Democratising Prosperity: Global Perspectives on Housing Affordability

Urban Consolidation Seminar Save Our Suburbs: Sydney By Wendell Cox 19 August 2006

The Great Australian Dream Sydney

Housing Affordability Crisis in Australia SYDNEY

160% 140% 120% 100% 80% 60% 40% 20% 0% -20% -40%

Inflation Adjusted

Sydney: Median House Price

GDP per Capita (AUS) 1981

1986

1991

1996

2001

Housing Still Affordable MOST MARKETS IN CANADA & USA

St. Louis Suburbs July 30, 2006 On WC Walking Route

House and Land

The Growing Consensus LAND RESTRICTIONS DESTROY AFFORDABILITY

SMH on Reserve Board Chairman Ian MacFarlane… He expressed concern about housing affordability and said state government land release policies, and the growth of up-front levies on new homes, were making it harder to enter the market.

A BROADER ISSUE The issue is not… Land use Cities The issue is… Quality of Life Social Equity Future of the Nation Economy Cohesion Affluence Poverty

Montreal, Canada

1

3

Background: Suburban World (“Urban Sprawl”)

2

The Portland Nirvana: Failing Model

4

Threat to the Great Australian Dream

Berlin, Germany

Home Ownership And Prosperity (Democratising Prosperity)

Melbourne

Sapporo, Japan

5

The Universality of Aspiration

Living in the Future Tense THERE IS NO REASON TO STOP DEMOCRATISING PROSPERITY

Valencia, Spain

New Auto-Oriented Commercial Development Portland Suburbs

6

Public Transport: Platitudes And Exaggeration

Restoring Trams to New Orleans

Zurich

Background: Suburban World (“Urban Sprawl”)

Berlin

NOT A BRIEF FOR SPRAWL LONE MOUNTAIN COMPACT

German Dream Leipzig

“ … absent a material threat to other individuals or the community, people should be allowed to live and work where and how they like.”

Pragmatism, Not Cheerleading Etoile

PREFERENCES & POLICIES: MY PARIS HOMES Opera Republique Louvre

Chatelet

Eifel Tower Notre Dame

Bastille

Gare de Lyon Objective: Affluence with Minimum Poverty

Urban Sprawl is Suburbanisation PLANNERS CONFESSING THE SINS OF OTHERS The Anti-Sprawl Theology

Canberra

It is a Suburban World NEARLY ALL URBAN GROWTH IS SUBURBAN

120% 100% 80% 60% 40%

Canada from 1951, US from 1950 Others from 1965

20% 0% Canada

United States

Western Europe

Japan

Australasia

Paris: Avenue de l’opéra

Paris of the Tourists & Planners HISTORICAL CORES NOT BUILT ANYMORE

Tourist Paris is Not Paris HISTORY IS THE DIFFERENCE 15th Most Sprawling World Urban Area (2,700 km2)

Population 82% Outside Ville de Paris

Employment 67% Outside Ville de Paris

Paris: Where the People Live FRENCH DREAM: PARIS SUBURBS

The Declining Human Footprint MIRRORS TREND IN CANADA & UNITED STATES

Urbanisation Å2001 (700 USA Municipalities Fees/Capita: 2000

$300 $250

$120,000

Water

$200 $150 $100

$100,000

$50

Sewer Density 3.020

Density 1,880

Density 1,090

Density 800

Core (1939)

Ring 1: 1959

Ring 2: 1979

Ring 3: Later

$0

$80,000

$150,000

$60,000 $40,000 $20,000

$6,500 or Less

$0 Atlanta

Sydney

Suburban Cost Research “ILL INFORMED & DISINGENUOUS”

“… if the urban policies … were not so ill informed and presented in such a disingenuous way, there would not be a need for this contribution to the debate on Australia’s cities” - Patrick Troy (The (The Perils of Urban Consolidation). Consolidation).

Getting it Wrong on Obesity PROBLEMS WITH THE TIME SEQUENCE (USA) 250

Obesity

Caloric Intake Trend: Early 1990s

225

2,002 1,774

200 175 150 125

Suburbanization (Urban Density)

100 75 50 1960

1970

1980

1990

Open Space and Parks PRESERVATION APPROPRIATE

Hyde Park

2000

Central Issue for the Political Left LOWER & MIDDLE INCOME HOUSEHOLDS

• The Left Waking Up • Low Income Housing Impacts

• USA: Hillary Clinton American Dream Initiative Tomás Rivera Policy Institute: Land Rationing Growth Controls Impact Fees

Home Ownership: USA: Black 60% 50% 40%

Kahn (Tufts University)

Lower Density

Higher Density

30% 20%

Barriers: Hispanic Home Ownership

10% 0%

The Portland Nirvana: Failing Model

New Auto-Oriented Commercial Development Portland Suburbs

Portland: Most Growth Suburban METROPOLITAN AREA: 2000-2005

180,000 Core +0.8% Suburbs +11.8%

160,000 140,000 120,000 100,000 80,000

163,800

60,000 40,000 20,000 4,200

0 Suburbs

Core

Public Transport Work Trip Share BEFORE & AFTER LIGHT RAIL (PORTLAND): 1980-2000

10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%

9.4% 7.6%

1980

2000

Portland Housing Prices Up Most 1990-2000: HOUSING MULTIPLE (US CENSUS)

