What Grattan’s city-centric report really showed

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By Catherine Cashmore, a market analyst, journalist, and policy thinker, with extensive industry experience in all aspects relating to property. Follow Catherine on Twitter or via her Blog.

“Too many workers live too far away to fulfil our cities’ economic potential” – is the conclusion of a recently published study by the Grattan institute.

The report maps the dollar value of goods and services produced by workers within a particular area of Australia’s biggest cities. Demonstrating a disproportionate 80% is created on just 0.2% of the nation’s land mass.

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It mirrors findings highlighted in a recent speech by Luci Ellis – Head of Financial Stability at the RBA, who collected the addresses of people’s work places from the 2011 Census, to construct a picture that is particularly striking if directly contrasted with where employees actually live.

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“Inner areas have become even greater job magnets in recent years; some middle and outer areas added people, but not so many jobs, so their job-to-worker ratios actually declined.”

Places with ratios well above 1 are employment centres. They pull in commuters across the city even from outside its borders.

While the very pale fringe areas, attracting the largest population growth due to pressures of affordability, are the ‘commuter districts,’ dormitory suburbs, where jobs and community infrastructure have failed to follow through.

The picture is one of increased social polarisation – fringe localities; tend to face higher crime rates, elevated levels of unemployment, along with reports of depression and mental illness, Poor supply policy and delays in zoning pockets within the urban boundaries for residential development, means a typical house and land package on a compact 450sqm site, transacts for no less than $400,000.

Instead of a sensible system of bond financing, where residents pay back proportionally over a lengthy period of time, or a broad based land value tax to replace other taxes as advocated in the Henry Tax Review, funds for the provision of essential infrastructure are loaded onto the upfront cost of housing and promptly passed to the buyer.

Yet Councils can wait years for the finances to arrive. The funds are only payable upon subdivision and with no control over the development or release of newly zoned land; buyers can often pay for services they may never receive.

The Grattan report is subtitled “Cities as Engines of Prosperity” and charts Australia’s evolution from a country that “made things,” into one that is now reliant on centrally clustered “knowledge-intensive and specialised services.”

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Together, the cities above account for 15% of Australia’s economic activity, but despite declining job-to-worker ratios in the outer suburbs, along with increases in the price-to-distance trade off for home buyers, only 8% of Australia’s employed population actually work in the central hubs of each major capital.

In Melbourne for example, over 50% of jobs are located more than 13km from the inner core, with fewer that 20% of jobs in the CBD itself.

These are not high paying jobs however, which leads the authors to imply we need to move closer in and –“Minimise barriers to highly productive activity in CBDs and inner city areas”.

They suggest this would provide industries with a “wider range of potential workers to choose from”:

“Australia’s cities are the backbone of our economy, with CBDs and inner city areas critically important to the nation’s prosperity….The more highly skilled and specialised a job, the greater the need to find the best person to fill it.”

Knowledge based and specialised services cover a diverse area, including industries such as, finance, insurance, real estate, and business services, as well as cultural, media, communication, and education facilities for example.

They are gaining predominance across the globe, due to a technological boom that is powering us forward in an expansion not unlike the industrial revolution.

3-D printing is lowering the cost and logistics of production. Advances in the research of solar and renewable energy have paved the way for homeowners to store electricity overnight and possibly disconnect from the grid completely.

Companies such as ‘Uber’ and ‘Lyft’ have created innovative ‘apps’ to provide cheaper transport options for consumers and ironically, changes in the way we interact and communicate have allowed people and jobs to disperse over a broader footprint and successfully collaborate across international borders.

However, this is not where Australia excels.

Moves to take advantage of the innovation revolution have been continually hampered by Government intervention, winding back tariffs and scaling down their 2020 Renewable Energy Target, acting to protect the cartel of the Taxi industry’s ‘licensing’ monopoly, and cutting funding to organisations such as the CSIRO.

No – the predominant sector that yields the most “knowledge intensive” gains in Australia comes from the FIRE industry (finance, insurance, and real estate)– which has its infrastructure webbed like a parasite on the back of the great Australian housing boom.

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At a global banking conference in 2013, the question was asked ‘Why the hell are Australian Banks performing so well!?’ – it was in response to a chart showing a decade rise in market capitalisation on the global banking index, from 2% to 14%.

The answer was obvious; the banking sector makes its money by creating debt – mostly mortgage debt and our highly leveraged ‘too big to fail four’ are the world’s most heavily exposed to residential and commercial real estate, capturing 88% of the mortgage market alone.

