What’s happened to the idea of the compact city?

Number of Newly Constructed Residential Dwellings by Dwelling Yield Range, 2004 to 2008 (DPCD)

Pending completion of the Government’s new urban strategy for Melbourne, the two major strategic planning documents that jointly guide the metropolitan area’s development – Melbourne 2030 and Melbourne @ 5 Million – are rich with rhetoric about the importance of directing development to established suburbs rather than the periphery. They also emphasise the desirability of concentrating that development around activity centres instead of dispersing it throughout the existing suburbs.

In a show of great political courage, Melbourne 2030 sought to limit the share of Melbourne’s population growth in peripheral Greenfield developments to just 38%. Virtually all the rest would be located within the established suburbs, of which 40% would be concentrated in activity centres.

However the supplementary strategy released six years later in 2008, Melbourne @ 5 Million, relaxed the target considerably. It was clever – it slackened the numerical target to 47% while simultaneously narrowing its geographical ambit to just the six Growth Area municipalities. These six cover an area much smaller than that implied by the term ‘greenfield’ used in Melbourne 2030.

This statistical report prepared by the Department of Planning and Community Development (DPCD), Housing Development Data 2004-2008, reveals that the new Melbourne @ 5 Million target wasn’t very demanding. It merely echoed the way the market had behaved over the preceding four years.

Over 2004-08, the Growth Area municipalities accounted for 44% of net new dwelling construction (after subtracting demolitions). Once the larger average household size of outer suburban households is taken into account, this is much the same as Melbourne @ 5 Million’s 47% population “target”. Rather than seek to change the market as its rhetoric suggests, Melbourne @ 5 Million was essentially business as usual.

In any event limiting the target to Growth Areas could be construed as misleading. They are not the same as the outer suburbs. There was considerable growth in other peripheral municipalities over 2004-08 e.g. Frankston, Nillumbik, Mornington Peninsula and Yarra Ranges. When they are added to the Growth Area municipalities, the outer suburbs accounted for 54% of all new dwelling construction in the metropolitan area over 2004-08. In terms of the share of population growth, the number would be somewhat higher.

So Melbourne @ 5 Million essentially had no real ambition to drive significantly higher housing supply in the established suburbs. Despite what the text sought to imply, it settled for them absorbing just 46% of new dwellings.

Melbourne @ 5 Million also dropped any numerical targets for activity centres. Previously, Melbourne 2030 projected that 40% of the population growth within the established suburbs would be concentrated at relatively high densities, with the other 60% in small infill developments dispersed across the suburbs. Read the rest of this entry »


Can money make you happier?

How happy people said they were over the last 30 years, by country

In his new book, The price of civilisation: reawakening American virtue and prosperity, progressive Columbia University economist Jeffrey D Sachs argues that the relationship between income and happiness is not as strong as people often imagine. Above a (lowish) minimum level, income doesn’t make a big difference.

But money could make us happier if only we’d spend it in different ways. Drawing on the research of Harvard psychologist Daniel Gilbert and his colleagues, he cites eight principles for deriving more happiness from your income:

First, buy experiences instead of things, since experiences (vacations, trips to the museum, concerts, dining out) offer long memories to savor.

Second, and crucially, use our incomes to help others instead of ourselves, because as hypersocial animals, “almost anything we do to improve our connections with others tends to improve our happiness as well.”

Third, buy many small pleasures instead of a few big ones, in essence slowing down to smell the roses.

Fourth, buy less overpriced insurance (such as product warranties), because we adjust much better to adverse shocks than we suppose.

Fifth, pay now and consume later, rather than buying now on the credit card and paying later. The anticipation of a future purchase will give us anticipatory joy, which the authors call a source of “free” happiness. Impatient purchases, on the other hand, give us fleeting benefits and long-term debt.

Sixth, be attentive to the details of a purchase, since they may disproportionately affect the happiness of the experience.

