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Common Urban Myths About Transport

Few of us will have failed to notice the ‘affordability crisis’ that has struck the Australian real estate market in recent years. In Melbourne between 1996 and 2003 the median house price more than doubled, from $150,000 to $350,000. Growth in incomes has been less spectacular, and this has led to people having to borrow ever-greater multiples of their annual disposable income if they want to share in the ‘great Australian dream’ of home ownership.

There is a general consensus that the explosion in house prices is due to a number of factors, chief among them being a sustained period of low interest rates up to 2004 (allowing more to be borrowed for the same monthly repayment), a boom in financial speculation - including from overseas - inflating asset prices, and various new government incentives to spend up big on real estate (such as the halving of capital gains tax on investment properties held for a year or more).

But even the multitude of credible explanations available hasn’t prevented property developers (who profit handsomely from real estate inflation), and the right-wing think tanks who act on their behalf, from offering self-serving ‘explanations’ of their own. So it’s become fashionable in some circles to blame high house prices on - of all things - sustainable transport-and-land-use planning.

The gist of this particular fairy tale is that anti-sprawl policies, such as Melbourne’s urban growth boundary and planning rules barring certain kinds of development in rural ‘green wedge’ areas, create an artificial scarcity in the supply of land for housing and this is what pushes prices up. Since public transport allegedly needs strong planning measures like this to support its use, it’s concluded that public transport is bad for ‘the battlers’ because it leads to unfairly inflated house prices.

Too many state and local politicians and their planning advisers place obstacles in the way of people seeking to buy new homes.... Many of this view have an emotional attachment to public transport.
---Alan Moran (Institute of Public Affairs), Herald Sun, 9 September 2006

It is important to remember that the scarcity that propelled land prices is artificial.... It is the product of restrictions invoked through planning regulation and zoning.... State and Territory Governments have been spurred along by an urban planning cheer squad which is obsessed with curbing the size of our cities and pushing a policy of urban consolidation. Between them they have excluded more low and middle income earners from home ownership than at any other time in Australia’s history.
---Bob Day (Institute of Public Affairs), address to Australian Christian Lobby, September 2006

No longer do we all troop to work to the urban centre using buses, trains and trams. For the most part, we work in dispersed locations and prefer to travel by car to work and for entertainment.... Imposing constraints on developments means an alarming inflation in the cost of land.
---Alan Moran, The Age, 23 January 2007

Much of this rhetoric originated in the USA, which largely lacks the comprehensive urban planning that has been traditional in Australia, and where efforts to establish a planning system more akin to ours have been resisted by developers and the road lobby. But even in the Australian context the claims are nonsense. For a start, greater public transport use doesn’t actually require urban consolidation or high population densities, as we explain on another page. Nor does our general preference for big houses in the suburbs mean that public transport can’t cope, as we also explain elsewhere. But regardless of all this, the evidence (which the developer lobby never refers to) shows there is no scarcity of housing in Australia or in Melbourne, and that there is no connection between urban consolidation policies such as Melbourne 2030 and escalating house prices.

Consider the simple matter of timing. When the rapid escalation in Melbourne house prices began in 1997, Victoria was still in the grip of the notorious, laissez-faire I hate silly rules regime of Kennett Government Planning Minister Rob Maclellan. This opened up a lot of land for development in ‘green wedge’ and other non-urban areas just before house prices went up. Melbourne 2030, with its green-wedge protection legislation and urban growth boundary, was only brought in by the Bracks Government in 2003, at which time the rapid growth in Melbourne house prices promptly stalled. Between 2003 and 2006 prices were essentially flat, and in real terms declined slightly.

Then in 2006 the government gave in to developer pressure, loosening the urban growth boundary and announcing new land releases equivalent to a rolling 10 years’ supply. It’s not entirely fair to hold this responsible for the new price hikes that followed, since the same trend is found in other Australian capitals. Nonetheless, such evidence as exists suggests the exact opposite of what the developer lobby claims: laissez-faire development causes price inflation, while restrictive planning keeps prices under control!

Sources: Australian Bureau of Statistics, Established House Price Index (December figures). Michael Buxton and Robin Goodman, Maintaining Melbourne’s Green Wedges. In 2005 there was a technical change in the ABS methodology: the new series has been adjoined to the original series at this point.

