Edward St redevelopment: Exciting opportunities for Brisbane’s future

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This post is co-authored by my friend Dr Parisa Mahyari, who is a Brisbane-based expert on luxury branding and a property market analyst.

For some time now, Edward St has been associated with luxury brands such as Hugo Boss and Ralph Lauren, and it is becoming known as the “Paris end” of Brisbane CBD. Over the last few years, other brands such as Cartier and Montblanc have boosted the street’s credentials as a luxury shopping destination. In fact, location can be an important part of the success of retail businesses, especially for luxury brands that are targeted at a particular market. The availability of a range of luxury brands in a central location makes the Edward St precinct highly attractive to luxury shoppers, both from Australia and overseas.

That said, Edward St still has some way to go as a luxury shopping destination. There are many luxury stores such as Prada that are not present on Edward St yet, but are in other precincts in Sydney’s Pitt St, Melbourne’s Collins St, and Perth’s King St, for example. And there is the potential for further development to enhance Edward St’s status as a luxury precinct.

Hence it is welcome news that Brisbane City Council has commenced its $11 million upgrade of Edward St to create a world class luxury goods precinct (see image below and the Council website). The wider footpaths, granite paving and street trees will help create a boulevard atmosphere similar to that in European capitals such as Paris and Vienna. And the public art will add to the cosmopolitan atmosphere and attract well-heeled locals and visitors. The planned improvement in the Edward St streetscape appears to be consistent with the vision in the Brisbane Destination Tourism Plan to make Brisbane “Friendly, safe, engaging and accessible.” Additionally, the Council may wish to consider a re-branding exercise for Edward St to cement its status as a luxury goods precinct, similar to how London’s Lower Regent Street was re-labelled Regent Street St James’s (see Capital investment: the evolution of luxury London).

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The barriers are in place for the exciting new $11 million Edward St upgrade

The redevelopment has the potential to boost commercial opportunities, not only in luxury goods but also in hospitality, as the widening of Edward St should promote greater al fresco dining. Evidence from overseas, particularly from London developments, suggests food is an important part of the offering of luxury precincts. Primarily, the attraction of a luxury goods precinct is convenience. In one area, people have access to luxury shopping, luxury dining and luxury hotels.

The Edward St redevelopment is consistent with other new investments in Brisbane in luxury hotels and fine dining restaurants and high-end bars, such as OTTO at 480 Queen St, so it can be considered as building on what Brisbane already has.

Due to Brisbane’s superior weather and proximity to the Gold and Sunshine Coasts and the Reef, Brisbane can potentially leapfrog other East Coast cities with luxury precincts such as Sydney and Melbourne in attracting overseas visitors. Current offerings on Edward St have been especially successful with Chinese tourists, and, with the Chinese outbound tourism market growing from around 120 million per annum globally to 200-250 million in ten years’ time, there is obviously huge potential to attract more Chinese tourism (see this Goldman Sachs report). Additionally Brisbane can attract increasingly affluent travelers from across South-East Asia, including from Singapore, Malaysia and Indonesia. Australia offers a superior environment to many regional competitors, particularly Macau, which has seen a drop off in Chinese tourists and spending. However, the Chinese government is now taxing luxury goods purchased abroad, and this will restrain the growth in visitor numbers and spending to an extent (see this Business Insider article).

By helping Brisbane to attract more tourists, the further development of the Edward St luxury goods precinct would align with the current Brisbane City Council’s goals to position Brisbane as one of the most popular tourist destinations internationally and to make it Australia’s “new world city”. It will add to the contributions that will come from major upcoming projects including the $3 billion Queen’s Wharf Redevelopment, the Brisbane Airport New Parallel Runway Project as well as the Brisbane Quarter luxury mixed-use development on the site of the old Law Courts (see Queensland  News).

The Council should recover part of the cost of the Edward St upgrade through higher rates revenue, as the further development of the luxury goods precinct will likely result in higher rental incomes and property values. There will be benefits to other levels of government through higher tax revenues. While there is the loss of one lane of traffic on Edward St, the Council appears confident in traffic modelling suggesting this will not significantly add to congestion.

