene in 1975, you’ll be 65 years old next year. This isn’t so much a lesson in demography but one of attitude. I can’t imagine this generation of ageing Australians wanting anything to do with the style of retirement living or aged care we’ve dished up in the past.

The endless statistics now being churned out on our ageing population are becoming a blur. The ABS will tell you that the proportion of us Aussies aged 65 and over in the 1970s was just 8%. Within a decade or so, that will rise to one in four of us. And the Productivity Commission’s report of late 2013 will tell you that “the population of people aged 75 or more years is expected to rise by 4 million from 2012 to 2060, increasing from about 6.4 to 14.4 per cent of the population…”

We get it. There will be lots and lots more old people, supported by fewer people of working (and tax paying) age.

Where they’re all going to live has large parts of the property industry belatedly starting to focus on the response.  Again according to the Productivity Commission: “Total private and public investment requirements over this 50 year period are estimated to be more than 5 times the cumulative investment made over the last half century, which reveals the importance of an efficient investment environment.”

So, lots and lots more investment is needed, a lot of which translates into built form. In other words, lots more housing for oldies.

This usually translates into two types of market response – retirement living, and aged care. Some organisations provide for both but many (surprisingly to me) opt for either one or the other.

The retirement living side is defined by housing designed for seniors who remain active, mobile and capable (mainly) of looking after themselves in independent living. Here there are some very big numbers. According to research presented by villages.com.au at a recent PCA event, in the short space of time from 2015 to 2018, there will be a requirement of $7.3 billion new capital required to meet demand from this market.

That’s billion with a ‘b’ people, and in the space of just three or four years. And that’s presuming the current take up rate of 5% of people who are eligible for retirement living options and who actually take up the option, remains the same.  If the rate at which Australians eligible for retirement living actually making use of it rises to 8% (a more globally typical level), that $7.3 billion gets exponentially bigger. Some research presented by Stockland at the same event pointed to a $35 billion capital requirement at current take up rates by 2040. As I said, very big numbers.

The residential aged care market - really a better term for what used to be called ‘nursing homes’ – is just as daunting in terms of forecast demand. According to Bentleys Accountants, we will need 9,000 new residential aged care beds per annum for the next ten years. This translates into around $20 billion of new construction, just to keep pace with demand, in the next decade. This is in addition to what’s needed in retirement living.

So there are the numbers, or some of them at least, which demonstrate how big this wave of demand is about to get.

But what I don’t hear much about – although some savvy operators are onto this – is the question not of numbers but of attitude.

You just can’t presume tomorrow’s 70 year olds will resemble anything like your grandparents may have been at 70. For one thing, they’ll be fitter and more active. The Sex Pistols Generation – if they haven’t died already from drug abuse in their early years – will have access to the most sophisticated health care ever, and the means to pay for it.

The idea of leaving the family home for some low-grade retirement living unit that once happily housed prior generations of retirees just won’t appeal. Their demands and standards will be completely different.

To attract this market, switched-on retirement living developers are creating product which is more closely aligned to the tropical resorts our generation of punks have probably been frequenting in recent years.

They may have been singing ‘no future’ in their youth but it turns out most had a pretty good future, and accumulated housing assets and opportunities for travel as they went. Unlike today’s ‘generation rent’ who may retire still with large mortgages and low savings, our punk generation are more likely to own high quality homes outright, matched with healthy savings balances.

Just because they’re getting old, they’re not going to tolerate being treated as if they’re somehow deficient. They have enjoyed high standards of living and they aren’t about to compromise. Indeed, I’m told that one of the biggest hurdles faced by today’s retirement living providers, even when the quality of product is better than a Balinese resort – is the stigma associated with the term ‘retirement living.’ Maybe ‘rock n roll living’ might have more success?

A similar revolution in product is happening at the aged care end. Pokey rooms, dim corridors, grey vinyl flooring and the depressing smell of hospital antiseptic will have the older punks doing 180’s in their wheel chairs and disappearing.  Oldies in need of higher levels of care will still want that delivered in a higher standard environment than previous generations, or no deal. More natural light, better quality facilities, personal services and overall amenity will be in demand and those with the means will be prepared to pay for it.

