New Geography

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  • Applying Lessons from the UK Riots to Australia

    Many commentators correctly attribute the UK rioting to decades of misgoverning and miseducating youth. Contributing to this has been the breakdown of family discipline, the replacement of working fathers as role models and the creation of a culture of entitlement. Tony Blair has talked about a breakdown in public morality. Less convincingly, many on the left have attributed the cause to the social expenditure cuts of the Cameron Government, cuts that have actually made barely a dent in the proceeding Blair/Brown years of tumescent expenditure growth.

    Adding poison to the brew are government appointments and procedures that deflect police forces away from law enforcement into institutions that “reach out” rather than prevent wrong-doing, seek to understand miscreants rather than enforce the law, and try to contain disturbances rather than prevent them. The soft sociological and managerial ethos that has undermined policing in Britain is all too familiar here in Australia.

    But there are other factors at work. This is especially evident given the nature of those arrested. Many turn out not to be part of some jobless underclass but relatively affluent working people, some in their late twenties and early thirties.

    And the rioters are black and white – though hardly any Indians or other Asians. One reason for this is Asian family background, bringing values based on self-improvement by work rather than theft, reinforced by religious teachings, especially in the case of Muslims, the only group where a large majority are religious practitioners.

    While the complexion of the rioters will be subject to considerable analysis over future months, we can be confident about one hypothesis: few if any of the rioters own their own homes. This is because nothing engenders respect for property and others’ possessions more than people having a personal stake in property themselves. Property ownership – for most of us this means home ownership – is the key to creating a law abiding society. Where riots in England take place outside of areas other than those hosting electrical and sporting goods, they take place on council estates, in areas where people rent. If in owner-occupied housing areas, the rioters are outsiders.

    British families owning their own homes rose steadily up to the early 1980s, reaching 75 per cent. The figure has since fallen back to 70 per cent. More critically, the ability to get on the house ownership ladder has become increasingly difficult for large numbers of young people. Demographia reports that the average house in England now costs over five times the average family’s income. That’s up from three times the average family’s income 25 years ago. In London and other major cities the cost is much higher than this.

    Countless reports in England, Australia and the US demonstrate planning restraints over land use are the cause of houses becoming expensive. Governments do their level best to impose additional costs on house builders, especially through energy saving requirements, but the building industry is highly competitive and finds ways of largely offsetting these costs. However, when government regulations constrain the amount of land that can be built upon this engenders unavoidable costs.

    Ironically, after decades of acquiescing in creating shortages for new home building, the UK Government last month finally expressed a determination to do something about freeing up more land for building. That was met by the usual howls of protest from incumbent home owners wanting to avoid having “riff raff” moving close to them, barking on about preservation of villages and anxious to see a continued shortage of available properties in order to boost their own house values. But these self-centred blockages of new housing stock are contributing to an alienation of many people from mainstream values.

    British Labour Party leader, David Miliband, is arguing that a gulf between rich and poor is a cause of the rioting. He may well have home ownership in mind in offering as his solution, “we need to give people a stake in this society”. But “giving” is not a policy that will work. It morphs into an entitlement regime, which reinforces divisions within society and weakens the self-improvement ethos. Applied to housing, it is reminiscent of the US policy which required banks to make housing loans to those who were not credit-worthy, a policy still unraveling in mortgage defaults and collapsed price bubbles. Removing regulatory restraints that have driven housing prices into unaffordable ranges is the better approach.

    Not being a participant in a home owning democracy provides no excuse for trashing and thieving. But it is clear that there is a vast number of young people who have decided they are excluded and have become eager participants in hooliganism. Policies of tolerating misdemeanors and acquiescing in slack educational supervision will clearly be re-thought in the UK. But so also must be the policies creating barriers that shut people out of home ownership.

    There are lessons in the UK developments for Australia. Not the least concerns home ownership. A fundamental cause of the present economic malaise has been over-investment in US housing as a result misguided attempts to foster home ownership through forcing financial institutions to lend to people who were not creditworthy. This was motivated by the hope that the subsequent property stake would lead to an improvement in civil society on the part of those who found themselves excluded.

    These measures failed because they created a housing price bubble. However, removal of cost enhancing planning restraints would not be likely to bring the same housing inflation outcomes (indeed in states like Texas where the artificial price boosting caused by planning restraints is absent, home price inflation and busts has been modest).

