AHURI Conference, Affordability and Liveability in our cities

Release Date: 
29 June 2017

It’s great to be here. Can I acknowledge the wonderful work that AHURI does for housing and cities, which of course is my focus. Can I also acknowledge Tim Pallas, I’m not sure if you’re still here, but good to see you here this morning Tim. Dr Ian Winter who is executive director of AHURI and a member of, most importantly, a member of my Cities Reference Group, and I think we have a couple of other members of the Cities Reference Group here today.

It is a great pleasure to talk here about housing and cities and of course my portfolio is Cities. I always said, 20 years as a management consultant, I always said to young associates coming into that profession that if you define the problem in a particular way, you define the solution. So if we define the problem as a Cities problem, the housing issues are very much shaped by that definition of the problem and certainly that’s how I see it and it’s how the Prime Minister sees it. It’s why for the first time ever we have a portfolio of cities sitting in the Prime Minister’s department. So I assist the Prime Minister. That’s my role, and my team sits within Prime Minister and Cabinet at the centre of government.

And this is a very big statement from the Federal Government about the importance of shaping our capital and regional cities, our suburban and urban centres around the country, because we firmly believe that these are at the centre of what is necessary to create prosperity, sustainability, great lives and opportunity for every Australian.

Now I probably don’t need to preach to the group here about the importance of cities and the importance of great urban and regional centres. It is very apparent to me though, as we reach a productivity crisis in this country, which is seen most commonly through the evidence of slowing real wages, I mean let’s face it, Paul Krugman always had it right when he said in the end when it comes to real wages, there is only one thing that really counts and that’s productivity.

The truth of the matter is that we have cities now that are becoming a brake on productivity in this country. When you have to travel 90 minutes each way from home to work and back, there is a problem, there is a very serious problem. When you have to pay for a good job, a well-paid job in the centre of our capital cities by buying an expensive house, then there is a very serious problem. Just think about that for a moment.

We are actually asking young Australians to buy a high paid job, we’re asking them to buy a high paid job by buying an expensive house or renting an expensive house. That’s effectively what this has come to. So we have a problem.

Now anyone who says to me and I was glad to hear Tim say this is there’s no silver bullet. Anyone who says to me there’s a silver bullet for this, they’re kidding themselves.

But if we start with the very simple proposition that we have to reshape the way our cities work, I think we can begin to solve the problem. So what I’m going to talk about today is a little bit about the Government’s Housing Package which is a broad ranging package. It actually has a lot of relevance to what Tim talked about today although I’ll focus on a few parts of it and then we can have a Q&A if there are other bits that people want to talk about which I’m very happy to do so.

But I also want to talk more broadly about our cities policy and how it’s shaping our approach to housing and other areas for that matter.

Now I thought it was worth beginning with just a couple of bits of data, bits of datat from the census. It seems that the census has given us some pretty good data, despite all the noise about it, and extraordinary actually as I look at it for instance in my own electorate. I’ve got my team to break down the data for my own electorate and I’ve seen some really wonderful insights about what’s going on in Australia. But of course one of the things we see very clearly in the census data is the huge challenges in our housing markets.

One obvious thing that we knew was going on – but I think the figures are very stark – is the drop in home ownership from what was 41% in 1991 to 31% in 2016. So that’s a marked drop and I’ll come back to that in a moment. The proportion of that owned by mortgages has gone up from 27.5% to 34.5% in that same period. So we’ve got less and less Australians owning a house and more and more owning it with a mortgage and of course one of the things we know sitting underneath that is a record level of household debt in this country, just about the highest in the world.

(inaudible) So those who are having to buy homes are of course having to pay a lot more for them with big mortgages and of course part of what’s going on there in parallel with that is a higher percentage renting their home, going up from 26.9% to 30.9% over that period.

