Are infrastructure costs higher on the fringe?

Posted: September 20, 2011 | Author: | Filed under: Infrastructure | Tags: , , , , , , , , , | 3 Comments

Capital costs per dwelling of infrastructure provision - inner suburbs vs outer suburbs (from Trubka et al)

The exhibit above purports to show that the cost of infrastructure associated with building a new dwelling within 10 km of the CBD of a city like Melbourne is, on average, $50,503. In contrast, it costs $136,401 to provide infrastructure for an outer suburban dwelling i.e. located more than 40 km from the CBD. That’s a huge difference: $85,538 per dwelling.

The figures come from a 2007 report, Assessing the costs of alternative development paths in Australian cities, written by three Curtin University academics, Roman Trubka, Peter Newman and Darren Bilsborough. I’ve mentioned this report before, but that was primarily in the context of The Age and some public sector agencies tending to conflate economic costs with infrastructure outlays (they’re not the same!).

The figures above however are solely infrastructure outlays (not economic costs). Judging by the extent to which Trubka et al’s report is cited by government agencies, there appears to be strong demand for this type of information. It seems, however, that these are the only numbers on this topic around. That’s unfortunate because they have some very serious shortcomings as an indicator of the relative cost of providing infrastructure in inner and outer locations.

The key deficiencies are they’re old; they don’t relate to Melbourne; and they’re not transparent. Trubka et al sourced them from a 2001 report, Future Perth, prepared by the WA Planning Commission to assess infrastructure costs in Perth. Future Perth didn’t calculate its estimates from first principles but rather surveyed 22 earlier studies, some dating from as far back as 1972 and some relating to costs in the USA and Canada.

Future Perth is a working paper and hasn’t been published – hence the rigour of its methodology and those of the 22 studies it drew from hasn’t been tested. Unfortunately, Trubka et al provide scant explanation of their infrastructure estimates, relying instead on a reference to Future Perth.

I can’t say for sure the Trubka et al estimates are wrong, but I can say they’re unlikely to be right. I can also say they’re far too flaky to be relied upon to guide significant policy or investment decisions here in Melbourne. There’s clearly a demand for this sort of information so it would be sensible for the State Government to undertake its own rigorous and up-to-date assessment of the costs of metropolitan infrastructure provision.

Although not as decisive as the shortcomings discussed above, I also have some issues with how Trubka et al have set up their cost comparison. Actually, because the report doesn’t elaborate much on the various infrastructure items, I’ll treat these as questions, or areas that need clarification. Read the rest of this entry »

Are too many houses empty?

Posted: July 26, 2011 | Author: | Filed under: Housing | Tags: , , , , | 4 Comments

Earthsharing Australia - Suburbs with highest proportion of properties withheld from rental market (last col)

Earthsharing Australia highlighted this week what could be a major housing supply issue in Australia’s major cities: the number of houses sitting vacant at any one time. Properties will inevitably be vacant from time to time – that’s necessary for an efficient market – but the issue is whether there are structural factors that mean too many are unoccupied for too long.

Earthsharing has attempted to quantify the number of unoccupied dwellings in Melbourne. It claims speculators are the reason why five per cent of the city’s housing stock – or 46,220 dwellings – sit empty and unrented at any time. It says the REIV’s Rental Vacancy rate is commonly referred to in media coverage as the ‘housing vacancy’ rate, but Earthsharing’s own:

Estimated Speculative Vacancy Rate (of 4.9%) is more than twice the REIV’s Rental Vacancy rate for the same period of 1.7%…….Recent increases in house prices have been driven by speculation, not a housing shortage. Property buyers are restricting the supply of housing by holding their properties off the rental market.

The Estimated Vacancy Rate for some suburbs was much higher – in Docklands it was 23% and in East Melbourne, 19% (referred to in the exhibit above as Estimated Genuine Vacancy rate).

Earthsharing’s findings are contained in a report released on the weekend, Speculative Vacancies in Melbourne 2010, which measured the number of houses (excluding the area covered by South East Water) that consumed less than 50 litres of water per day, on average, over a period of six months in 2010. The presumption is dwellings using less than this amount must be unoccupied, given that average daily consumption during the period of the study was 140-160 litres per day. The further assumption is these dwellings have been withheld from the rental market for speculative reasons.

Earthsharing’s Speculative Vacancy rate could be conservative. Unoccupied dwellings with an automatic sprinkler system or a serious leak might consume more than 50 litres per day and hence be under-counted. On the other hand, its methodology could over-count the number of unoccupied dwellings. There’s some evidence consistent with the latter view – of the 46,200 properties identified by Earthsharing as “withheld from the market”, only 15,237 consumed zero litres of water over the six month period, and hence could be regarded as unambiguously vacant.

In fact there are many reasons why a property might be occupied but nevertheless average less than 50 litres per day over six months. Apart from rental dwellings between leases, some properties are unoccupied because they’re being sold by one owner-occupier to another. There are city properties owned by country people who use them regularly but relatively briefly e.g. a weekend every fortnight. Then there are single person households who travel frequently or for extended periods, as well as “couples” where each party has their own home but they favour one.

It might be possible to refer to these sorts of properties as “under-occupied” in the same sense that empty nesters rattling around in four bedroom houses is “inefficient”, but it would be a big stretch to label them with a pejorative like speculative. These aren’t properties that are being withheld from the rental market. In short, Earthsharing’s methodology doesn’t seem very robust.

But having said that, I suspect there are far too many non-rental properties that sit unoccupied for unnecessarily long periods. Let me emphasise that I don’t have any objective data to support this contention, but if it’s right, it would add to pressure in the rental market. Consider that within 500 metres of my place (I live 8 km from the CBD) there are four properties I’m aware of that have sat vacant in recent years for twelve months or more. Read the rest of this entry »