News & Discussion: Population Growth

[Will]

So PG what is the answer? Or at least in what direction might the answer lie?

Can planning rules result in something acceptable to all?

Did earlier, 'unplanned' cities actually plan themselves through a kind of native intelligence - eg a conveyancer would want an office near a real estate office etc. Were the pre planning settlements able to deliver the majority what they wanted?

Should the expressed preference of the majority (for detached homes on allotments as discussed) be denied because that majority's representative government finds delivery of the majority preference too expensive when considered with higher priorities.

Should people have to live in their less preferred high density developments around transport nodes because developers find them more profitable and the government finds them more efficient?

If that were the case, what other of people's preference should effectively be banned by the government because it is not cost-effective.

Example: Divorce is not cost-effective. What if the government decided that marriages with a gap between the parties of more than say 10 years had an unacceptably high divorce rate, and therefore banned them. Same difference, as they say, except that in the lifestyle choice of buying a detached house on a fringe or satellite town allotment, there may be fewer costs than are generally imagined.

What if claims of expensive transport and infrastructure relating to greenfield developments are overstated for various reasons.

What if the careful release of greenfield subdivisions were cost-effective, and what if the allotments attached to satellite towns help reinvigorate those towns?

Would that not be a better outcome than having people living reluctantly in T.O.D's, maximising the developers' profits but perhaps creating expensive social problems which the developers do not have to fix?

As I said, I don't know what the answer is.

SJ, I think our difference of opinion lies in the fact that you are assuming that everyone wants to live in a big house with a big backyard. Although my preference in living arrangement may change when I have a family, at the moment myself as well as most of my friends of my age if given the choice would rather live in a smaller high-density TOD as opposed to a detached house 40km from the CBD. The reason is because for many generation Y people, life is all about lifestyle and we cannot see a lifestyle in the outer suburbs which appeals to us.

[stumpjumper]

Far from it, Will. My own preference with my present lifestyle happens to be for a city or near city apartment (plus a serious acreage around Waitpinga if I could get it!). I even live in one.

The fundamental issue I'm trying to sort out is that most (by no means all) adult Australians show a consistent preference for detached houses on their own land.

I suspect that this preference could be satisfied without f*cking up our city/ies by exploiting and promoting the net's ability to allow working away from the CBD and simultaneously using policy 'levers' to encourage settlement in and around existing townships.

Look at places like Mt Torrens, Mt Pleasant, Eudunda and so on. Dozens of pleasant little towns all crying out for some new residents. I know - I grew up in a town like that and I'm aware of their problems. You could even build medium density in the townships as well, to satisfy the broadest market and to allow people to stay in the town as their housing needs change.

Even gen Y might be tempted to swap clubbing for local sports teams and local pubs. No parking problems and still plenty of social interaction.

I'm thinking of, for example, no stamp duty on sale of allotments in such towns. There are other options too.

A lot of the townships have many allotments already surveyed but never issued with titles.

Lots of birds could be killed with one stone by going down that path.

[Prince George]

(I've edited this post a few times; I don't want to come off sounding ascerbic, but I do feel strongly about this too)

I'm still working through what my ideas for addressing affordability actually are, but I am confident that the solution will have to look very different from what we have now. One of the particular things I keep coming back to is that affordability has to mean not just the price of the mortgage, but the price of the whole lifestyle both to the individual and to the community.

You mention the idea of encouraging people to consider living in Mt Pleasant (for example), but I think once again about what they are going to do when they get there. There is a limited range of jobs that can be done remotely, largely white-collar jobs. A much larger range of jobs are location-specific: retail, manufacturing, entertainment, services, education, even health. I worry that your idea leads to a flight from the city by well-paid professionals who effectively abandon it for the country, leaving behind the working class. Otherwise, would Mt Pleasant be able to provide a full range of career opportunities for people in these trades, will they have to travel long distances to work, or will they move to the town only for as long as they have that job and then move on?

One of the things that I really want to address was this:

The fundamental issue I'm trying to sort out is that most (by no means all) adult Australians show a consistent preference for detached houses on their own land.