Overall, this appears to be a worthwhile investment given the large potential benefits flowing from additional economic activity and recreational benefits. It may very well attract further investment, as it makes Brisbane a more desirable location to live for high net worth individuals. Given the upcoming 2018 Gold Coast Commonwealth Games, it is a particularly well-timed investment, as there is the potential to attract visitors attending the Games to Brisbane for a spot of luxury shopping.

Dr Parisa Mahyari and Gene Tunny

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Another example of the high cost of free parking in Toowong

Poor economics is at the core of the latest parking dispute in the leafy Brisbane western suburb of Toowong, particularly a misunderstanding about property rights and the lack of a price mechanism for allocating the car parks (see Toowong commuters stopping residents from parking outside their own homes). Local residents are lobbying Brisbane City Council for the creation of a residential parking permit scheme (see image from the Westside News below), which would give local residents priority for parking, as they argue they are being “parked out of their own street by commuters” catching the train at Toowong station. However, the local residents do not own the streets; the Council does. It may seem unfair that local residents cannot park near their homes at all times, but it may also seem unfair if someone cannot find a park in a local street after they have searched in vain for a park at the Commuter Car Park. It is very difficult to judge fairness.

A market solution would be superior. If the Council metered the scarce car parks in the area around Toowong Village, it would be more likely that the car parks would go to those people placing the highest value on them. Alternatively, the Council could sell a limited number of daytime parking permits, which would be available for purchase by both residents and non-residents. The current situation is sub-optimal, and is a good illustration of what UCLA Professor Donald Shoup called The High Cost of Free Parking.

For further discussion of the economics of parking, see my February post:

On-street parking charges a better solution than Harding plan

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Toowong residents are lobbying for a residential parking permit zone

Posted in Transport, Uncategorized | Tagged , , , , , , , , , | 3 Comments

Comments on asset sales/privatisation in Saturday’s Courier-Mail

At the IAQ Infrastructure Summit in Brisbane on Thursday last week, several participants lamented that Queensland was missing out on the benefits of so-called asset recycling that NSW and Victoria were expecting. The privatisation issue will not die in Queensland, and the current state of the debate is nicely set out in an article by the Courier-Mail’s State Political Editor Steven Wardill in today’s paper  (pay-walled, sorry):

Privatisation of Queensland’s assets

The article quotes me towards the end (see the extract below). For the record, I am supportive of privatisation, largely due to the substantial efficiency gains that have been demonstrated by numerous privatisations around the world since the 1980s. To me, the main issue is who will run particular assets most efficiently and productively. For the Queensland assets that have been proposed for privatisation in the past, I expect that would be the private sector.

The Government may lose a revenue stream, but this would be partly offset by a reduction in interest payments on government debt (if the proceeds were used to pay down debt), and the public would benefit from more efficiently run assets and lower prices for their services than otherwise. If the Government were to use privatisation proceeds to fund new infrastructure, such as a new road or tunnel, the new asset would yield benefits to the community, such as a reduction in travel times.

Here is an extract from today’s Courier-Mail (p. 53) with my comments:

Economist Gene Tunny says while the income argument to keeping assets makes sense, what happens when they’re not profitable anymore?

“By owning those assets the Government is assuming the risk,” Tunney says. “However, in the future, these assets might not generate these returns and they’re left holding stranded assets.”

The whole argument – whether you’re for or against – comes down to the question of what you expect governments to do.

In Tunny’s view, whether to sell or not should be viewed through what is in the best interests of the broader economy rather than just the government’s balance sheet.

The assets are still part of the economy and potentially run more efficiently while the State could reduce debt and tackle other, sometimes more intangible, issues in its bailiwick.

“You could be saving money on the debt repayments or buying something else,” Tunny says.

“It may not show up as a revenue stream in the Budget but it could, for instance, improve travel times.”

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Treasury dumps wellbeing framework & defines principal objectives around Budget, productivity and globalisation

Of the many outstanding contributions that former Treasury Secretary Ken Henry made to public policy in Australia, one of my favourites was the wellbeing framework. This framework established Treasury’s goal as improving the wellbeing of Australians, and identified five elements of wellbeing: the level of consumption possibilities, their distribution, the degree of risk borne by individuals and society, the degree of complexity we face in our choices, and the level of freedom and opportunity we enjoy. I liked the framework because it made it clear that Treasury should consider a range of factors, in addition to the impacts on the Budget and the economy, when assessing or developing policy proposals, including social and environmental impacts. This is good economics, as social and environmental impacts should ideally be considered in any cost-benefit analysis of policy measures or projects.