To be clear, the FIRE Economy is not a value adding economy; it profits by extracting economic rent from the debt on rising land values, impeding areas of productive enterprise, and trading the interest in a multi trillion-dollar derivatives market to advantage those sitting at the top of the financial pyramid.

To survive, the FIRE sector must sell the illusion that the economy and its participants can achieve economic prosperity through speculation on rising property values.

This has been assisted by tax, housing, and monetary policy, resulting in Australian’s holding some of the highest levels of private debt in the developed world.

Tax withholdings or exemptions given to land holders for example, result in an increase of unearned monetary gains (economic rent) available to be capitalised at the current interest rate into the upfront cost of land.

This was aptly demonstrated in a recent release by Moodys’ Analytics, estimating how the tax policy of negative gearing, has acted to inflate Australian house prices by no small degree.

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Supply policy has further assisted.

Inelastic responses to market conditions have allowed professional land-bankers to squat on sites at low cost and secure windfall gains when the sites are later rezoned for residential development.

Allowing the uplift of land values to capitalise year upon year into the cost of housing, may be gift-wrapped with corporate spin, to suggest it somehow benefits the community, when a cursory analysis reveals the exact opposite to be true.

It raises the cost of living for every single household, increasing welfare costs, and leaving less to invest in sustainable industries that contribute to the county’s real ‘value adding’ economy.

As demonstrated by the British economist and historian Fred Harrison in his book “The Great Tax Clawback Scam.”

The pull of the centralised core, where property values and wages are highest, results in decades of progressive taxes on every worker in the state being clawed back by a few, as inner city land values benefit from higher incomes, increased demand and improvements to social infrastructure and transport arterials to do precisely as the Grattan review suggests – and keep us locked and reliant on a small pocket of land for our economic gains.

The benefits for homeowners can obviously be substantial.

It brings with it the theory of urban consolation – reduce sprawl and force residents into apartments, however doing so can have the adverse effect of increasing sprawl, as lesser industries ‘hop’ the middle ring, in search of cheaper options, and their employees move out further still.

If we were living in ancient Rome where walking was the general mode of transport, you could understand the need to stay centrally located, however we are not.

We’re in an age of mobility where global research is being poured into innovative modes of transportation such as solar roads and electric cars.

If a buyer is able to travel to the supermarket, park and any other amenity on the priority list within a 30 or 40-minute period, the distance from the CBD is not an imposing factor.

The decider is the time it takes to drop the kids off to school in one direction, and travel to work in the other.

Since the 1970’s, successive governments have poured millions into incentives to try and decentralise and boost regional localities. However, all attempts have failed, because the both the funding and supply mechanisms are flawed.

Decentralisation requires affordable land for both business and buyer, which is not unduly inflated due to policies that promote speculation, as well as growth enhancing infrastructure and flexible supply policy that responds in a timely manner to homebuyer (not speculator) demand.

The Henry Tax review was not slow to point this out, when it suggested slowly phasing out a vast array of ‘bad taxes’ (deadweight taxes) that impede productivity and reduce mobility (stamp duty, payroll, insurance, vehicle registration, and so forth, as well as phasing out those that ‘reward’ speculation) and instead, collecting more of the economic rent from a broad based tax on the unimproved value of land and natural resources.

According to research undertaken by Paul D Egan and Philip Soos, in 2013 we lost a staggering $73 billion of output stemming from deadweight losses of taxation, yet, economic rents, which exhibit no deadweight loss, are a significant component of the Australian economy, comprising 23.6% of GDP.

When extensive research was carried out by ‘Prosper Australia’ on the “Total Resource Rents Of Australia,” it was recognised that almost half of all government revenues could be delivered by channelling the property boom to more productive purposes.

However, while the example is useful for policy reform – even a small shift in the tax base to provide a steady source of revenue in lieu of stamp duty, would assist in reducing speculation and aiding mobility (As economist Leith van Onselen has repeatedly demonstrated.)

With less reliance on income tax, land value taxation would also act to shift economic power back to state and local government, thereby giving them more control over spending and in a very minimal way, it may also act as a natural countercyclical force.

For example, when land values depress due to a drop in consumer confidence, buyers would have less tax to pay, and therefore more discretionary income to spend into other areas of the economy – Government would reap any fall in revenue back when the reverse is the case. (Albeit, there are many variables that could affect this and other points to discuss.)

Historically, the capture of economic rent (through land tax and to some extent ‘betterment’ taxes) financed some of the most remarkable infrastructure we have. The Sydney Harbour Bridge being a case in point.

It was acknowledged at the time, that residents on the north shore would benefit significantly from an increase in their property values as a result of this essential piece of infrastructure. Therefore, a framework was set in place to capture a proportion of the uplift – approximately one third – to assist with funding.