First things first, if we changed our planning today to require that all new development must be multi-family dwellings, we are hardly going to be denying the majority of people the ability to live in a free-standing house, as the current balance is already so skewed in the other direction. Wikipedia gives the figure:

Adelaide's inhabitants occupy 341,227 houses, 54,826 semi-detached, row terrace or town houses and 49,327 flats, units or apartments

(No attribution, I'm guessing that it came from the census) If we built 115 apartments per week for the next 5 years, that will have added just under 30,000 apartments to the market, which means that free-standing houses still outnumber flats, units and apartments combined by a factor of four to one. By building nothing but 115 apartments per week, it will be 50 years before there was an equal number of apartments and free-standing houses.

Second, it is not clear to me that the correct role for the State is to be a conduit for people's desires. If many people would prefer to drive a Monaro than a Corolla, should we subsidise the cost? If the majority of people would like to holiday in Paris more frequently, do we help pay for it? If the majority of parents would like their children to attend private schools, do we stop funding public schools and redirect the money to St Peter's and Wilderness? And what if their desires are contradictory - "I want water in the Murray and I want green lawns, bushy roses, and cheap cotton". I believe the Government's role is to represent the State, which certainly includes its present population but (perhaps in a more nebulous way) also must be future generations. The responsibility of the government is to convince people its decisions are the right ones. I am not convinced of their current decisions, which are neither affordable now nor (I believe) sustainable in the longer term.

Also, if you have some figures on the costs of development and infrastructure, I'd be interested to see them. I suspect that many studies don't go sufficiently far in considering the costs beyond that of the initial build-out. If I am a business, I must consider both the cost of buying my facilities and equipment (cap-ex) and the cost of operating and maintaining them (op-ex). For most (ie almost all) businesses, op-ex will totally dominate cap-ex over the longer term. Op-ex for roads is principally maintenance, which is largely a function of length and traffic volume: long road in greenfield may be cheaper to build, but cost more to maintain. What is also a typically nefarious tactic in the case of roads is not considering the op-ex that has been spread across all the people that are travelling on them (the cost of owning and operating a car, the time spent travelling). Another good one is comparing per-kilometre costs and ignoring that there are now more kilometres needed.

On this theme, that affordability is not simply identical with cheap housing, I recently saw this paper from the Brookings Institute (one of the innumerable groups over here that their media call "policy wonks"). It gives an alternative measure of affordability to include the price of mobility; so affordability = (housing + transportation) / income. One of the things that jumps out at me from this is that in many cases families are spending more on transportation than on housing, so transportation is now at least as big a problem for affordability as housing. And this in a nation that has substatially lower car and fuel prices than Australia.

The site that hosts that paper, http://www.community-wealth.org, is for a group whose position -- generating wealth from within a community -- seems very germane to the discussion that we are having right now. I can't say that I had heard of them before a day ago, but I'll certainly be reading their stuff soon.

In fact, I want to throw another perspective into this discussion. We've talked about "why is housing so expensive" almost exclusively; what about the other factor in the affordability equation -- why is income so low? Here are some statistics from the US Federal Reserve on income trends over nine years. The years 2004-7 represent a recovery from the crash of 99-01 (dot-com, 9-11, Afghanistan & Iraq), but look at this graph showing changes on median-vs-mean income over that period:

During the "recovery", the average of all incomes across the US rose, but the median income - the point at which half the population got more and half got less - dropped. Digging into the stats, you can see the upper decile income level rose sharply - that's where the recovery actually took place. I'm willing to bet that Australia's statistics will tell a similar story: income remaining level for the vast majority of people while sharply increasing for the richest few. I'm not a believer in "trickle-down economics" (as if the elite are protecting us from a deluge of money), and it strikes me that this disparity needs to get recognised as one of the sources of our affordability problem.

[stumpjumper]

Have a look at this RBA document for a general discussion on both housing affordability and accessibility.

http://www.rba.gov.au/Speeches/2008/sp_so_270308.html

Good points re limited types who could relocate to outlying townships. Even so, I'm not sure that if townships were attractive to white collars that the cities would become worker moncultures.