Seventh, beware of too much comparison shopping, since it can focus our attention on unimportant distinctions.

Eighth, listen to others about what can bring happiness. They can add new and useful perspectives

The source of these principles is a paper published earlier this year in the Journal of Consumer Psychology, If money doesn’t make you happy then you probably aren’t spending it right, by Elizabeth Dunn, Daniel Gilbert and Timothy Wilson. If you follow that link you can read the complete paper (it’s not technical and it’s not very long). Here’s the conclusion:

When asked to take stock of their lives, people with more money report being a good deal more satisfied. But when asked how happy they are at the moment, people with more money are barely different than those with less…..This suggests that our money provides us with satisfaction when we think about it, but not when we use it. That shouldn’t happen. Money can buy many, if not most….of the things that make people happy, and if it doesn’t, then the fault is ours. We believe that psychologists can teach people to spend their money in ways that will indeed increase their happiness, and we hope we’ve done a bit of that here.

Note: the quote from Jeffrey D Sach’s book is from page 127 of my electronic edition. I’m not sure if paper copies will be the same, but if not it’s at the start of Chapter 9, The Mindful Society. Random House will publish the book in paperback in Australia on 1 December – note that I’ve linked the book to Amazon above because Random House Australia has the cover right but the blurb is about a different book altogether!


Are real estate agent fees limiting residential mobility?

Real estate commissions are preventing residential mobility (Source ABS)

Despite an enormous increase in house prices over the last ten years, real estate commissions stayed relatively constant as a percentage of selling price. Agents consequently enjoyed a spectacular increase in the dollars earned on each sale even as the volume of sales was expanding.

In its new report, Getting the housing we want, the Grattan Institute notes real estate commissions are so big they’re a significant barrier to residential mobility in most States. This is an important public policy issue – the ABS reports that even though average household size is falling, the average number of bedrooms per household is increasing (see exhibit). Any barriers that constrain households from voluntarily moving to dwellings that better match their size should to be addressed. And the same goes for barriers that limit their ability to reduce travelling costs by moving to a new residential location.

In most industries, when firms start earning super-profits we would expect prices to be moderated by an increase in competition. However as the Institute observes, this hasn’t happened with real estate agents – competition is weak:

This is consistent with the industry elsewhere, too – the UK Office of Fair Trading recently conducted a review of UK real estate buying and selling. It found that while 32% of those who had used a traditional real estate agent believed that the fees represented either slightly or very poor value for money, 64% said that they did not negotiate a lower fee.

In Victoria, as in most States, there is no set commission, giving the impression of a lightly regulated industry. Vendors and agents are free to work out whatever arrangement they wish, whether it be a fixed sum, a sliding scale, or something else. However according to this real estate consulting group, the customary fee paid by vendors in Melbourne ranges from 1.6% to 2.5% of the selling price. This doesn’t include advertising or even a property sign – marketing is an extra cost borne by the vendor.

This introductory “how to” guide on buying and selling issued by Consumer Affairs Victoria implies an even higher commission. It illustrates a lesson on negotiation between a vendor and agent with an assumed commission of 3.3% up to $500,000 and 3.85% thereafter (p 22). That’s a $16,500 commission on a $500,000 property. I think there’s a fair chance the target market for the guide will interpret this illustration as somewhere around the “going rate”.

There’s hopefully an extensive literature that looks at why the cost to vendors has risen so much and why competition is so weak. If there is I’m not familiar with it and I don’t have time to read it anyway. It seems to me, though, that the internet should’ve reduced considerably the cost to agents of finding prospective buyers and that a good part of those savings should’ve been passed on to vendors. It also should’ve made it easier for innovators to enter the industry and set up new lower-cost business models. Read the rest of this entry »


Is the Flinders St Station design competition just about…..design?

Melbourne's iconic Flinders St Station (this gorgeous photo by Gillian at Melbournecurious.blogspot.com)

The Premier gave the Flinders St Station International Design Competition another nudge this week, announcing entries will be formally invited from architects mid next year, with the winner to be announced mid 2013.