    Planning restraints in Australia have created home costs that are six times family incomes (nine times family incomes in Sydney). House prices in Australia are therefore even higher than in England and urgent steps need to be taken to reform the planning policies that have caused this. If this means a society closer to the ideal of a property owning democracy, so much the better.

    Alan Moran is the Director, Deregulation at the Institute of Public Affairs.

    Photo by bobaliciouslondon.

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  • Infrastructure Bank: Losing Favor with the White House?

    Eighteen months ago, on January 20, 2010, a group of influential politicians, accompanied by a large coterie of representatives of the Washington transportation community, gathered at the Capitol to urge Congress and the Obama Administration to create a “National Infrastructure Bank” to help finance infrastructure investments. The speakers included all the well-known advocates of the Bank: Pennsylvania’s Governor Ed Rendell, Senator Chris Dodd (D-CT), Rep. Rosa DeLauro (D-CT), author of an Infrastructure Bank bill (H.R. 2521), former House Majority Leader Dick Gephardt (D-MO) and Felix Rohatyn, the spiritual godfather of the movement. Standing beside them, in a gesture of support and solidarity, was a large group of executives representing the transportation industry, labor unions and advocacy groups.

    For a while, it seemed like their plea would be answered. A proposal for a $30 billion infrastructure bank focused on transportation-related investments was included in the President’s FY 2011 budget proposal unveiled last September. As recently as last month, Mr. Obama was mentioning the Infrastructure Bank as part of his job stimulus plan to be unveiled after Labor Day.

    But today, the idea is on life support. Neither the Senate nor the House have seen fit to include the Bank in their proposed transportation bills. Congressional Democrats and Republicans alike are in agreement that decisionmaking control over major federal investments should not be ceded to a group of “unelected bureaucrats.” Rather than creating a new federal bureaucracy, they think the focus should be placed on expanding federal credit assistance tools already in place, such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) and the Railroad Rehabilitation & Improvement Financing Program (RRIF).

    There are other reasons for congressional skepticism. House Republicans are suspicious that the Obama-proposed Bank is nothing more than a vehicle for more stimulus spending, disguised as “capital investment.” They want the Administration to be more specific about its proposal: how the Bank would be funded, what kind of investments it would fund and how the $30 billion capital would be repaid. “If this is more of the same stimulus spending, we won’t support it,” Kevin Smith, spokesman for House Speaker John Boehner (R-OH) has been quoted as saying.

    House Transportation and Infrastructure Committee chairman John Mica (R-FL) thinks state-level infrastructure banks would be a more appropriate means of financing major transportation projects at the state and local level. Decentralized infrastructure financing would “keep the federal financing bureaucracy at a minimum and maximize states’ financial capabilities,” according to the House transportation reauthorization proposal.

    Senate Democrats, while not necessarily opposed to another fiscal stimulus, want quick results. They fear that a centralized Infrastructure Bank, with its complex governance structure and layers of bureaucratic conditions, requirements and approvals would be far too slow and cumbersome to be an effective job generator. One or two years could pass before large-scale projects appropriate for Bank financing would get evaluated, selected, approved and under construction, one Senate aide told us.

    What is more, there is a lack of agreement on how the proposed Infrastructure Bank should function. The Administration wants a mechanism that would serve several different purposes. In the words of Undersecretary for Transportation Policy Roy Kienitz who testified at a September 21, 2010 hearing of the Senate Banking Committee, “We need a financing institution that can provide a range of financing options— grants for projects that by their nature cannot generate revenue, and loans and loan guarantees for projects that can pay for their construction costs out of a revenue stream. In short, we need the Infrastructure Bank that the President has proposed.”

    But, “banks don’t give out grants, they give out loans. There is already a mechanism for giving out federal transportation grants — it’s called the highway bill,” countered Sen. James Inhofe (R-OK), ranking member of the Senate Environment and Public Works (EPW) Committee.

    If the proposed entity is to be a true bank – as proposed in a recent bill sponsored by Senators John Kerry (D-MA) and Kay Bailey Hutchison (R-TX) and endorsed by the AFL-CIO and the U.S. Chamber of Commerce– its scope would be confined to projects that can repay interest and principal on their loans with a dedicated stream of revenue — in other words, the Bank could finance only income-generating facilities such as toll roads and bridges. By all estimates, such projects will constitute only a small fraction of the overall inventory of transportation improvements needed to be financed in the years ahead, the bulk of which will be reconstruction of existing toll-free Interstate highways. Hence, a true Infrastructure Bank would be of limited help in creating jobs and reviving the economy, critics argue.