And if our geriatric punks are suffering from dementia or other forms of debilitation, it will be their families who insist on higher standards on their behalf.

There will be plenty who don’t have the means to pay of course, and this is where government will inevitably find itself forking out truckloads of taxpayer cash in the future. What if even the people without the means and without the savings have higher expectations in the future? No wonder Joe Hockey’s worried.

At the root of this change is a massive change of attitude. Previous generations of elderly went through life with little in the way of assets and just ‘made do.’ They endured parsimony (even self-imposed) and were grateful for the basics. First the baby boomers, then the punk generation, enjoyed much higher standards of living and personal wealth. Not only that, their cultural experience was one which challenged social norms. Prior generations were more respectful, more compliant, and less demanding. Boomers and punks are more demanding, expect and want more, are less tolerant of conforming to social norms and more likely to demand personalised approaches to care rather than institutional ones.

We may all be getting older at a faster rate, but we’re also going to be handful once we do. Myself included.

God save the Queen. 

Monday, August 4, 2014

More than wishin’ and hopin’ needed

The collective view of what the various property industry lobby groups are asking of government has become a confused picture. Little wonder governments can so easily divide and rule, or simply ignore. 

Dusty Springfield’s enduring classic “Wishin’ and Hopin’” opened with the line “Wishing and hoping and thinking and praying, planning and dreaming.” This is nice for a wistful love song lyric but hardly sound strategic guidance for an industry’s advocacy platform. But if you combined the wish lists of the various property industry lobbies all jostling for ‘peak body’ status, you’d be forgiven for thinking that it was driven by wistful starry eyed dreamers, not hard-nosed business people. 

Here’s what I mean. Recently, the Property Council renewed its call for the abolition of stamp duty and land taxes. This was in response to a Business Council of Australia report that called for workforce mobility barriers to be removed. It’s been a long held position of the PCA and the abolition of stamp duties was even a promise by the States in exchange for the rivers of revenue they would get from the GST. They (the states) lied. 

Now, the States have become even more dependent on property taxes than ever before, and most are subject to juggling very difficult demands for more services against high debt repayments. Calling for the abolition of their biggest direct revenue source, without proposing a replacement, at a time when every State is being forced into cutbacks and unpopular asset privatisations, is unlikely to get much traction.

At almost the same time, the Housing Industry Association renewed its call for first home buyers to be able to access their superannuation to fund a deposit on a home. This is a populist argument that seems to get reasonable airtime, but there are plenty of problems with it. 

What of the first time buyers whose first purchase is an investment property? What of the fact that young people – typically the first time buyer demographic – have precious little in their super fund anyway? What of the reality that over our working lives, what we put into super is going to be nowhere near enough for the job it was initially intended (retirement funding) let alone trying to repurpose super to other things like a house deposit. The answers are not provided.

Then there’s the thorny issue of negative gearing. Here, pretty much all the property industry groups agree: don’t touch it. I tend, mostly, to agree with the arguments why it serves a purpose but a blanket ban on refining negative gearing doesn’t make a lot of sense given the complexities of the economics and the very obvious excesses in some quarters. But to me it looks as if the industry’s collective view of negative gearing at present is that any discussion is simply off limits. As for capital gain tax on the family home – you daren’t mention it or all hell would break loose. 

How about the supply side? Here, the HIA, UDIA and PCA are all pretty much in agreement: artificial planning constraints on new land for housing have been responsible for driving up land costs and for our worsening affordability problem. Their remedy (which I support) is for land to be less constrained, so that competition and more available supply will release the pressure on land prices and flow through to more affordable housing. 

That’s fine, but what’s the view then on restrictive land use planning when it comes to retail? Hell no. The pro-free market view takes a 180’ turn and all of sudden the high retail rents which are product of high retail property prices which are in turn a product of highly restrictive land use rights on retail property, are a good thing after all.  Now it’s a case of an orderly planning scheme and retail hierarchies and the prevention of retail sprawl into dormitory areas. The inconsistency in positions between land for housing and land for other uses is remarkable. 