Mr Baillieu indicated the project for the 4.7 ha site has two basic components. One involves “restoring and renovating the building” and the other is about “releasing any opportunities for further development”. According to The Age:

Mr Baillieu said renovation of the heritage-listed station would be very expensive, and the government was looking for ways to ”release some value” to help bankroll the development, including the possibility of a public-private partnership. A property developer will sit on the competition judging panel, as well as Victoria’s government architect, Geoffrey London.

I’ve previously questioned the sense of running this project as a design competition, but there are a couple of other aspects that also worry me.

One is that this isn’t really first and foremost an “architectural design competition”. That’s a convenient way to market the project because it sounds innocuous – everyone knows architects are sensitive characters who care about design, heritage and place.

But all the signs suggests this is really a search for commercial uses that will generate revenue for the Government – at least enough to pay for the restoration and renovation, but hopefully more. The key players will be organisations with the wherewithal to “release some value” – i.e. to identify, develop and finance new uses that generate profits.

These sorts of players are traditionally called property developers or merchant bankers, not design professionals. Architects will still have a key role in the physical expression of the new Flinders St Station precinct but they won’t be the motive force determining what sort of activities take place there.

So-called competition entries will primarily be commercial bids, rather than primarily design submissions. The novelty is the bid consortia will presumably all have to be led by architects, at least nominally.

The project is likely to be as much about the redevelopment, as the restoration, of the precinct. Redevelopment can be positive provided it is handled in a way that’re sympathetic to the transport, heritage and civic importance of this precinct. And there’s certainly plenty that needs to be done – addressing that horrible concourse-cum-food court for a start.

However redevelopment can also mean some of the values that define the precinct might be put at risk. Mr Baillieu recognises there could be new buildings but says they will have a “common sense” height limit. Hmmm……I doubt we all have the same number in mind!

Another key issue is the “competition” shouldn’t be conceived as a fishing expedition. A potential danger with competitions is officials, politicians and the public could be seduced by a spectacular proposal – a one trick pony – that fails in other important respects. The brief is thus supremely important. Read the rest of this entry »


Has the Grattan Institute got the answer to our housing woes?

Housing preferences compared with existing stock and the composition of current housing supply (by Grattan Institute)

I have to say right up-front that I’m disappointed by The Grattan Institute’s new report, Getting the housing we want. It nominally proposes ways of increasing housing supply in established suburbs, but it really just puts up the politician’s standard solution – more bureaucracy, more money, and little explanation (press report here).

In the Institute’s defence, I must acknowledge that it’s taken on a difficult task. It’s much harder to propose practical solutions than it is to analyse problems, identify key issues and propose general directions for action. And the Institute has hitherto done a good job on the latter three tasks with a series of reports under its Cities Program.

The new book by Harvard economist Edward Glaeser, Triumph of the City, illustrates the way solutions attract criticism. The book was lauded for its sophisticated analysis of the benefits of density and the need to remove the many obstacles to redevelopment. But his big idea for an historic buildings preservation quota – meaning that cities could only protect a set number of buildings each year and so would be forced to prioritise – was lambasted by all and sundry as impractical and, worse, naïve.

A lot of critics had a similar reaction to Ryan Avent’s The Gated City. Great analysis of the need to promote density, they said, but potential solutions to NIMBYism like developers compensating neighbours for the negative effects of development were criticised as unworkable and unrealistic. As soon as detailed, practical solutions are suggested, the knives come out!

So the Grattan Institute is putting its corporate head on the line with the solutions-oriented Getting the housing we want. It’s a follow-up to the Institute’s earlier report, the impressive The Housing we’d choose. The earlier report established that there’s a significant mismatch in Melbourne and Sydney between where many people actually live and where they’d like to live (see my earlier discussion of this report).

