City Limits: Urban economic development and its policy implications - - PowerPoint PPT Presentation

City Limits: Urban economic development and its policy implications

John Daley, CEO, Grattan Institute Presentation to Auckland Conversations 1 September 2015

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City limits

Australia’s economy is increasingly dominated by services produced in cities Australian cities are nearing their limits Planning policy needs to adjust to changing patterns of work Tax policy should encourage rather than discourage home ownership

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City limits

Australia’s economy is increasingly dominated by services produced in cities

• Services are growing much faster than other sectors
• Big cities now dominate the economy
• More jobs are concentrated in the centre of big cities, while new housing

is primarily at the edge Australian cities are nearing their limits Planning policy needs to adjust to changing patterns of work Tax policy should encourage rather than discourage home ownership

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20 40 60 80 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Goods Services

Source: ABS5206 table 8 Notes: Excludes “rents and dwelling costs” and “other goods and services”. Based on seasonally adjusted current prices data

People are consuming more services

Share of total nominal household expenditure

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10 20 30 40 50 60 70 80 90

1890 1921 1934 1947 1960 1973 1986 1999 2012

Mining Construction Manufacturing Services Agriculture

Sources: 1. 1890-1980 Australian Historical Statistics: Labour Statistics, by G.Withers, T.Endes, L.Perry 2. 1984-2012: ABS6291.0.44.003, table 4 Note: 1981-1983 are interpolated using 1980 and 1984 data

Consequently, more people are working in services

Per cent of workforce, Australia

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5 10 15 20 25 30 35 40 45 50 1970 1980 1990 2000 2010 5 10 15 20 25 30 35 40 45 50 1970 1980 1990 2000 2010

1970 1980 1990 2000 2010

1970 1980 1990 2000 2010

Manufacturing has steadily declined in Australia, “leading” international trends

Per cent GDP Median 90th percentile Australia 10th percentile Median 90th percentile Australia 10th percentile Export volume Value-added (current prices)

Grattan Institute, The mining boom

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10 20 30 40 50 60 70 80 90 100 $bn

Australia’s economy is dominated by its big cities

Australian economic activity, 2011-12 Per cent of State total NSW Vic Qld WA SA Other Sydney Melbourne Brisbane Perth Adelaide 100 200 300 400 500 600 700 800 900 1000 1100 1200 SE Qld

Grattan Institute, Mapping Australia’s economy

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Some context: Auckland is a mid-size “Australasian city

Population, millions

Infrastructure Australia, Australian Infrastructure Audit, Auckland City Council, Unitary Plan

1 2 3 4 5 6 7 Sydney Melbourne Brisbane Perth Adelaide Auckland 2015 2031 (estimate)

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Economic activity is most intense in inner cities

Economic activity by location, 2011-12, Melbourne

CBD: $39.1b Southbank: $6.5b Docklands: $8.2b Dandenong: $5.9b kilometres 10

Grattan Institute, Mapping Australia’s Economy

Height of bar indicates total economic activity Bar not shown for economic activity less than $1 billion

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Parramatta: $68 Macquarie Park: $81 North Sydney: $91 CBD: $100 Airport: $65 kilometres 10

>$90 $80-90 $70-80 $60-70 $50-60 $40-50 <$40 Insufficient data

Economic output per hour is highest towards the centre

Economic activity per working hour, 2011-12, Sydney

Grattan Institute, Mapping Australia’s Economy

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City limits

Australia’s economy is increasingly dominated by services produced in cities Australian cities are nearing their limits

• Big cities are dividing geographically

– Inner cities have much better education levels, access to jobs, high incomes – The divide is increasing, particularly disadvantaging women

• Many people want to make different housing choices
• Home ownership is falling for all ages under 55, particularly those on low

incomes Planning policy needs to adjust to changing patterns of work Tax policy should encourage rather than discourage home ownership

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10 20 30 40 50 60 70

0-10 km from CBDs 10-20 km from CBDs 20+ km from CBDs

Most new jobs are towards the centre, while most new homes are on the edge

Jobs per resident, 5 largest Australian cities, 2011 0.0 0.2 0.4 0.6 0.8 1.0 0-10km 10-20km 20+km Employment and population growth, 5 largest Australian cities, 2006-11 Distance from CBD

Net employment growth Net population growth

Distance from CBD %

Grattan Institute, City Limits

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Inner suburbs have much high levels of tertiary education

Tertiary education levels by suburb, Brisbane 2011

Grattan Institute, Productive Cities

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Most Brisbane residents have good access to jobs by car …

Percentage of Brisbane jobs that can be reached in 45 minutes by car

Grattan Institute, Mapping Australia’s Economy

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… but Sydney shows how there can be real problems

Percentage of jobs that can be reached in 45 minutes by car

Grattan Institute, Mapping Australia’s Economy

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… and public transport leaves many of Melbourne’s outer suburbs under-served

Percentage of Melbourne jobs that can be reached in 60 minutes by public transport >50 40-50 30-40 20-30 10-20 <10

Grattan Institute, Mapping Australia’s Economy

Residents living in the darkest shaded suburbs can reach more than half the jobs within a 60 minute public transport trip. In the lightest shaded areas, residents can access fewer than one in ten of those jobs

Airport CBD Dandenong kilometres 10

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Differences in male and female workforce participation by suburb, Sydney 2011

Grattan Institute, Productive Cities

Women in poorly-connected areas face more difficult compromises

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Grattan Institute, Productive Cities

Poor access to job leads to poor social outcomes

Percentage of disaffected youth, Perth, 2011

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The divide between people and jobs has big consequences

In outer suburbs people earn lower incomes on average, and are more likely to be employed on casual basis. Harder for women caring for children in outer areas to participate in the workforce. Longer commutes result in:

• Higher living costs of thousands of dollars a year
• Pressure on family life
• Lower well-being

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1 2 3 4

Many people want to trade off location against price and dwelling type

Inner Inner-Middle Outer-Middle Outer TOTAL Detached 9% 9% 12% 10% 41% Semi- detached 4% 7% 7% 6% 25% Up to 3 storeys 2% 4% 4% 5% 15% 4 storeys & above 5% 5% 6% 4% 20% TOTA L 20% 26% 30% 25% 100%

Desired trade-offs between location and house type - Sydney

Grattan Institute, The housing we’d choose

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1 2 3 4 4 – ‘Outer’ Zone Shortages of:

• c.60k semi-detached dwellings
• c.60k apartments in buildings up to 3 storeys
• c.60k apartments in 4 storey + buildings

2 – ‘Inner-Middle’ Zone Shortages of:

• c.80k semi-detached dwellings
• c.80k apartments in 4 storey + buildings

3 – ‘Outer-Middle’ Zone Shortages of:

• c.80k semi-detached dwellings
• c.80k apartments in 4 storey + buildings

The market is supplying less medium density than people want

Comparison between preferences and availability - Sydney

Grattan Institute, The housing we’d choose

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Composition of household wealth, 2010 40 50 60 70 80 90 Home ownership rate by age Per cent Home

Wealth is dominated by home ownership, but home ownership rates are falling

Super- annuation Other financial Bank deposit Business Shares Other property 25-34 35-44 45-54 65+ 55-64

Grattan Institute, The wealth of generations

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• 40%
• 30%
• 20%
• 10%

0% 10% Income quintile Lowest 2nd 3rd 4th Highest 25-34 35-44 45-54 55-64 Percentage point change in home ownership rates, 1981 to 2011

Home ownership rates have fallen fastest for young people on low incomes

Grattan Institute, The wealth of generations

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City limits

Australia’s economy is increasingly dominated by services produced in cities Australian cities are nearing their limits Planning policy needs to adjust to changing patterns of work

• Planning policy results in developers failing to build people the housing

they want.

• Planning policy is economic policy: middle ring medium density

development is probably the largest single lever for both economic growth and social equality

• Residential tenancy policy needs to adjust to lower rates of home
• wnership

Tax policy should encourage rather than discourage home ownership

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Renting closer to jobs is a worse option than owning in Australia

International comparison of rental conditions

Notice period for landlords Reasons lease can be terminated Typical lease term Pet ownership Minor alterations (hanging pictures, laying carpet, painting)

Indefinite 6-12 months 2-3 years

Non-payment/misconduct only Any reason with notice Landlord selling/moving in

Tenant entitlement Only with landlord’s consent Subject to restrictions Permitted – considered normal use Only with landlord’s consent 3 months or more 30 days 2 months

Grattan Institute, Renovating housing policy

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City limits

Australia’s economy is increasingly dominated by services produced in cities Australian cities are nearing their limits Planning policy needs to adjust to changing patterns of work Tax policy should encourage rather than discourage home ownership

• CGT discounts and negative gearing are encouraging investors rather

than occupiers

• Property taxes are a better means to raise revenue than the alternatives,

and would improve housing affordability

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• 12
• 10
• 8
• 6
• 4
• 2

2 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Total net rent $ 2013-14 ($bn)

Source: Grattan Institute analysis of ATO Taxation Statistics 2012-13.

CGT discount introduced

Collective losses became large after the CGT discount was introduced

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Financial year ending

Source: Grattan Institute analysis of ATO Taxation Statistics 2012-13.

Number of people Average net rental loss $2014 Number of people negatively gearing residential property (LHS) Average loss (RHS)

More landlords are negatively gearing and average losses are growing

2000 4000 6000 8000 10000 12000 14000 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

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Limiting negative gearing in the 1980s did not appear to increase rents outside Sydney

• 6
• 4
• 2

2 4 6 8 10 1983 1984 1985 1986 1987 1988 1989 Sydney Melbourne Brisbane Adelaide Perth No negative gearing

Source: ABS, Consumer price index, cat. no. 6401.0, table 12; see also Greg Jericho, Negative gearing: a legal tax rort for rich investors that reduces housing affordability, The Guardian, 19 March 2015.

Real change in rents, percentage change from year earlier

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0% 1% 2% 3% 4%

Source: OECD (2014), Revenue statistics, updating Grattan Institute, Property taxes

Property taxes Taxes on property and transactions, per cent of GDP Transactio n taxes

Australia has lower property tax revenues than some comparable countries

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• Australia’s economy is more knowledge-intensive than ever
• City centres are vital for knowledge-intensive activity and economic

growth

• Our cities have not adjusted well to these changes in the economy
• This is bad for the economy and bad for opportunity
• Housing, transport, and tax policies can support or hinder access to

jobs, and choice for both employers and employees

Conclusions

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City limits

Australia’s economy is increasingly dominated by services produced in cities

• Services are growing much faster than other sectors
• Big cities now dominate the economy
• More jobs are concentrated in the centre of big cities, while new housing is

primarily at the edge Australian cities are nearing their limits

• Big cities are dividing geographically

– Inner cities have much better education levels, access to jobs, high incomes – The divide is increasing, particularly disadvantaging women

• Many people want to make different housing choices
• Home ownership is falling for all ages under 55, particularly those on low incomes

Planning policy needs to adjust to changing patterns of work

• Planning policy results in developers failing to give people the housing they want.
• Planning policy is economic policy: middle ring medium density development is

probably the largest single lever for both economic growth and social equality Tax policy should encourage rather than discourage home ownership

• CGT discounts and negative gearing are encouraging investors rather than
• ccupiers
• Property taxes are a better means to raise revenue than the alternatives

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