    “A national infrastructure bank must garner broad bipartisan support to move forward,” says Michael Likosky, Director of NYU’s Center on Law & Public Finance and author of a recent book, Obama’s Bank:Financing a Durable New Deal. “This means no grants, a multi-sector reach and a realistic idea of what projects will benefit straight away.”

    President Obama was expected to include the infrastructure bank among his recommended stimulus measures when he lays out his new job-creation plan before the congressional deficit reduction committee in early September. But lately, he seems to have put the idea on the back burner and turned his attention to more traditional “shovel-ready” highway investments using existing financing programs. His advisers may have concluded that the Bank will do little to stimulate immediate job creation— and that the proposal will find little support among congressional Democrats and Republicans alike. If so, check off the Infrastructure Bank as an idea whose time had come and gone.

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    Note: the NewsBriefs can also be accessed at www.infrastructureUSA.org

    A listing of all recent NewsBriefs can be found at www.innobriefs.com

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  • Banana-nomics

    The price of bananas is again making headlines as it pushes up inflation and threatens rising interest rates. But what’s the price of the humble ‘nana got to do with property markets? Plenty.

    Banana prices have risen almost 500% since Cyclone Yasi wiped out much of north Queensland’s banana crop earlier this year. The immutable laws of supply and demand dictate that when supply falls relative to demand, prices will rise. Which is what they have done, and as they did a few years ago when the same thing happened after Cyclone Larry. As banana supply was restored, prices fell. As they will again.

    Banana prices are a self-evident, every day example of supply and demand at work. They’re the sort of example understood by consumers and even school children with no formal economic training. But clearly the lessons are beyond the capacity of some Australian politicians, most land regulators and many town planners. In the very same way that constraints on supply create scarcity value for every day commodities, constraints on supply and scarcity equate to rising prices for all types of real estate, not just housing.

    It starts with misguided planning schemes that aim to direct consumer behaviour and distort their purchasing decisions by limiting choice. This has become commonplace in planning to the point of representing accepted wisdom. One of the most obvious examples has been the continued efforts by some regulators and planning authorities to attack the detached house as a choice – however best suited to the needs of young families – which ‘Australia can no longer afford.’ Like a contemporary version of Stalinist central command, housing choice is distorted via planning schemes that are biased to high density apartments in central locations (that consumers are told is good for society), as opposed to detached housing on the urban boundary (that remains the majority consumer preference). Faced with little choice, more people are forced to choose the option deemed appropriate by higher authorities than themselves, and when this is later reflected in data, the regulators hail this as some sort of fundamental change in consumer preferences. You’re seeing this type of shallow analysis in the media, pushed by various interest groups, on a regular basis now.

    An equally significant consequence of using planning ideology to achieve social engineering outcomes has been the impact on prices. In the case of raw land for housing, we have succeeded in the unimaginable – needlessly elevating prices far beyond the reach of average Australians, on the basis that we may run out of land, in a country where land is plentiful. This has been achieved simply by making raw land for detached housing development scarce because permission is not allowed outside artificially drawn urban planning boundaries. (On top of creating scarcity, of course, new land supply is taxed more aggressively than existing supply, via upfront levies. This is no doubt because there are fewer votes at risk in taxing new housing lots as opposed to raising council rates or other broad based revenue measures. Plus, new supply is tied up in a regulatory tangle which now means it can take 5 or 10 years just to get permission to develop land in areas already described as intended for future housing. Go figure).

    The proof is readily available. In the Brisbane region, for example, the price of vacant land per metre is now 2.3 times (230%) what is was a decade ago. Established house prices also increased, but at a lower rate – they are 1.5 times (150%) the price a decade ago. Average weekly earnings, just to bring it back to earth, are 0.6 times (60% higher) what they were a decade earlier.

    In Melbourne, where supply constraints have been more sensibly managed, land for housing is 1.3 times the price of a decade earlier. Little wonder developers are giving up hope for south east Queensland and focussing their energies in Victoria.

    If the fundamentals of supply and demand (let’s call it banana-nomics) are so obvious in the market for new land for housing, where else are they revealing themselves?