So it is somewhat of a shame that Treasury is abandoning the wellbeing framework according to an article by David Uren in today’s Australian:

Treasury has abandoned the “wellbeing framework” that ­guided its strategy under secretaries Ken Henry and Martin Parkinson, and which looked beyond managing the economy to envir­onmental and social sustainability, and is instead giving top priority to fixing the budget.

Current secretary John Fraser has released a four-year corporate plan that identifies the budget, lifting productivity and securing the benefits of globalisation as his department’s principal objectives. “I wanted to focus on the things where we can have an influence,’’ he told The Australian…

…The new plan, which is focused on the economic policy issues that Treasury directly controls, contrasts with the more expansive vision which Ken Henry introduced to the department he led from 2001 to 2011. Dr Henry described wellbeing as “a grassroots statement of our mission, encompassing market, non-market, material and intangible components”.

While it is unfortunate that the wellbeing framework has been dumped, at least the Treasury under John Fraser continues to focus on important objectives related to the Budget and productivity, and it is excellent that the Treasury Secretary has identified securing the benefits of globalisation as a principal objective.

It is becoming increasingly clear that many people in advanced economies are either missing out on or are unaware of the benefits of globalisation. While there have been job losses and business closures associated with globalisation, overwhelmingly there have been net benefits to Australians, through news jobs and business opportunities, and through lower prices in real terms for a wide range of products, including clothes, furniture, and cars. Alas, many people do not appreciate these gains and there is a growing backlash against free trade and globalisation, which is manifesting itself in support for political extremists and demagogues.

I was recently alerted to some interesting research by MIT economist David Autor and others regarding the relationship between trade exposure and political polarisation in the US. From the abstract of the working paper:

Has rising trade integration between the U.S. and China contributed to the polarization of U.S. politics? Analyzing outcomes from the 2002 and 2010 congressional elections, we detect an ideological realignment that is centered in trade-exposed local labor markets and that commences prior to the divisive 2016 U.S. presidential election. Exploiting the exogenous component of rising trade with China and classifying legislator ideologies by their congressional voting record, we find strong evidence that congressional districts exposed to larger increases in import competition disproportionately removed moderate representatives from office in the 2000s. Trade-exposed districts initially in Republican hands become substantially more likely to elect a conservative Republican, while trade-exposed districts initially in Democratic hands become more likely to elect either a liberal Democrat or a conservative Republican.

Like the US, Australia is at risk of rising polarisation and extremism. So it is good that the Treasury has a goal of securing the benefits of globalisation. It should re-litigate the case for free trade and globalisation, pointing out the many benefits that Australians have already enjoyed.

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The Treasury Building, Langton Crescent, Canberra

Posted in Industry policy, Labour market, Macroeconomy, Uncategorized | Tagged , , , , , , , , , | 4 Comments

Many accounting & financial services businesses being held back by poor understanding of laws of success

Last Wednesday, at the Brisbane offices of Macpherson Kelley Lawyers, I attended a presentation by Macquarie on its 2015-16 Accounting and Financial Services Benchmarking Report, which is based on survey data collected from 355 accounting and financial services firms across Australia. I was stunned that fewer than half of respondents considered that new client acquisition is an effective strategy to improve profitability in the current market (see chart below). Instead, most respondents favour adding value for existing clients and finding efficiencies, which are both admirable goals, but are unlikely to result in startling business growth and profits.

profitability_levers

Source: Macquarie, 2015-16 Accounting and Financial Services Benchmarking Report, p. 17.

I would suggest that many accountants and financial advisers would benefit from reading The 10X Rule by US sales guru Grant Cardone, in which he notes (in Chapter 19):

Customer satisfaction doesn’t concern me very much! Why? Because I know that we over-deliver to our clients and provide customer service that is well beyond “satisfactory”…

…I am most worried about noncustomer satisfaction; that is, the people who are dissatisfied because they do not have my product and may not even know that they are unhappy…

…It is impossible for a company to create success by just focussing on customer satisfaction. I believe that the trend of focusing on customer satisfaction has been detrimental to customer acquisition. Companies become so consumed about their current customers’ “satisfaction” that many are failing to aggressively acquire and expand their market share.