This was in no way detrimental to the property owners.

The increased advantage of economic activity coupled with the rise in prices resulting from the enterprise, more than compensated. A win-win if you like – and readily accepted by the public as ‘fair.’

Over time, changes in the way both state and federal government collect tax moved focus away from land values onto productivity, effectively placing a fine on labour and doing a good job of keeping us asset rich and income poor.

It’s great for the haves – but not the ‘have-nots’ (our growing pool of tenants.)

A similar concept is recognised by owners of apartments.

When buyers purchase a unit, they expect to pay a yearly corporation fee for maintenance and improvement of community services.

In doing so, it reduces the up front cost consumers are willing to pay as they configure the fee into their budget, yet it is also recognised as an investment, as the benefits and any subsequent improvements help attract future purchasers.

A broad based land value tax is essentially no different.

In markets that have similar policies – a change in the tax mix, with higher taxation on land in lieu of those on productivity in order to fund related infrastructure, coupled with good supply policy, enables a process of decentralisation and increased affordability to follow through.

Both reforms work hand in hand.

The prosperous economy of Texas in the USA is a good example of this.

Since June 2009, about 48% of all jobs created in America have been in the state.

It has booming population growth, high levels of disposable income, low house prices and has been termed “The Texas Miracle.”

This is because with no income tax employees get to keep more of their earnings while higher property taxes used to fund community infrastructure and stem speculative inflation, along with good supply policy, help create a truly decentralised city, with only 7% of jobs located ‘downtown.

Importantly, when the locational value of land is allowed to capitalise into the price, there is every reason for homeowners and investors to object to an increase in supply.

When this gain is partially taxed away, offset by higher earnings due to lower income tax (as it is the case in Texas,) vested interests diminish and neighbourhood development may even be encouraged in response to population growth as it spreads the burden of taxation and acts to reduce the level payable for the individual owner.

We do not have to mirror another country’s policies, but it does prove the ability to create a system that provides a fairer regime for the funding of infrastructure, stops runaway land price gains as well as assisting households and commerce to move outwards.

However, in an economy that is dominated by the financial sector, and reports such as the latest Grattan review celebrating Australia’s city-centric culture, efforts to decentralise and produce a fairer system for all Australian’s are deteriorating in favour of policies that are there to benefit the rent-seeker, at the expense of the labourer.

Comments

  1. most of the jobs are in inner cities, most of new jobs are created in inner cities and some people still suggest we should build low density homes on city fringes far from jobs instead of high density homes close to jobs?

    • You must have missed the bit where she pointed out that only 8% of the workforce actually work in the central hubs of our cities.

      • 8% is related to CBD only, but if you look at the maps inner cities (up tp ~10km from CBD) are places where majority of people work and the only places where more people work than live. Majority of all new jobs are also created in inner cities.

        All outer suburbs have ratio of jobs to residents significantly lower than 1, which means very low percentage of people who live there work there.

        Building more homes on city fringes would create huge pressure onto existing infrastructure and require expensive upgrades. Building higher density housing in places where majority of jobs are and majority of new jobs get created seems to be much smarter idea.

      • No, a much smarter idea is to free-up planning in both the suburbs and the fringe, and lower overall land/housing costs. This way, all types of housing will become cheaper and buyers will have greater choice. Businesses will also be able to more easily relocate to where people live and where land is cheaper. Australia has shot itself in the foot by giving away its land cost advantage, and in the process killed industry and bestowed expensive housing on the populous.

        Our cities should be pluricentric not monocentric.

      • The problem IS that the jobs are in the city centres. it means we produce SFA, run CAD’s and are required to continuously zsell assets, even inner city ones, to maintain our lifstyle. It’s lucky we’re a;; becoming a narcissistic bunch of pricks so that we only give a stuff about ourselves and don’t give a rats about what is going to happen to our kids.
        As Catherine said
        “To be clear, the FIRE Economy is not a value adding economy; it profits by extracting economic rent from the debt on rising land values, impeding areas of productive enterprise, and trading the interest in a multi trillion-dollar derivatives market to advantage those sitting at the top of the financial pyramid”

        The role of the inner city, in our economy, is to impede production and productivity. The idiotic idea, now happily enshrined in productivity estimates, that if a job is not actually producing anything we give it a productivity value of 1 or more is ludicrous.
        “Too many workers live too far away to fulfil our cities’ economic potential” ”
        That is NOT the problem. The problem is that we THINK our inner cities are the economic potential. Our economic potential actually lies in our regions and then, to some extent, on the outskirts of cities.
        If we demolished the inner cities in this country we would all be better off! Productivity would be increased.