Now one of the really striking insights from the census data is the number of younger Australians living at home and of course anecdotally we’re all aware of this. I’m sure there are people in this room who haven’t been able to push their kids out of the nest just yet and that’s a pretty common phenomenon particularly in Sydney, I can see a few Sydneysiders here who’ll agree pushing the kids out of home is getting harder and harder and we know that the number of young Australians living in the family home is up by 20% in the last five years. Extraordinary number - and one of the ways we’re solving the housing crisis is by curbing demand and I think that’s an extremely bad way of solving the problem. Essentially what we’re saying, by doing that, is that the great success of these growing prospering cities of Sydney and Melbourne in particular, the problem is best solved by trying to curb demand and that is absolutely the wrong answer in my view.

Now when we look at a challenge like housing in our cities - I always think as someone with a background in economics although I didn’t work as a professional economist, I worked with business for 20 years before going into politics - but certainly my academic background is in economics, I think it’s always worth looking at the economic research as to what’s going on.

And we should be very clear about this. This is not a crisis that is across the board. When I go to my local city of Goulburn, housing is still very affordable, there’s lots of land, the releases, the rezonings and the planning approvals are happening and housing is still very affordable. But we know in our most successful cities, not just in Australia but in the UK and in the US, it is very different. In the cities where the jobs, like magnets, are clustering – the higher paid, often new-economy jobs - particularly in the big centres, the fact of the matter is that supply has not been able to keep up. And if you ever want to look at the best available research on this, have a look at what Ed Glaser the Harvard economist has had to say and the point he makes, looking across a whole range of different areas and localities and comparing them, is that planning regulation plays a dominant role in inflating prices in those regions. Very simple insight. In fact he qualifies that, very carefully and it’s far and away the best qualification of the problem we are facing and his insight is summarised in one sentence – that planning red tape is a massive tax on every house.

Now it is true when you look at house prices around Australia, there have been other contributors. Low interest rates is one that has had an impact, foreign capital there’s no doubt that’s had an impact, increasing population - we reached a record level of 400,000 new people in Australia, both immigrants and new babies, (inaudible). 400,000 is an extraordinary number. That’s just under 200,000 new homes, maybe 160,000 new homes, required to keep the ratio of householders per house constant. So that’s an extraordinary number and all of those things have contributed.

What’s very clear is that Sydney in particular and to a lesser extent in Melbourne supply hasn’t kept up. The numbers in Sydney are particularly stark, so in the decade leading up to 2015, just to keep up with population growth, remember this is one of the world’s great cities, just to keep up with population growth which is not enough, Sydney needed to build about 35,000 homes a year. It built 17,000. That’s a backlog of about 170,000 – 200,000 if you go back a couple of years earlier to the day when Bob Carr said Sydney is shut. So 200,000 backlog.

Now some of those are living at home eating smashed avocado. Some of those are living in Melbourne. Melbourne’s success to some extent was on the back of Sydney’s failure. Let’s suppose there’s still a backlog of 100,000 which I think is a reasonable number. We’ve got a lot of catching up to do. We’ve reached 40,000 just in the last year or so and the Premier is targeting a much higher number than that, but it will take years to deal with that backlog, years. And then we’ve got to try and get ahead in what should be one of the faster growing greatest global cities. So we have a very big challenge here.

Now building houses alone is not enough. The Prime Minister rightly is very fond of the idea of a 30 minute city, as am I. I live in a 30 minute city and I can thoroughly recommend it to you. It’s wonderful. Of course Melbourne and Sydney are not 30 minute cities.

We’ll be releasing data in the near future actually on this. We’ve been measuring this very very closely and the Cities Reference Group is helping with this work but we are no one near a 30 minute city here and we’ll see more of that in the census data in the very near future.

To solve the housing crisis and simultaneously try to target, reach this aspiration of a 30 minute city, we know we have to look at the city level. And that’s why City Deals have been absolutely central to the Federal Government’s approach to this.