Opposition from existing residents to redevelopment proposals is a key reason for this misalignment – they don’t see the broader good and they don’t see how redevelopment benefits them. Councils tend to fall in behind residents who’re committed in their opposition to redevelopment.

The new report is on safe and familiar ground when it advocates standard stuff like code-based approval processes for small-scale development. However its headline proposal is more problematic – the Institute proposes the establishment of Neighbourhood Development Corporations (NDCs), with initial financing coming from a proposed new Commonwealth-State Liveability Fund.

The idea is NDCs would undertake large scale redevelopment projects aimed at increasing housing supply. NDCs would be “independent”, not-for-profit organisations that work in “partnership” with all tiers of government, the private sector and residents. The Institute stresses the importance of in-depth consultation and says NDCs could only “go ahead with the support of local residents”. NDCs would have to provide a diversity of housing “in terms of both type and price” and would have “temporary planning powers”.

Disappointingly, there’s not a lot of concrete information in the report on the mechanics of the proposed NDCs and Liveability Fund. And there’s little specific analysis and justification provided in support of these ideas. However the report profiles three examples of existing organisational structures similar to what’s envisaged with NDCs. These are London Docklands Development Corporation; HafenCity Hamburg, and Bonnyrigg social housing estate.

These throw more light on what the Institute envisages. They make it clear NDCs are conceived primarily as mechanisms for managing large sites like E-Gate which are invariably disused, underutilised or owned largely by government. The familiar redevelopment challenges of land assembly, existing uses and resident opposition are usually much more tractable with these sorts of sites than they are with activity centres (e.g. see discussion of proposals for Ivanhoe).

I have trouble enough with the idea that changing management structures is the broom that will sweep away all the gunk that’s holding up supply. But the trouble with having such a narrow ambit is that the potential contribution NDCs can make to increasing housing supply is necessarily more limited. Moreover, it begs the question of whether NDCs are even necessary. Read the rest of this entry »


What is the cost of commuting by car compared to public transport?

Weekly cost of commuting per household by car and public transport, Melbourne (Data from BITRE)

The exhibit shows that in terms of weekly household cash outlays, commuting by public transport is vastly cheaper than commuting by car, irrespective of where the commuter lives (see first three rows).

Both fixed and variable costs are much higher for cars than for public transport. For example, outer suburban households where the workers drive spend $302 p.w. compared to $41 p.w. for households whose workers use public transport.

The real killer for cars is fixed costs such as depreciation, interest and registration. These dominate variable costs like petrol, servicing and parking.

The numbers are taken from this report (which I’ve mentioned a few times recently) by the Bureau of Infrastructure, Transport and Regional Economics (BITRE). The Bureau looked at the journey-to- work costs a household of two adults and two children aged under 18 years face in Melbourne, and how they vary by location and mode.

Location is an important variable – BITRE assumes household income, level of car ownership and commuting distance/time vary substantially by location (measured here as inner city, middle suburban and outer suburban). It’s assumed households who drive own a new 4 cylinder Camry. BITRE only counts that proportion of car standing costs attributable to commuting.

Although public transport costs considerably less in terms of cash outlays, the exhibit also shows commuting by public transport takes much more time than commuting by car, no matter where a household lives. The extra time is enormous for households living in the middle and outer suburbs i.e. for more than 90% of Melburnians.

For example, the cumulative weekly commuting time for the workers in an outer suburban household who use public transport is 1,326 minutes, whereas workers in neighbouring households who drive only expend 561 minutes per week. Even members of inner city households who use public transport spend more time commuting than members of outer suburban households who drive.

BITRE value the opportunity cost of time spent commuting at average weekly earnings (just over $800 p.w.). With this assumption it’s evident time is far and away the main cost of commuting by public transport, even for households who live in the inner city. That’s a key reason why many argue the focus of public transport spending should be on improving services, not lowering or abolishing fares.