Put all the collective views together and imagine yourself a Minister for Property. What does the industry want? 

They want stamp duties abolished, and land taxes too. Effectively, better they pay no tax. They want favourable tax treatment through things like negative gearing retained, along with the tax exemption on the family home. Don’t even think about tinkering with that. To address affordability issues they want more land released and less planning control, and for first home buyers to access their meagre superannuation to get them into the market. But while freeing up land for housing to keep costs down and stimulate competition, don’t even think of freeing up planning permissions for retail uses, because if retail rents – which are some of the highest in the world – fall, then it’s the end of the world as we know it. Sovereign risk and all that. 

You’d have to forgive our imaginary Minister for wondering what they could actually do.

This isn’t intended as a cheap shot because as a former industry advocate, I appreciate just how hard it is to prosecute the case for reform with limited resources, an unsympathetic public, and cash strapped governments. And you’d be mistaken to think I regard the current taxation and regulatory approach to property generally as anything but a mess of over-taxation and over regulation. 

But lately the collective comments by the various industry groups seem to have become more one dimensional. Maybe it’s just me but they appear, through their media comments, to be acting the same way Unions did in the 70s and 80s: proposing logs of claims for wages and conditions without also proposing productivity improvements or other trade-offs in exchange. The collective view of the property industry, if it is to have some impact on government policy, might benefit from more collaboration amongst the various groups. 

If a more unified voice on some of these pressing issues could be heard, and if that voice also identified solutions that didn’t leave governments hopelessly out of pocket, then this can’t be a bad thing. If, for example, as an industry we wanted lower stamp duties and land taxes and in exchange were prepared to publicly campaign for a 15% GST, along with a fairer system of distribution of those funds amongst the states, then that solution should form part of the overall industry-wide campaign. Ditto to finding a logically consistent approach to the issue of restrictive versus permissive land use controls, where some of the industry groups differ. If we intend to advocate both at the same time, this logically inconsistent position needs simple and plausible explanation. 

The alternative is to fall into the trap of simply wishing and hoping, and thinking and praying, planning and dreaming.

Tuesday, July 1, 2014


Australian cities have some of the highest carparking costs in the world. Why? Can anything be done about it? And what might happen if it gets any worse?

It’s hard to fathom but the cost of parking a car for a day or even a couple of hours can apparently cost you more in an Australian CBD than downtown Manhattan, or London, or Paris. The latter are  global centres of commerce, with populations that dwarf that of Australian cities. New York City’s 8.4 million residents are the almost the equivalent of our three major capitals - combined. Ditto London, with its 8.4 million residents or Paris with 10.5 million residents.

Manhattan Island alone has 1.6 million residents, plus it adds another 1.6 million commuters, every day, swelling daily to over 3 million people. By comparison, the City of Sydney (the CBD plus surrounds) is roughly equivalent in area to Manhattan Island but home to only around 190,000 residents and a daily influx of workers and students of around 450,000. Yet it can cost more to park in Sydney, or even smaller cousin Brisbane (under 200,000 employees in the inner city), than Manhattan. 


On the supply side, there has been a history of anti-car planning culture in many Australian cities for some time. Sydney was the first to impose a parking tax on CBD car spaces, in a bid to force up the price of parking and divert people to public transport. It forced up the price alright, with a number of subsequent increases in the tax over the years (the tax is now around $2000 per car space), but it made no real impact on public transit. 

Here’s an example of the thinking from then NSW Transport Minister David Campbell back in 2009: 

"The parking space levy is all about encouraging people to leave their car at home, and take public transport," he said. 

In the same story, it took someone from the Nature Conservation Council (the irony is delicious) to point out the bleeding obvious:

“I don't think it will have too much of an impact on congestion… Any increase in parking levies probably isn't going to make too much of a difference to the people who can afford it right now, what it will make a difference with I suppose is the people who really don't have any other options and are currently driving in."