A City Deal is a very simple idea at heart. It is that the three levels of government should agree on the goals we want to achieve - and generally speaking in most cities, that’s not too hard, it’s reasonably clear what the pain points are and what we need to do to address them. What’s more difficult is to get those three levels of government actually sitting down and saying let’s agree on the initiatives that are necessary to meet that goal, to arrive at that goal, and let’s agree on who is going to take accountability and let’s make all of that transparent to the people. Very simple idea. No more finger pointing, no more saying look housing’s the state, or local or the federal government’s fault. We put the finger pointing aside and we say you know we’re actually going to solve this problem. We’re going to publicise who’s accountable for what and we’re going to hold ourselves to account. Now business, the private sector, has been using that kind of approach to things for many many years. it’s time for the public sector to do it and it’s what I’m personally so excited about City Deals being part of the solution.

Of course absolutely central to this is solving problems at a local level. There are great challenges with solving problems at a national or even a state level in this day and age, the politics of it is difficult. What’s much easier I find, I’ve found as a local member and certainly in this role, is solving problems at a local level is an easier way to approach it. That’s why I think City Deals are so exciting. I’ll say a little bit more about it in a moment.

Now let me just say a few words about the Government’s housing package in particular and there’s outcomes of City Deals in that package. There’s three parts to this that I want to focus on.

One is the National Housing Infrastructure Facility. It’s a billion dollar fund designed to invest in and to some extent provides grants for local infrastructure that’s going to free up housing opportunities. We see real opportunities to make what are relatively modest investments in infrastructure that will free up housing opportunities.

If you look at train stations across Sydney, Melbourne and every other city in Australia, there are under-leveraged opportunities for us to build housing, usually with more density, nearly always with more density than we’ve had in the past,  and I firmly believe that transit oriented development is a big opportunity. Part of what has held us back is an element of nimbyism although around a train station of course these things are easier to do. Part of what has held us back though is a lack of infrastructure development. Master planning precincts, taking a precinct level approach to areas around train stations, I think is one of the best opportunities we have for getting more housing approved. So it’s a billion dollar fund designed to help accelerate that process and as I say I really look forward to working on what the Treasurer has described as ‘micro city deals’, precinct level city deals, with state and local government around the country using that National Housing Infrastructure Facility.

And in parallel to that, one of the things we’re encouraging state and local government to do is to make much more transparent their land registers. We have a lot of land around Australia (inaudible) and so too do state and local governments and every developer out there is always eyeing these things off, fair enough. They are taxpayer owned lots of land so they have to deliver commercial returns and it’s appropriate that they do where we can. At the least we need to deal with them in a way which is sensitive to the needs of taxpayers. However that being said, a lot of them offer wonderful development opportunities and housing opportunities.

So we’re going to make our land register absolutely transparent. We’re going to publish it, we’re already getting around the country at the moment talking about areas of land we think we can develop including Maribyrnong here in Melbourne and Paterson Barracks in Launceston down in northern Tasmania earlier this week with the Defence Minister. We’ve got a major piece of land at Bringelly in Western Sydney and so on. But we firmly believe state and local government should also be making these land registers transparent and providing opportunities for third parties to look at how they could actually use that land more effectively to help solve this housing affordability challenge that we have.

The other part of the package that I wanted to focus on was the Western Sydney Housing Package.  Now not all of you are interested in Western Sydney, I know a couple of you are very interested in Western Sydney. But this is a pilot which I think with time can be something that is used more broadly. It is a pot of money which is an incentive for state and local government to be investing in local infrastructure for planning reform. If we can see planning reforms within a particular area, a particular precinct or local government area, that we think can accelerate the pace at which we can get good housing development in place in the right locations, then this is an incentive to get on with those reforms, to take away what Ed Glaser describes as that tax on every house.

I think Melbourne could benefit from a similar package as could be many other parts of Australia. If we get this to work then we’ll be very keen to look elsewhere.