60% 50% 40% 30% 20% 0% -10%

LA PRV WDC RSB SAC NY DFW BOS SAN SD VB PHI TSP SF ORL NO HOU MIA SJ BAL STL PHX LV ATL SEA CHI MSP KC PGH CIN COL IPS CLV MIL DEN DET POR

10%

-20% -30%

Traffic Has Worsened Considerably 1986-2001: 30 MINUTE PEAK AUTO TRAVEL DISTANCE Portland: Transit & Urban Consolidation

Houston: Highways & Market

2001

1986 2001

Among Greatest Congestion Increases

1986

From Worst to 14th Worst Congestion

The Bloating Urban Growth Boundary PORTLAND RETREATS – RESPONDING TO REALITY

450,000 400,000 350,000

Portland Urban Growth Boundary: Acres

19972004 Trend to 2040

300,000 250,000 200,000 150,000 100,000

1997 Actual

2040 Plan Adopted 1997

Actual 2004

50,000 0

Proposals for Highway Expansion PORTLAND AND VANCOUVER

Traffic drives Sysco from Portland Traffic drives Dell from Austin

Home Ownership And Prosperity (Democratising Prosperity)

Sapporo, Japan

Every Economy has Rich & Poor EXTENT OF POVERTY IS THE DIFFERENCE Rio de Janeiro: Rich & Poor

Extent of Poverty Distinguishes Economies INDONESIA & AUSTRALIA

Jakarta: Rich & Poor

World History is History of Poverty HIGH INCOME NATIONS SINCE WORLD WAR II

$40,000 $35,000 $30,000

United States

GDP-PPP Per Capita 1990$A (OECD)

Japan AustraliaÆ

$25,000 $20,000 $15,000

ÅWestern Europe

$10,000 $5,000

US Poverty Threshold

$0 1870

1890

1910

1930

1950

1970

1990

Prosperity is Not Guaranteed PURCHASING POWER PARITY

$40,000 $35,000 $30,000

GDP-PPP Per Capita 1990$A (OECD)

United States Japan Australia

$25,000 $20,000

Western Europe

$15,000 $10,000

Argentina

$5,000

US Poverty Threshold

$0 1870

1890

1910

1930

1950

1970

Competitive Intensity ECONOMIC FREEDOM AND AFFLUENCE

1990

GDP per Capita: 1990 PURCHASING POWER PARITY

100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50%

Discontinuous ÅAxis

100%

78% 74%

Australia

80%

80%

Sweden

Japan

72%

UK

USA

France

GDP per Capita: 2004 PURCHASING POWER PARITY

100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50%

Discontinuous ÅAxis

77%

Australia

100%

74%

UK

USA

72%

71%

France

Sweden

73%

Japan

LAND USE POLICIES MATTER

Important Drivers of Economic Growth POST-WAR AUSTRALIA & FIRST WORLD

• Home Ownership – Cheap land on the urban fringe

• Personal Mobility – University of Paris Research – 10% Access Improvement = 12% Gain

Democratisation of Prosperity ASSOCIATED WITH HOME OWNERSHIP

80% 70%

ÅHomeownership Rate

60% 50% 40% 30% 20% 10% 0% 1947

2001

Threat to the Great Australian Dream NW Sydney

BASIC ECONOMIC PRINCIPLE SCARCITY & RATIONING TEND TO RAISE PRICES Rationing land for housing development tends to raise house prices. Higher housing prices lead to lower rates of home ownership.

Excessive Land Use Regulation POLICIES & PRACTICES THAT DRIVE PRICES UP

• Development Bans – Urban Growth Boundaries – Green Belts • Costly Infrastructure Fees • Slow Land Release or Sale • Expensive Amenities • Down-Zoning

…our evidence suggests that zoning and other land use controls play the dominant role in making housing expensive.

HARVARD STATE OF THE NATION’S HOUSING 2005 “Development constraints drive up land and construction costs as well as prevent new housing from keeping pace with rising demand.”

Land Rationing Raises Housing Prices REAL HOUSING PRICES IN THE UK & EUROPE

80% 70% 60%

United Kingdom (Strong Land Rationing)

50% 40% 30% 20%

EU Outside UK

10%

(Little land rationing)

0% 1972

1977

1982

1987

1992

1997

2002

LAND USE REGULATION RETARDS ECONOMIC GROWTH

20% less job growth than expected in metropolitan areas with strongest land use regulation