These are very wise words, and I hope to see an improvement in the proportion of accounting and financial services businesses that believe new client acquisition is an effective profitability lever in Macquarie’s next benchmarking report.

Posted in Productivity, Uncategorized | Tagged , , , , , , , | 4 Comments

Pets are good for your health, the Budget and the economy

Bondi Vet Dr Chris Brown has noted:

“…pets make us happy. They wash away our worries while showing us how life should be lived. And pets are proven to also make us healthier.”

Pets also have economic and budgetary impacts, as recent research by my fellow economist and friend Dr Stephen Thornton has demonstrated. Stephen’s research was presented to a recent forum at Queensland Parliament House which was arranged by Mars Petcare, owner of leading pet food brands such as Chum and Whiskas, as part of its Keep Australia Pet Friendly campaign.

Stephen spoke about his recent report Pet ownership in Queensland strata schemes: economic, financial and public health benefits. The report considered the economic, financial and public health impacts that would follow from allowing pets in properties under strata schemes without prohibitions (although a body corporate would be able to set reasonable conditions and have the power to ask for offensive pets to be removed after reasonable notices). Stephen reports that, if dogs and cats were not prohibited in any strata dwellings, likely impacts include:

  • approximately $90 – $180 million of increased expenditure and over 600 new jobs in the lucrative pet industry in the medium term (3 to 5 years);
  • approximately a $25,000 increase in value and $1,300/year increase in rental income for lot owners of an average $500,000 apartment/townhouse; and
  • budget savings for Queensland Health resulting from better public health outcomes.

Please consult Stephen’s report for his specific assumptions and sources.

The current review of Queensland property law being carried out by the Commercial and Property Law Research Centre at QUT provides an excellent opportunity to consider changes in property law to make it easier for people to own pets in properties in strata schemes.

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Dr Stephen Thornton speaking at the Qld Parliament House forum on keeping Australia pet friendly

Posted in Budget, Health, Housing, Uncategorized | Tagged , , , , , , ,

Heavy criticism of Qld’s infrastructure deficit at IAQ Infrastructure Summit

Government ministers should accept speaking invitations at important conferences so they can communicate with industry and the public, and, also, so they can deny Opposition members 20 minute speaking slots in which they can criticise the Government’s performance. That is what happened yesterday at the Infrastructure Association of Queensland’s Infrastructure Summit held at the Brisbane Convention and Exhibition Centre, which featured Deputy Opposition Leader Deb Frecklington as keynote speaker.

The Deputy Opposition Leader heavily criticised the Queensland Government’s record on infrastructure, noting that, at 1.3 percent of GSP, general government infrastructure spending was at a record low in 2015-16. She also criticised the Government for failing to fully deliver its infrastructure program in 2015-16, with a shortfall of some $2 billion. This appears to be based on a comparison of budgeted and estimated actual expenditure figures for non-financial asset purchases across the whole of Queensland Government for 2015-16, which reveals a shortfall of $1.7 billion (see chart below based on data from the 2016-17 Budget papers, specifically Tables 9.1 and 9.2 of Budget Paper no. 2).

infrastructure_1516

The Deputy Opposition Leader also said the Government has yet to make a convincing case for Cross River Rail, and called on the Government to release the full business case. She asked what “secret taxes” are being planned by the Government to pay for the project. This is obviously a reference to value capture proposals, which could include a betterment levy on property owners benefiting from increases in property values. An increase in car registration, which was apparently advanced as an option in the business case, has been ruled out by the Government. I hope the Opposition’s rhetoric about secret and sneaky taxes does not preclude it from using value capture to pay for future projects when in Government, as value capture can be a legitimate source of project funding and can promote a fairer sharing of the costs.

The Deputy Opposition Leader would have been very pleased if she had stayed at the Summit, because the next speaker, the Deputy Director-General of Queensland’s Infrastructure Department Darren Crombie, said he supported a lot of what the Deputy Opposition Leader said, and he noted she was correct about the infrastructure shortfall. It appears that public servants, too, and not just industry players, are disappointed with the relatively low level of infrastructure spending in Queensland. As I have noted on this blog, however, government infrastructure spending has started to increase recently, and it is very important to make sure we are spending money on projects that deliver net benefits to the community.

Posted in Infrastructure, Transport, Uncategorized | Tagged , , , | 2 Comments