Incredibly - and idiotically - the South Australian Government is trying the same thing with Adelaide, where a $750 per annum parking tax takes effect this July. You’d think they’d be desperate to bring any economic life they could find into Adelaide, but evidently if that economy arrives in a car, they don’t want it. Great place Adelaide. All it needs is an economy to go with it.

The punitive policy stance on CBD parking visits itself in other forms too. Restrictions on building new CBD parking spaces has had the effect of limiting supply as the cities grew. New multi-deck parking stations could alleviate the supply-side problem, and there seem to be enough sites suited to them in most cities, but the policy stance doesn’t support them. New commercial towers are also limited in terms of the numbers of additional basement spaces they can deliver into the pool, in a bid to limit the supply of additional parking. 

This public policy view is connected to deeply held faith (and the operative word is ‘faith’ because there’s little evidence to support the view) that by pricing or policing private vehicles out of Australian CBDs, the same people would be forced to use public transport, and we’d all be better for it. “We just need to get the cars out of the city” is the sort of view you’ll hear often on talk back radio (particularly the ABC; sorry Aunty but your listeners have been drinking way too much Kool-Aid). 

The problem is simple: if you take the cars out of the city, you’ll take the people too. And then the businesses will follow. 

Bear in mind is that parking is not just about commuters. CBDs and inner cities are places for business to interact with other businesses, and with government. They also interact with customers, clients and suppliers. They have restaurants and retail shops that rely not just on the CBD worker but also visitors to the CBD, for the retail dollar. Many of these people invariably rely on the private vehicle to get there. Casual parking costs – at up to $55 for a couple of hours – have long passed the point where they’re a deterrent: they’re a real disincentive to visit the CBD for casual business meetings. Permanent parkers with paid company spaces won’t notice this. But they may begin to wonder at the number of meeting requests for out-of-centre meetings, where the parking cost isn’t ten times the cost of the coffee. 

If the intent is to ‘punish’ the private vehicle in the belief that this will encourage higher rates of public transit patronage, the irony is that the consequence could see more businesses relocate to outside city centres, where parking regimes are more favourable and occupancy costs lower. If that happens, the numbers of office workers for whom train and bus services are a convenient option will actually fall – because public transport options in non-central locations are notoriously difficult to service and often require mode or route changes for a single trip. 

Centralised employment is what works for public transport so it ought to be in the interests of public transport advocates to support more CBD employment and more widely available parking (both in supply and pricing) than to argue for punitive agenda-based policy positions which may deter businesses from city centres. In short, if you succeed in chasing cars out of the inner city, you may also chase business out and end up with more private vehicle transit for work journeys than if they had stayed in the CBD.

The reality too is that public transport will only go so far. In Australian cities, the highest patronage of public transport by CBD workers is by people who live close to the city in the first place. Travel beyond a 5 klm or 10 klm ring and the mode share by public transport drops quickly to below 10% (see here for an excellent analysis). 

The reason is that – contrary to popular opinion – only around 10% to 15% of metro wide jobs are in the CBD and inner city. If you have a CBD job, you tend to earn more, and will want to live closer to your work. Ironically, this makes you also more likely to take advantage of very generous taxpayer subsidies for your train or bus fare to work, than the suburban worker who gets no such subsidy for commuting by private car to their lower paid job in a suburban location. And because most employment is distributed throughout suburban locations of our metropolitan areas, these are always going to be more suited to private vehicles than public transport. 

To get our public transport usage up to even half the rate of somewhere like New York – where 55% of commuters use public transport - we would need to see employment concentration in our CBDs quadruple to 40% of metro wide jobs while suburban employment didn’t grow at all. 

Hardly even a remote possibility. 

On the demand side, we seem to have a capacity to pay when it comes to parking that is allowing operators to charge what they do. However expensive the spaces may be, they do seem consistently full. Arguably, for many there is little choice. There is also little competition, with only a couple of operators seemingly controlling the market. But it is fair to question whether the exorbitant rates now being charged – especially for short term parking – won’t in time begin to change behaviour. If that behaviour begins to lead an exodus of activity to non-central locations, prices should fall as demand weakens. But that may create other, larger problems as suggested above.