I might finish with a couple of more comments about City Deals. Now we realise City Deals can’t be done everywhere all at once. This is a new approach to government in Australia and in many ways a whole new approach to solving the Federation problem that we have in this country, the three levels of government that aren’t always working together to solve problems.

Our first two City Deals were deliberately focused on regional cities. One, because it gave us the opportunity to work in a smaller area and two, because we think some of the biggest challenges we face in our cities are in regional areas. So we signed a Townsville Deal late last year and a Launceston Deal a couple of months ago, focused on very different things. In regional centres, the focus tends to be more on creating local jobs, how do we really get a regional city firing. The Western Sydney City Deal is the most ambitious to date and it has a very square focus not just on local jobs, which is important particularly around Western Sydney Airport, but also on housing. We are absolutely determined to make sure that as part of the Western Sydney City Deal we see a streamlining of approach of accelerating the pace at which we can deliver not just local jobs and  connectivity to those jobs, but also housing which works in that new fastest growing city in Australia, in Western Sydney.

It’s important to emphasise that City Deals are not one off projects. Sometimes councils come to us and say look we’ve got this wonderful project, we’ve had it in the top drawer for years, maybe a City Deal can get it over the line. That’s not how it works. It’s true that local projects might play a role, they’re not one-off investments though. They are a range of initiatives, reforms and investments designed to drive growth in a city or an urban centre.

There is a very high demand for these City Deals. We’ve deliberately gone reasonably slowly, to get them to work, although three in the first 12 months in this role that we announced a little over a year ago is not bad in my book, particularly when you compare to the UK which took a long while about three years to get its first one done. But there has been high demand and we can only move as fast as we can.

The process for choosing the next round is deliberately competitive. We do want to work our way across every capital city but ultimately we want to work with state and territory governments who want to work with us. We see that this approach can really work to solve some of our biggest problems, particularly housing affordability in our capital cities.

Now the final point I wanted to make was around infrastructure. One of the things that’s very clear that has held us back I firmly believe, in terms of housing and housing supply, has been lack of infrastructure investment in the right places in a timely way. We have traditionally seen the transport infrastructure budget across Australia has been constrained by the budgetary ability of the state and federal governments and to some extent local government to invest in infrastructure. But if you look at what state, federal and local governments can deliver on transport infrastructure, it will never be enough to solve the problems in front of us. We need to find smarter, better ways of getting more infrastructure investment to support the housing growth we so desperately need, housing in the right locations, near the right job centres.

That means we have to bring in private capital and when necessary we should also look at using the balance sheets of federal and state governments more effectively. Our solution to that problem is to recognise we have lots of banks, we have private sector banks, we have public sector banks, we have the CEFC, we have the NAIF and EFIC and many other banks in the Federal Government, as do state governments. They have many banking facilities and Tim has described several of the banking facilities that the Victorian Government has set up. What we have lacked for many years is people with the skills to attract that capital into good transport infrastructure projects. It is a desperate need to build that skillset. Now the Prime Minister has that skillset, I’d like to think that from my background I have that skillset too.

And if I can be partisan for one more moment because there was an article on the front page of the Financial Review that I did want to respond to today, Federal Labor’s approach to more infrastructure is simply to set up another bank, another bank. No outside expertise, no capacity to reform, no capacity to reform a system of infrastructure investment in this country that has simply failed. We take the view that it is crucial to bring that skillset into the Federal Government, just as state governments and most other national governments around the world have been bringing that skillset in, in order to get more infrastructure investment, particularly in our cities, to support the housing growth we so desperately need. We cannot stay shackled to a process of simply rolling out grant funding to the states when we and they don’t have the budgets to sustain it.

Thank you again for the opportunity to speak to you today. I look forward to hearing the outcomes from the City Deals session this afternoon. I’m absolutely delighted you’re having that session, it’s so important and I really look forward to working with many of you as I am already over the coming months and years ahead as we make this agenda a reality.