Queensland Economy Watch

Brisbane housing “severely unaffordable”

Posted on January 24, 2011 by Gene Tunny

Average Brisbane house prices are 6.6 times the average household income, meaning Brisbane house prices are broadly comparable to those in London, which are 7.2 times the average household income. In affordable housing markets, such as Nashville in Tennessee, the ratio of house prices to average incomes is no more than 3.

In a new report by Demographia, a US consultancy, Brisbane is described as having a “severely unaffordable” housing market, placing us in the same category as London, New York, and Hong Kong. Other Australian cities in the severely unaffordable category are Sydney, Melbourne, and Adelaide, which are all less affordable than Brisbane, and Perth. The report is available here:

7th Annual Demographia International Housing Affordability Survey: 2011

The report’s findings aren’t all that surprising and simply add to the accumulating evidence that Australian house prices are much higher than you’d expect based on average earnings. If there is another major recession in Australia similar to the early nineties recession, it’s possible that housing prices would experience sharp falls, as many unemployed home purchasers would end up defaulting and the banks would have a big stock of properties to sell off.

If the economy keeps avoiding recession, it’s possible the relatively high housing prices could persist, owing to the underlying fundamentals of the Australian housing market – i.e. solid growth in demand, driven by population growth, compared with sluggish growth in supply due to the limited availability of new land. For an excellent discussion of the economics of the Australian housing market, read this book:

Mastering the Australian Housing Market

While the underlying economics of the property market are sound, the Demographia finding that our housing markets are “severely unaffordable” should warn investors not to expect the large capital gains that housing has provided in the past. This is especially so when one considers that baby boomers have started turning 65 from this year, and will no longer be earning large amounts of income which they can plough into the property market. Many baby boomers will also sell their houses in the city to move to coastal or hinterland areas, meaning there will be an influx of new supply, putting downward pressure on prices.

Posted in Housing, Population | Leave a comment

Lord Mayor launches his own flood review

Posted on January 21, 2011 by Gene Tunny

Is Brisbane Lord Mayor Campbell Newman worried about what the Government-commissioned flood inquiry will find regarding City Council policies, particularly around land use planning?

Today the Lord Mayor launched his own independent flood review, focusing on the City Council’s handling of the flood disaster, even though City Council issues such as land use planning are within the scope of the Queensland Government-commissioned inquiry by Justice Catherine Holmes. See:

Queensland Floods Inquiry: Terms of Reference

Mr Newman has made it clear that the review he has commissioned, to be headed by former Governor Peter Arnison, is not intended to subvert the year-long Holmes Review, and the Arnison report, to be completed by May, will be provided to it.

This is all very well and proper. If the City Council is to attract any blame from the Holmes inquiry, then it deserves the right to a second opinion, which it will have already obtained through its own inquiry. Moreover, the more evidence and perspectives we get on these critical issues for Queensland’s future the better.

Queenslanders will watch both flood inquiries with intense interest, and may be surprised at some unexpected casualties. Regrettably, before the reviews have assessed all the relevant evidence, the blame game for the floods has already begun – see, for example, our national newspaper today.

In other flood-related news, a new ABARE report has quantified the costs of lost agricultural and mining production due to the floods. The Australian reports:

THE devastation from recent floods will cost the Australian agricultural sector $500-600 million, while coal exports will take a $2-2.5 billion hit in 2010-11, according to a new report.

Posted in Brisbane, Floods | Leave a comment

Pointless debating floods levy right now

Posted on January 20, 2011 by Gene Tunny

Unafraid of being accused of rank political opportunism, the Leader of the Opposition Tony Abbott today urged PM Julia Gillard not to impose a “great big new tax” – i.e. the floods levy – to fund the Queensland reconstruction and to instead cut some of the “enormous amount of fat” in the Commonwealth budget:

Coalition revives ‘great big new tax’ slogan as it urges Gillard not to impose floods levy

Mr Abbott is right there is a lot of fat in the Commonwealth Budget, and the Government would do well to look at cutting the fat first before imposing a levy. The Government need look no further than the Productivity Commission’s forensic review of the almost $8 billion of corporate welfare the Government provides each year. For further information and discussion, see:

Productivity Commission Trade and Assistance Review

Gillard says no more corporate welfare – good because we’re already spending $7.7bn p.a.

Depending on how the economy performs, however, getting back to surplus may not be as difficult as commentators imagine, even after meeting the costs of reconstruction. Treasury’s track record at revenue forecasting isn’t spectacular – as Treasury, being conservative, generally under-forecasts future revenue – and it’s possible the Government will have a sizable pool of new revenue to play with for the 2012-13 budget. This is a very real possibility given the large amount of mining sector investment in the pipeline (see Mining sector investment to soar to $55 billion in 2010-11). Hence debating the merits of a floods levy at this time is pretty pointless.

Posted in Floods | Leave a comment

Can this Summer get any crueller?

Posted on January 20, 2011 by Gene Tunny

It certainly could. The Townsville Bulletin reports:

City on alert for tidal flooding and cyclone

The “beer ship” to Townsville, replenishing XXXX supplies, may arrive just in time to fortify Townsville residents for potentially challenging times ahead:

Beer ship to the rescue

Posted in Floods, Townsville | Leave a comment

Strange aberrations – bigger than a one-in-100 year flood in the Lockyer

Posted on January 18, 2011 by Gene Tunny

Brisbane Lord Mayor Campbell Newman today defended his town plan and remained optimistic about the future of riverfront living in Brisbane, even though Brisbane has now experienced two major floods in the last 37 years:

Brisbane mayor insists town planners not to blame for flood destruction

Mr Newman noted:

”The Lockyer Creek had a huge part to play with what happened in the Brisbane River.”