So how should we deal with congestion and parking policy and public transport? 

There is no easy answer here but I’d suggest that reliance on proven failures like parking taxes or similar pricing policies in the Australian context is not a good option. It might be helpful instead to get a solid grasp on all the factors driving the high cost of parking – including oligopoly pricing by a small handful of operators. 

We also need to understand clearly the benefits of city parking before treating it like a disease and trying to eradicate it, or the patient will suffer. And we also need to be very clear on what alternatives exist and the genuine likelihood and extent to which public transport can replace the private vehicle, given our urban scale and the nature of our urban economies. 

Tuesday, June 10, 2014

This can’t end well. Can it?

In housing we are eating our young. Investors are competing aggressively with first home buyers for available product, and winning. In what may be the shortest post of The Pulse’s history, there are just two graphs that seem to suggest this might be true. If it is, what next?

My thanks to Leith Van Onselen and his colleagues at Macrobusiness for this one, but it struck such a discord that I thought it worth highlighting.

The Australian Bureau of Statistics figures on housing finance are a measure of activity in housing markets. Something the Reserve Bank watches closely. Their latest sets of data paint a concerning picture.

First up, before we drink the last drop of champagne toasting general activity in housing markets, is the news that investors are clearly on the acquisition trail, and they are hungry. Have a look at domestically financed loans for investment housing. It’s all about investors:

Compare this with what’s happening to the first home buyer market. And remember, we have record low interest rates and allegedly improving affordability metrics:

If this stark contrast doesn’t suggest something is amiss, nothing will. Draw your own conclusions.

If you’re a developer, a deal is a deal and it doesn’t much matter who is buying the stock, provided it makes the project feasible, pays the wages and the consultant’s bills, pays the taxes and hopefully leaves a healthy profit. If you’re in public policy though, you would like to think the ramifications of this distorted playing field might be sinking in.

I’m not sure that it is. The Federal Government says housing is a matter for the States (notwithstanding the Reserve Bank’s clear and publicly admitted interest in housing market dynamics). The States tend to pass a lot of responsibility – in terms of levies and charges and compliance costs associated with the supply of new stock – to Local Government. And Local Governments tend to blame both the States and the Feds for a lack of resources for infrastructure associated with housing supply and growth generally.

Those who point to the obvious problems in public policy settings are faced with the three monkeys rule: first denial, then pass the buck, and if that doesn’t work, shoot the messenger.

We have a very fundamental problem with distortion in our housing markets that is already spilling over into other aspects of economic policy and questions of generational equity. If these two graphs don’t make that obvious, nothing will. 

Monday, May 26, 2014

What we earn.

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

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

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

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

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

Personal Incomes
< $52,000
$78,000 to $104,000
> $104,000
Not Stated

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

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

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

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

Household Incomes
< $52,000
$78,000 to $104,000
$104,000 - $156,000
$156,000 - $208,000
> $208,000
Not Stated

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

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

Personal Incomes 25-34 year olds
25-34year olds
< $52,000
$78,000 to $104,000
> $104,000
Not Stated

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

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

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

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

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

It does seem a compelling place to start.

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

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

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

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

Saturday, May 3, 2014

In praise of accidental cities

Most of the built form we know as our cities of today was built before complex town planning regulations were developed. The irony is that it is the accidental parts of our cities – the parts developed during periods of the least regulation – that we now seek most to protect.

An increasingly urbanised world is placing pressure on governments and policy makers to more carefully control the use of land within recently defined urban boundaries. But this is, in terms of the history of our urban development, a largely modern construct. Regulatory town planning itself is largely a post-war concept, first notably embodied in the UK Town and Country Planning Act of 1947.  There had been previous ‘town planning’ Acts prior to this in the UK but the 1947 Act significantly overrode land ownership and required virtually all proposals to seek planning permission from the local authority.