I'm interested in scenarios whereby relatively 'well-infrastructured' but underpopulated townships could be reinvigorated. Such reinvigoration might also lead to a higher birth rate, which we desperately need. Not silly, and not just good country air - township life is conducive to rearing children (cheaper extra bedrooms, more private space, tighter social setup for sharing childcare etc.

Still reading and thinking about your post, but you made a good point about 'Ferrari subsidies'. That's where accessibility rather than affordability comes in. Rather than govt subsidising preferred Ferraris, more Ferraris should be available at lower prices. In the case of housing, we get back to land cost, as RBA article pointed out.

For a start, the first home buyer's grant could be applied to certain renovations on first property in first 24 months rather than the present deposit subsidy which just puts prices up across the board and gives money to vendors. Even more bang for the first home buyers grant buck could be had by limiting grant (renovation subsidy) to items which will produce future savings - eg solar, insulation, greywater reuse etc.

I'm sure those infrastructure-rich country towns with their high quality lifestyles (in many aspects) are an under-exploited resource.

[muzzamo]

I think both of you are ignoring the correlation between supply of credit/speculative mania driven demand and house prices.

You did touch on the FHOG though, I think in terms of affordability the best thing that the government could do come July is remove the FHOG for existing houses while keeping it for new builds. This would add to supply instead of just raising the price of existing dwellings. Unfortunately the FHOG is definately no longer about "assisting" first home owners, it has been established that for the most part it does the opposite. Instead the government is using the FHOG to prop up house prices and try and avoid the sort of house price deflation that you have seen pretty much everywhere else because of the disastourous effects that it has on consumer spending and confidence. Unfortunately this needs to happen sometime, house prices need to correct. The best that the government can hope for is that we suffer a decade or even more of stagnation. For FHB's the best they can hope for is UK/US style deflation.

[Cruise]

I think both of you are ignoring the correlation between supply of credit/speculative mania driven demand and house prices.

You did touch on the FHOG though, I think in terms of affordability the best thing that the government could do come July is remove the FHOG for existing houses while keeping it for new builds. This would add to supply instead of just raising the price of existing dwellings. Unfortunately the FHOG is definately no longer about "assisting" first home owners, it has been established that for the most part it does the opposite. Instead the government is using the FHOG to prop up house prices and try and avoid the sort of house price deflation that you have seen pretty much everywhere else because of the disastourous effects that it has on consumer spending and confidence. Unfortunately this needs to happen sometime, house prices need to correct. The best that the government can hope for is that we suffer a decade or even more of stagnation. For FHB's the best they can hope for is UK/US style deflation.

Do you own property or not?

[stumpjumper]

If muzzamo is arguing honestly it shouldn't matter if he owns real property or not. After all, there's not much joy in owning property if the whole system's b*ggered.

Limiting the FHOG to new builds is a good idea, but that move would have to be accompanied by the release of more allotments! Without that, land prices would rise under the increased demand and the advantage to the first home buyer would be negated.

The idea of FHOG for new construction has many advantages. Instead of the $ being delivered in a lump to the vendor of an established property, competition among project builders or contractors for one offs should keep the value of the grants in the right pockets.

I left the RBA link off my previous post. I'll put it in. Here it is anyway:

http://www.rba.gov.au/Speeches/2008/sp_so_270308.html

[Cruise]

I think it does matter, If he doesn't then to me he sounds the type that are crossing their fingers waiting for the market to colapse so he can buy up.

[stumpjumper]

Give him some credit, cruise! This is a reasoned debate, not just a platform for airing prejudices!

With regard to limiting the FHOG to new building, it's occurred to me that there's a sustainability argument for renovating older buildings - eg conserving historic energy inputs etc.

[Wayno]

slightly off topic, but i wonder how much local SA water is consumed to build a house? manufacturing raw materials, processing raw materials into "house components", on-site construction, and clean-up...

[stumpjumper]

That's an interesting question, W.