He said the standard was the Q100 one-in-100 year flood.

”These strange aberrations seems to be in my view as an ex-professional engineer is that we’ve had a more than one-in-100 year flood in the Lockyer.”

The Lord Mayor may be anticipating an adverse finding against his town planning policies by the Government’s flood inquiry, which we hope doesn’t descend into a blame game – we’re all geniuses in hindsight after all. One hopes the inquiry offers a genuine review of our water management and flood mitigation policies, including whether we should run Wivenhoe Dam at a lower level, boosting its flood mitigation capacity, and augmenting our water supply with the Tugun desalinization plant. Hopefully the inquiry is skeptical about the superficially attractive idea of levees on the Brisbane river, which would ruin the beautiful views we have of the river, reducing Brisbane’s livability and attractiveness to tourists.

Regardless of whether the Lord Mayor’s belief in the freak nature of the flood is supported by the Government’s flood inquiry, the Lord Mayor may well be right that riverside residents won’t be deterred from enjoying their usually enviable lifestyle by a flood that only comes along once every generation or so. According to the Lord Mayor, as reported by the Courier-Mail:

…many waterfront residents along the Brisbane River had told him they had enjoyed years of river views free of flooding and this once in a lifetime event was not going to chase them away.

Good on them. As was said in the classic Australian film Strictly Ballroom, “A life lived in fear is a life half lived.”

In other flood-related news, ANZ bank economists have come out with a plausible forecast of the cost of rebuilding after the floods, estimated at around $20 billion:

Rebuilding after flood to cost 1.5pc of GDP, say ANZ economists

Posted in Brisbane, Floods | Leave a comment

Queensland’s week of tragedy

Posted on January 15, 2011 by Gene Tunny

In Brisbane’s flood-affected suburbs, such as Toowong and St Lucia, the roadside piles of water-damaged possessions – including fridges, furniture and bedding, all rendered brown and drained of vibrant colours – remind unaffected residents of the heartache wrought on fellow Queenslanders by the flood of 2011.

Queensland experienced tragic losses of life this week, as an inland tsunami tore through Toowoomba, devastated Grantham, and ultimately flooded large parts of Brisbane and Ipswich, leaving a legacy of grief, mud, damaged possessions, and ruined homes and businesses. The death toll may number in the dozens and there is speculation that the cost of the floods could be around $10-20 billion.

Undoubtedly there will be an adverse impact on the Queensland economy in the short-term through disruptions to flood-affected businesses, in addition to the loss of mining production and exports we have already experienced. While most damaged businesses will recover and reopen – including, surprisingly, the wrecked Drift Restaurant – there will be a number of businesses that cannot afford to reopen, such as Big Dad’s Pies in Ipswich. In aggregate, the negative impact on jobs may be signficant. Nonetheless, as Queensland is rebuilt over the next few years, infrastructure spending will revive the economy, and we will return to our old strength (see previous post on Recovery from Natural Disasters).

If you are in a position to, please give to the Queensland Premier’s Flood Relief Appeal. Those of us based in South-East Queensland with the right gear may also volunteer for the clean up.

As the clean up continues, we should keep in mind the defiant and inspirational words of the owner of Drift Restaurant, David Moore:

The river has taken the restaurant, but it will never take our spirit.

Posted in Brisbane, Floods, Ipswich | Leave a comment

Rebuilding Brisbane – what priority for CityCat services?

Posted on January 14, 2011 by Gene Tunny

The flood has wrecked a number of Brisbane’s CityCat ferry terminals, including the one below at Toowong, and it may take the Council 18 months to rebuild them (CityCat terminals could take a year and a half to rebuild).

Given the massive cost of fixing up roads and other infrastructure across Brisbane, the City Council should reconsider the viability of some CityCat services and terminals. The CityCat is popular on weekends, with tourists and locals crowding the catamarans for the trip to Southbank, but it is not a popular choice for commuters during the working week.

An article in the Courier-Mail last November highlighted the declining commuter demand for CityCat services (Commuters abandon CityCats):

COMMUTERS are abandoning Brisbane’s CityCats and ferries in droves, with 2350 fewer trips recorded on the river each day compared to last year.

Despite a boom in public transport usage which has seen almost 50 million trips across the network in just three months, patronage on the city’s ferries fell to just 1.54 million in the September quarter.

That is 212,000 trips fewer than the same quarter last year, in the busiest time of the year for public transport usage.

The Regatta terminal at Toowong, in particular, did not appear to be very well utilised, probably because Toowong has both bus and train services. Hence the Council could rank fixing up the Regatta terminal as a low priority compared with more pressing needs across Brisbane.

Furthermore, public transport is expensive to provide, and it may be worthwhile for the Council to rationalize CityCat services more broadly. It could reduce CityCat services for commuters and reallocate recurrent funding to new bus services, leaving a limited weekday CityCat service mainly aimed at tourists, while maintaining the popular weekend services.