Given the post-industrial state of much of urban Britain in the pre and inter-war period, it’s not surprising that regulators sought more control over how land was used and for what purposes. Well intentioned urban planners sought to segregate housing from industry and to carefully define and control how future urban expansion occurred. Higher standards of living, less pollution and the pursuit of a more equal society were among the motives. (The extent to which these hopes were achieved is open to much debate).

Fast forward some twenty or thirty years and to the antipodes, and Australia’s turn was to come. Our urban development history had largely been a free enterprise model until perhaps the mid 1970s but certainly by the mid 1980s regulators were having more say in land use policy and controls over private land. Prior to this, the 19th century had seen industrial and housing uses develop in close proximity, often centred on transport nodes such as sea or river ports. It was a walkable society back then because there was no other choice, expect the horse, which wasn’t so much needed when the factory or wharf was only a few blocks from home. Tiny workers’ cottages and terraces sprung up in amongst the tanneries, warehouses and factories of industrial pursuit.  

The 20th century witnessed a gradual transformation of work from blue to white collar. Australia by the 1960s was a very different nation – with a rising middle class, white collar employment and the post war baby boom in full stride (or should that be ‘crawl’ under the circumstances?). Suburban development took hold and an upwardly aspirant middle class quickly embraced the quality offered by modern brick homes with flushing toilets and fancy kitchens (by their standards), with yard space for children to play – all features which had largely been absent from the homes they and their parents had grown up in.  Land was developed for suburban use with minimal regulation or control. Cities expanded and entire city administrations had relatively small building divisions with perhaps a few city engineers to ensure what minimal standards existed were met. The notion of town planning departments was something new, and novel.

But as growth continued and society progressed, governments found themselves under increasing community pressure to control and regulate this growth. By the time comprehensive land use regulation took hold, most of the structure of our urban form - including major transport routes, suburban housing development, centres of industry, of white collar employment, the locations of hospitals and schools – all had largely been developed and delivered, as if by accident.

There is no question that modern town planning has helped deliver some very high quality outcomes. Witness in particular the large swathes of urban renewal projects which have leveraged private capital to transform brownfield and largely abandoned inner city industrial land into high quality (and high priced) inner urban housing and commercial developments. 

But the point should be remembered that there are limits to what regulation can provide and there are benefits of enterprise-driven development which are too quickly forgotten. ‘Accidental cities’ has become a derogatory term used by those who see benefit in increased planning control over public and privately held land. The price of not intervening through fine grained regulation, the argument goes, is inefficient cities which lead to inefficient economies.

For me though, this has a touch of Stalinism about it. There are huge sections of cities globally which are now feted for their character, and they are invariably parts which developed ‘by accident’ through free formation of common interests and private capital, unrestrained. Often messy, sometimes disorganised and invariably hectic, they are nonetheless the places that feature in tourist brochures. Think of Singapore’s Chinatown, or Hong Kong’s night markets. Think of Venice’s canals, New Orleans’ French Quarter, or New York’s many ethnic enclaves like Little Italy.

I struggle to think of many places elsewhere in the world which were created under the rigid guidance of regulatory planning, which we’d like to mimic or replicate. To me it seems very much the accidental parts of cities that are somehow more ‘real’ and less reconstituted. It’s as if we can tell the difference, without even really thinking about it.

So it should come as no surprise that it’s also these parts of our cities that we tend to want to preserve. They aren’t necessarily just historical structures or places – sometimes, like the laneways of Melbourne’s CBD – they can be uses which have sprung up as if despite of – or in defiance of - the regulator’s rule book.  

What this means for modern town planning is that the efforts to control and command in fine detail the nature of urban outcomes – even down to deciding what type of retail shop should be allowed in one place or another for example – is actually counter-productive. It stifles competition and smothers creativity. 

There is a balance between the planned and the accidental and to find where that balance lies first means appreciating that accidental cities, or the things that are allowed to happen without intervention, can have as much appeal as those parts which have been carefully planned, controlled and documented. 

Perhaps once we begin to appreciate the design dividend that is delivered through accidental aspects of urban development, we might as a community become less wedded to the idea that only more regulation can achieve the quality urban outcomes we most admire.