    Recent reports have noted that Australian retail property rents (a lot like our housing prices) are amongst the highest in the world. Research by CB Richard Ellis suggests that rents in Sydney, Melbourne and Brisbane are higher than the better shopping strips in Los Angeles or Milan. How can this be? Los Angeles County has a population of around 10 million people, some of whom are noted big spenders. Retail demand there would dwarf that of Brisbane’s retail spend.

    Once again, the answer lies in supply. LA’s ‘sprawl’ is arguably more about the historically easy dispersion of retail and commercial space along high streets and back roads throughout the metro area, as it is about expanding housing. As LA developed, it was relatively easy to create new retail space, and there is plenty of redundant retail space in older strip areas where secondary traders can operate at low market rents. In Australia, by contrast, planning constraints have been much more onerous. The major retail centres, developed from the 1960s to the late 1990s throughout metropolitan areas largely remain the same major centres we have today. Finding new opportunities for retail expansion is a large hurdle which few clear – protection of the retail hierarchy and existing centres, and preventing a dispersal of retail activity beyond existing areas, is the deliberate intention of urban planning schemes.

    The result has been that those with the existing retail centres have paid for, and now own, a precious commodity: the permission to conduct retail activity, with limited threat of competition in that catchment. Our retail rents have grown because retailers – and consumers – have had limited alternative choices. New retail operators have encountered barriers to entry in the form of planning laws and no-compete clauses, once again reinforcing the value of existing permissions. Just ask Aldi or Costco what they think our planning schemes are doing for competition if you don’t believe it.

    City carparking is another example of banana-nomics at work. A study by Colliers International reveals that city parking costs in Sydney and Melbourne are more expensive than London, Tokyo or New York. Brisbane came in at 14th most expensive on a global list of 156 central business districts. How can it be? The answer is simply that the anti-car crusade has led to planning policies which deliberately seek to limit CBD parking spaces, in the futile hope that this will somehow force people to abandon the convenience (and frequently the necessity) of private transport in favour of buses or trains.

    Those ambitions have never come to much, so regulators then resort to the blunt weapon of taxes – with car parking levies now common in many cities and the prospects of congestion charging for access to CBDs frequently rearing its ugly head. This deliberate attempt to restrict (and then punitively tax) the supply of city parking spaces has the inevitable effect of raising prices.

    But there is one fundamental difference between how banana-nomics works for banana growers and property developers. Banana growers can grow more plants and create more supply. The same can’t be said for developers of property. In housing, new supply is likely to remain constrained by growth boundaries and the preference of regulators towards higher and medium density within existing areas. This will create a floor under the cost of new supply which means that prices are unable to fall (they can’t fall below the cost of production). So raw land is unlikely to get much cheaper, unless there are some radical (and many would say much needed) reforms to planning policies around Australia.

    The same applies to retail property. Retailers (most recently evidence by Solomon Lew’s Just Group comments about retail rents) may object to high rentals, but they won’t get much option. Major retail centres are where the action is, and the alternative (on-line retail) isn’t sufficiently appealing to the majority of consumers, who get more from their shopping trip than just a retail transaction. New shopping centres won’t be created within existing urban boundaries because planning schemes are unlikely to allow further retail dispersion away from existing centres. In the limited cases where approval is granted, existing centre owners will play hard ball, arguing fervently against the free market (witness Westfield’s objections to a new Aldi Store, approved by Brisbane City Council, north of Brisbane). Their actions are understandable, given they’ve outlaid very large investments that are contingent on the existing planning scheme remaining.

    And the same applies to car parking. Unless there’s a monumental shift in policy attitudes to private transport and city car parking, we aren’t going to see multiple new above or below ground public car parks being created in our cities, no matter how much the demand. That will mean prices remain high.

    In all cases, it has been the planning regulations that restrict supply and limit choice, not demand, that have been responsible for making our housing, our retail rents, our car parking and so much more, amongst the costliest in the world. And given that those constraints are unlikely to change, you’re unlikely to see that position reverse itself any time soon.

    The burning question, of course, is how long can it last? If supply costs elevate prices beyond the capacity or desire to pay, people stop buying. Economies slow down. The music stops.

    How do you like them apples?