Still, notwithstanding the significant time penalty associated with public transport in Melbourne, it costs inner city and middle suburban households significantly less in total to commute by public transport than by car. Even in the outer suburbs where public transport is at its worst, the total cost on average is pretty much the same according to BITRE.

So why is public transport’s share of work journeys only 24% in the inner city, around 15% in the middle suburbs and below 10% in the outer suburbs?

That’s a good question and I think it could point to a major limitation of BITRE’s analysis – the Bureau doesn’t explain the underlying travel pattern that its analysis is based on. The reader understandably assumes commuters have a choice between two modes for the same trips, but what I suspect the numbers in the exhibit are really showing is the existing pattern of accessibility to employment in Melbourne. And that varies greatly by mode.

At present, public transport users can only comfortably get to a limited number of Melbourne’s jobs, mostly in the CBD and near-CBD. Existing public transport use reflects that limitation – most trips are CBD commutes. However given that a little over 80% of jobs are outside Melbourne City Council’s boundary and relatively dispersed – indeed, 50% are more 13 km from the CBD – most jobs are more easily accessed by car-based commuters.

So BITRE’s figures seem very limited in their application and should be interpreted with that caveat in mind. Having said that, I have some issues with the methodology anyway. Read the rest of this entry »


How much time do Melburnians spend commuting?

Average one-way commute distances and times, Melbourne (data from BITRE, 2011)

On average, workers who live in the outer suburbs commute 2.5 times further to get to work one-way than their counterparts who live in the inner city. That’s in terms of distance – probably no surprises there. However what’s not always appreciated is the extra time they spend commuting isn’t that much more – only 19% more than inner city commuters.

Since fewer than 10% of Melbourne’s workers live in the inner city (approx 5 km radius around the Melbourne Town Hall), what’s more pertinent is the average commute times of the more than 90% who live in the middle and outer suburbs. Their commutes don’t vary much – the average middle ring worker commutes for 36 minutes, the average outer suburban worker for 38 minutes. That’s just 5% more.

There’s not even a lot of variability within the suburbs either. Outer-West commuters average 42 minutes – the longest of any sub region – while the shortest commutes are enjoyed by workers resident in the Middle-North and Middle-East sub regions, who average 36 minutes. Only six minutes less.

This data is taken from Research Report 125 recently released by the Bureau of Transport, Infrastructure and Regional Economics (BITRE) – see exhibit. BITRE largely relied on data from the Vic Department of Transport’s VISTA survey. See also my earlier post on changes in commuting distances over 2001-06 (unfortunately BITRE doesn’t analyse the trend in commuting time).

The spatial regularity in the time workers devote to commuting is consistent with the idea that, on average, travellers budget a relatively fixed amount of time for travel (see here for more on travel budgets). Workers living in the inner city spend almost as much time travelling shorter distances than suburban workers because the former travel at considerably slower speeds, reflecting high levels of traffic congestion in the inner city, higher use of public transport and more walking and cycling.

At the metropolitan level, 40% of workers spend less than 30 minutes getting to work one-way and 61% less than 40 minutes. However there’s a tail of long distance commuters – 17% spend more than an hour commuting one-way. I don’t have data on this 17%, but since the average commute by public transport in Melbourne takes almost twice as long as the average car commute, I suspect many of them are train travellers (I hope to get some data on this).

The numbers in the exhibit are the result of a long-standing trend – improvements in transport infrastructure lead to higher speeds, giving residents the opportunity to increase the distance between work and home but still get there in much the same travelling time. Residents may either move house or move job, or both. This happens with both private and public transport improvements.

So the ‘headline’ implication is that, in general, improvements to infrastructure will very probably result in people travelling further to work. Where that is primarily by car it’s likely, given the technology of the existing vehicle fleet, to lead to higher resource use, more traffic congestion and make greater demands on the environment. There might be exceptions, but in general that’s what we should expect, especially given that all modes are under-priced. It’s worth noting that jobs also move outwards. Read the rest of this entry »