Raises Land Prices EXAMPLE BASED UPON PORTLAND

$400,000 $350,000

ry unda o B th Grow n a b r ÅU

$300,000 $250,000 $200,000

Without Urban Growth Boundary Æ

$150,000 $100,000 $50,000 $0

Brisbane

ÅLand Price Per Hectare

Sydney

Median Multiple Trend: Australia LARGEST MARKETS: 1981-2005

9 8 7

Sydney

Median House Price/Median Household Å Income

6

Adelaide Æ

5

Melbourne

4 Brisbane Perth

3

Data points on labeled years only

2 1981

1986

1991

1996

2001

2005

Median Multiple by Market: 2005 MANY MARKETS REMAIN AFFORDABLE

12 10 8

Fast Growing & Affordable Atlanta Dallas-Fort Worth Houston

6 4

0

ROC BUF IPS PGH STL OKC KC DFW CIN AUS LVL ATL EDM SA HOU COL CLV DET MEM CGY NVL MON MSP NO CHA JVL HFD PHI VB DEN GGW MIL POR TOR BAL CHI TSP PHX MAN SEA ORL BIR PRV L-B DUB BRS BOS PER WDC MEL LV ADL AUK VAN SAC LON NY SYD MIA SF SD LA

2

It is Not Macroeconomics SAME INTEREST RATES & FINANCING IN ATLANTA $350,000 8.00%

7.00%

$300,000

6.00%

$250,000

5.00%

$200,000

4.00% $150,000

3.00% 2.00% 1.00%

$100,000 ÅNZ Short Term Interest Rate (OCR)

Median House Price Æ

0.00%

$50,000 $0

2001.12

2002.12

2003.12

2004.12

2005.12

Trend in Demand: Downward COMMENCEMENT RATE/1,000,000 POPULATION

8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1985

1990

1995

2000

2005

The Issue is Not Demand HIGH INCOME METROPOLITAN AREAS > 3,000,000

40% 35%

1990s Population Growth Rate

30% 25% 20% 15% 10% 5% LA CH M I AD M O N NY BO S AT H LO N NA G DE T TO K PH I BE R BA R PA R O K K M LN RR W

SF

AT L SN G DF W HO U M IA TO R HK W D C SY D

0%

Median Multiple: 2005 TALE OF TWO CITIES: SYDNEY AND ATLANTA

9.0 8.0 7.0

Low Interest Rates Both Urban Areas

6.0 5.0 8.5

4.0 3.0 2.0 1.0

2.8

0.0 Atlanta

Sydney

World’s Most Competitive Home Builders HOME BUILDING: AUSTRALIA & EUROPE

$120 $100 $100 $80 $75

$60 $40

Australia: World’s Most Competitive Home Building Industry

$20 $0 Germany

Australia

Real Increase in Component Prices AVERAGE OF LARGE CAPITAL CITIES: 1993-2006

140% 120% 100% 80% Land Share Of Total Cost Doubled Since 1970s

60% 40% 20% 0% Land

House

Impact on Household Budgets 40 YEAR CAREER: 2005 V. 2000 PRICES

$600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 Median House: Sydney

Petrol

US Domestic Migration: 2000-2005 LEADING INDICATOR OF GROWTH

1,500,000 1,000,000

Nearly all low cost markets

Las Vegas Phoenix Sacramento

500,000 0 -500,000 -1,000,000 -1,500,000 -2,000,000

Highest Cost All have strong land use regulation (Examples LA, SF, SD, NY, BOS, WDC

-2,500,000

Safety Valve

Low Cost

Under 1,000,000

Trend is Accelerating

Metropolitan Areas Over 1,000,000

-3,000,000

Democratisation is not Complete STILL MANY RENTERS

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Home Owners

Renters

Toward a Nation of Renters ESTIMATED EVENTUAL HOME OWNERSHIP RATES

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Restoring inheritance as the determinant of affluence Home Owners

70%

40%

Australia Now

Perth Rate

Impacts on Public Housing HIGHER LAND COSTS, FEWER NEW UNITS

15% Sydney Rate

The Universality of Aspiration

Living in the Future Tense THERE IS NO REASON TO STOP DEMOCRATISING PROSPERITY

Valencia, Spain

The Great Australian Dream HAS BECOME THE UNIVERSAL DREAM Romanian Dream Bucharest

The Universal Dream MEXICAN DREAM: GUADALAJARA

The Universal Dream INDONESIAN DREAM: JAKARTA SUBURBS

The Universal Dream EGYPTIAN DREAM: CAIRO SUBURBS

Public Transport: Platitudes And Exaggeration

Restoring Trams to New Orleans

Why didn’t Federal Government Pass Out Public Transport Passes?

Not enough people going to the same place at the same time

Don Valley Parkway & Commuter Rail Toronto

Employment Access by Transit Less PARIS NEW TOWNS: ONE HOUR JOURNEY Automobile

Public Transport 59%

Jobs Accessible

16%

Not Accessible

Jobs Not Accessible Jobs Accessible

84%

41%

All New Towns Served By RER Regional Metro

Public Transport & Car Access: Portland

Transit (Lines)

Auto (Green Area)

30 Minute Travel Access From Suburban Location

Auto access far greater than transit

Auto Competitive Public Transport PORTLAND EXAMPLE: 800 METER UNDERGROUND GRID

Annual Cost: More than gross annual income

Work Trip Market Share SYDNEY EMPLOYMENT CENTRES: 1996

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Only 13% of Sydney Jobs

Downtown & N Sydney

Chatswood

Parramatta

Other

Sydney Rail Coverage