    Ross Elliott has more than 20 years experience in property and public policy. His past roles have included stints in urban economics, national and state roles with the Property Council, and in destination marketing. He has written extensively on a range of public policy issues centering around urban issues, and continues to maintain his recreational interest in public policy through ongoing contributions such as this or via his monthly blog The Pulse.

    Photo by Fernanado Stankuns.

  • A Divided Vietnamese Community in France and Its Political Repercussions

    Several countries with the largest Vietnamese populations today – United States, Canada and Australia – did not have such communities until after the Vietnam War. France, the largest non-English speaking community in the Vietnamese diaspora with about 300,000 strong, illustrates a much more complex tapestry of Vietnamese immigration that started well before the Fall of Saigon in 1975.

    The diversity among the migrant stock from Vietnam has led to a notably divided Vietnamese community in France. This has worked against attempts to develop a sense of ethnic solidarity in the community over the years.

    The Vietnamese first began immigrating to France in large numbers in the early 1900s as a direct result of French rule over Indochina from 1885 to 1954. With colonial ties to the West, the Vietnamese initially migrated to France as soldiers, workers and students long before the arrival of the refugees.

    As a result, there were already tens of thousands of Vietnamese immigrants living in France even before the onset of the Vietnam War. At least 20,000 Vietnamese workers had immigrated to France during World War II alone. These pre-war Vietnamese immigrants differed greatly from the post-war Vietnamese refugees that followed them.

    The older wave of Vietnamese immigrants did not share the same anti-communist fervor as the newer wave of Vietnamese refugees who had been forced to flee their homeland after 1975. In fact, some of the older immigrants openly supported the communist ideals and even desired to one day return to communist Vietnam.

    The existing pro-communist sector of French Vietnamese community in France soon fell into conflict with the staunchly anti-communist new wave of Vietnamese refugees after the Vietnam War.

    According to some sources, this division initially manifested through violence in the late 1970s with several Vietnamese on both sides being hospitalized after physical altercations. Today, the Vietnamese community in France is still divided, but the division no longer expresses itself through overt violence but instead through covert avoidance.

    Recent conversations with those in the community depicted much calmer relations involving the evasion of politics in Vietnamese public places such as cultural events. Yet separation within the community still exists. There are, for example, two completely separate events for holidays such as Tết (i.e. Lunar New Year); one for the pro-communists and one for the anti-communists.

    The apparent political division among the Vietnamese in France also has made it difficult to progress as one cohesive ethnic community with political influence. The Vietnamese in France have excelled in economic and educational achievements as individuals. However, at the community level, they have been unable to achieve any notable successes.

    The pro-communist vs. anti-communist division in France explains, to a certain extent, the lack of a Vietnamese voice in French politics. In the United States where most Vietnamese came after 1975 as refugees and are more politically homogeneous, the community has attained various political seats in several states. Former U.S. Representative Joseph Cao of Louisiana is just one of nine Vietnamese Americans who either had or currently have prominent political positions in the federal government.

    In contrast, Vietnamese representation in French politics has been largely absent. Some Vietnamese in France commented on how, unlike in the United States, there were no well-known Vietnamese politicians in their country.

    In an attempt to change the Vietnamese political track record in France or lack thereof, the Union des Vietnamiens Republicains (i.e. Union of Vietnamese Republicans) recently held an open debate in Paris to address issues concerning the Vietnamese community and the Asian population, in general, in France.

    The UVR, which was formed in the last couple years, seeks to act as a liaison between the Vietnamese community and the Union pour un Mouvement Populaire (i.e. Union for a Popular Movement), a center-right political party in France, which openly opposes the largest opposition group, the Parti Socialiste (i.e. Socialist Party) as well as the Parti Communiste Francais (i.e. French Communist Party), a party supported by the pro-communist Vietnamese.

    Given their challenging political situation, what does the future hold for the Vietnamese community in France? Although the relationship between the pro-communist and anti-communist Vietnamese in France has become less violent over the years, it is difficult to see any signs of ethnic solidarity in the community given the ongoing opposition between the two political camps.

    Only when this divide in the community is breached will the Vietnamese in France be able to achieve the political voice of their American cousins.

    Jane Le Skaife is a doctoral candidate in the Department of Sociology at the University of California, Davis. She is currently conducting her dissertation research involving a cross-national comparison of Vietnamese refugees in France and the United States.

    Photo by wakingphotolife.

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