The other major piece of contrary evidence comes from the Census data on households and dwelling sizes. It’s a reasonably well-known fact that in recent years, the average size of households has been steadily falling, with more people living alone and couples having fewer children. Yet it also turns out that the average house size (as measured by number of bedrooms) has been rising over the same period. As the table below shows, not only is the number of homes in Melbourne growing faster than the number of households to live in them: because of the growing disconnect between house size and household size, the total amount of available accommodation (bedrooms per person) is growing even more rapidly.

Source: Australian Bureau of Statistics. Census data for usual resident population, dwellings and number of bedrooms per dwelling. ABS derived figures for estimated resident households. All numbers relate to the Melbourne Statistical Division.

However one looks at these figures, they cannot be made to support the claim that a growing scarcity of housing in Melbourne caused the inflation in house prices after 1996. What is evident instead is that housing provision has more than kept up with population growth and with the shrinking size of households, and is doing so with houses that are larger than previous generations were accustomed to. Others who have looked at the Census data have come to similar conclusions, even for other parts of Australia.

The state of the land in Melbourne is substantially healthier and more positive than is the case in Sydney.... The Victorian Government has paid significant attention to the provision of sufficient land to satisfy demand in Melbourne’s growth areas.
---Urban Development Institute of Australia, State of the Land, 2006.

Of course there is a genuine problem with housing affordability in Melbourne, but it is a distributional problem, not a land supply problem. Available evidence suggests on the one hand a concentration of demand for real estate in (mostly inner-city) locations with good local facilities and public transport access, and on the other a glut of unsold real estate in suburban locations that lack local facilities and where public transport is of a particularly poor standard. For example, in the first quarter of 2008, house prices in Ashburton (on the Alamein train line) increased by nearly 8%, while those in Hillside (an outer north western suburb with a handful of bus services) dropped by nearly 2%.

If anything, investment in public transport infrastructure and services should help make housing more affordable, by levelling out the locational benefits of particular areas and so tempering what commentator Julian Disney has called bidding wars for well-located properties.

But if one wants a ‘supply-side’ explanation for the housing boom, there is an excellent orthodox candidate: the supply of money for home loans. At the 10% interest rate that prevailed in the mid-1990s, a family on the median household income of roughly $39,000 in Melbourne could afford to borrow about $130,000 on a typical bank formula (where one third of gross income is applied to loan repayments). But at the 5% rate applicable five years later, a family on the 2001 median income of roughly $45,000 could afford to borrow around $300,000. Throw in the proliferation of home loan providers and the relaxation of lending criteria and the climate is ripe for house price inflation to occur, even when there are plenty of houses to go around. In part this is due to the proliferation of housing investors ‘crowding out’ owner-occupiers.

What sent house prices soaring was the invasion of the investors, driven by the tax breaks for negative gearing and capital gains. Landlords used to own 20% to 30% of the housing market. But by 2003 they were taking almost 50% of housing loans (excluding refinancing), and even now, they take close to 40%, outbidding the first-home buyers.
---Tim Colebatch, The Age, 18 March 2008

It remains to be seen how the global financial crisis of 2008 will affect real estate prices in this country. To date we have largely avoided the housing market turmoil that kicked off the crisis in the USA. While this appears largely due to the greater prudence of Australian financial institutions, the anti-sprawl thrust of our planning culture (even if watered down) will also have played a part. Not only has it helped restrain the urge toward oversupply in the boom years: it also ensured a reasonable level of access by new home owners to shops, employment and public transport, even while their US counterparts found themselves struggling to afford the petrol to drive miles to buy food and other necessities.

In summary, a return to the free-for-all urban planning approach of the Kennett era will not make housing more affordable, and might actually make it even less affordable. A bigger problem for our planners is the fact that many new home buyers in Melbourne lack access to public transport and are therefore particularly exposed to escalating petrol prices. Providing families with a public transport alternative costs less than freeway building and occupies less land, making it easier rather than more difficult to achieve urban growth.

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© 2007 Public Transport Users Association Inc. (PTUA), Victoria, Australia. ABN 83 801 487 611.
General copying and distribution on a non-commercial basis is permitted subject to proper acknowlegement.
Authorised by Tony Morton, 247 Flinders Lane, Melbourne, for the PTUA

Last modified: 12 November 2008