Water use in building construction is probably a hidden input. I'm not sure if anyone has assessed it as a separate use of the resource.

A lot of these inputs are either hidden or ignored, conveniently or otherwise.

I'm quite interested in 'historical inputs', part of which is also known as 'embedded energy'.

When an existing building is demolished rather than reused, the 'present value' in accounting terms of the original inputs, human, capital and material, is reduced to zero, or at best the value of landfill, plus possibly the recycle value of some architectural elements.

It's akin to crushing a perfectly usable car because it needs a new head gasket.

In bulldozing a house, you are putting an end to the returns on the original investment of the wages for labour, even the return on the purchase of the fuel used in the vehicles to transport the material. The potential economic life of an old house is usually far longer than generally considered, and 'adaptive reuse' by new owners is usually quite successful.

Recycling an older house is not only usually good environmental practice, but can be very good economic sense as well. Further, if you understand their low-tech environmental control systems, they can be remarkably cheap and comfortable to live in as well.

[Wayno]

Recycling an older house is not only usually good environmental practice, but can be very good economic sense as well.

agree, demolishing/rebuilding is a loss from an accounting perspective, but unfortunately, it actually does cost more to renovate that demolish/build in many cases. This is because renovating requires individualised design, thought and planning whilst your modern day "trades person" is more inclined to working in a "cookie cutter" mode where every house is an AV Jennings clone - and noone in the industry is really interested in environmental concerns.

[stumpjumper]

That's broadly true. In these times of relative plenty no-one will care if you trash the energy and other inputs in a building so that those inputs will have to be repeated. Energy is still cheap.

It may not always be. In future, we may have a version of what we have often experienced in the building business and elsewhere. Scarce or expensive materials are recycled now, whether it's iridium from phones, gold from electronics or alloys and metals like copper from demolished buildings. One day, scarcity (ie replacement cost) may compel us to recycle buildings as a matter of course, as they do in Cuba and did in India for other reasons. We may save whole houses on energy grounds.

As to cost of renovation v new construction, it's true that a project builder can spec build for maybe $800 per sqm, while 'prestige' new construction might be $3000 per sqm. An 1895 bluestone villa in ye leafie suburbe might cost $5000 per sqm to replace like with like, and cost a relatively high amount to renovate (large volumes to air-cond, big areas to paint/carpet, labour intensive materials and detailing etc. But there are other factors in the market for such properties that must be considered in making renovation decisions for such houses.

You should read the report of the 5th Annual Demographia International Housing Affordability Survey: 2009. It's quite specific to Australia and very interesting. The section from page 19 of the original document called Strangling Urban Markets is really worth reading. It's at: www.demographia.com/dhi.pdf

[Wayno]

That's broadly true. In these times of relative plenty no-one will care if you trash the energy and other inputs in a building so that those inputs will have to be repeated. Energy is still cheap.

It may not always be.

A flaw with your projection is that houses built today are not engineering marvels. Both AV Jennings (i'm not targeting them, just using as an example) and the Govt know that houses are not built to last, but rather are built to bulldoze in 50years, thus perpetuating sales and the construction jobs market. I can't see South Australia trail-blazing change in this respect - for example we continue to promote ourselves on having the "most affordable housing on the mainland".

You should read the report of the 5th Annual Demographia International Housing Affordability Survey: 2009. It's quite specific to Australia and very interesting. The section from page 19 of the original document called Strangling Urban Markets is really worth reading. It's at: www.demographia.com/dhi.pdf

This is the report that prince george published a week or so ago - right? unfortunately the govt with it's many years of property market meddling (negative gearing, tax free home ownership, recent superannuation changes) has made the pros/cons of "prescriptive vs responsive" regulation a moot point. It would be a very brave (and short lived) politician who would dare to return us to a responsive market environment - what a mess! but still, i believe market pressures will eventually come to bear - irrespective of the desires of the govt du jour

[muzzamo]

Cruise: Having not bought a house does not disqualify one from making a rational decision regarding the single largest purchase in your life.

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