      • Bloody hell I give up with this damned place. Half the posts get eaten!!!!!! Can’t something be done about it????????????????????

      • First of all, your data only looks into inner CBD (not even highrise neighbouring suburbs that are usually considered to be part of it – Millers Point, Rocks, Haymarket, Pyrmont and Ultimo are not included into Sydney CBD for census stats). It’s inner city that needs higher density growth and that’s where majority of jobs are. CBD is already high density.

        Second, I don’t think census contradicts me even for CBD alone. Sydney CBD accounted for 13.4% of all jobs in Sydney while it accounts for only 0.03% of Sydney’s population and 0.04% of Sydney’s land area.

        There are more than 23 jobs in CBD per every working age resident. So we could increase population in CBD by ten times and not need to build new expensive transportation infrastructure.

        In outer suburbs there are less than one job per every workers. For every home we build there we increase congestions on roads outside of the suburb.

      • DoctorX,

        The more you try to centralise and to stop fringe growth, the more people you “price out” of being able to locate near the city centre.

        Simple fact. Cities with affordable fringe McMansions also have affordable CBD condos and apartments.

        Australian cities are already suffering from the “pricing out” effect causing an INCREASE is average commute distances, because it is true that employment location is generally “weighted” to the centre.

        I will post more on this later in the thread.

      • “Simple fact. Cities with affordable fringe McMansions also have affordable CBD condos and apartments.”

        really?

        How about US cities like Chicago, Miami, …?
        Even places like Dallas and Houston? most 2bdr apartments close to downtown cost two times more than new 5 bdr houses on city fringes

      • Chicago and Miami have more affordable fringe McMansions than Aussie cities, AND more affordable CBD apartments, like for like, and that is absurd, and the result of policy idiocy.

        Wherever you are getting your comparisons from, it seems to not be the same RE sites as I find on the net. Like for like, you will find Aussie cities fringe McMansions are at least double the price of Dallas and Houston (with sections half the size or smaller) AND CBD apartments are around FIVE times the price, like for like. How “smart” is this for location choice opportunities?

  2. There’s something simmering in New Zealand. We are being prepared for ‘what’s coming’ ( and it’s not good!). Issues such as this one that Catherine highlights here are actually making it to the MSM!. Last night, Nigel Latta had a prime time doco on TV1 highlighting how indebted New Zealand is and how reliant and vulnerable we are as a society to debt and speculation. Sure, it was part of the wider discussion on inequality and how things have changed over the last 30 years ( there’s an ironic clip of our PM from the 80’s when he was an FX dealer at Elders Finance – but it flashes across the screen so quickly most will miss it) but those few NZder who may have missed it’s ( http://tinyurl.com/kelfw7t ) and worth your time to watch. For those in Australia it can be easily by-passed as there’s nothing on there that every MB reader doesn’t already know…..But it made our TV! There’s hope after all…..

    • Even more interesting is the fact that Texas “boom” is not result of free market but result of direct and broad state government intervention. State of Texas was providing benefits (including cash and tax breaks) to companies to relocate there. Texas gives more than $20b a year to business (Samsung got $200m in cash from the state).

      So all these free market stories are for fools, it looks like economy works much better in places where government plays major role in the economy

      • A location where there are subsidies plus low cost land and low regulations will beat one with subsidies plus regulations and high cost land. Do you have an example of a location with regulations and high cost land where they do not give subsidies and are attracting employers and workforces?

      • how about SF bay area?

        very expensive land, no subsidies, more regulation than anywhere else …

        During 2012 (year when Texas spent $20b on subsides) in top 10 cities for job growth large majority are cities with expensive land, no subsidies, and more regulation: SF, San Diego, Boston, Seattle, Portland, …

        http://www.cbsnews.com/pictures/top-10-us-cities-for-job-growth/2/

        Only one TX city is on the list despite state spending more in cash-outs to big businesses than all these other states combined

    • To me, as an ex-manufacturing engineer who has worked alongside overseas based project engineers, the most interesting part is the role of lighter safety regulation – the O/S based engineers who had installed equipment in about 30 different countries around the world daily expressed astonishment at Victoria’s high regulation.

      That may sound only indirectly related to the debate at hand, but in Melbourne’s Western and Southeastern suburbs jobs that are quite conveniently located for fringe dwelling commuters are being destroyed as the death of manufacturing continues apace, and no one has anything to take up that slack. And of course, if Victoria’s manufacturing capacity was returned to its peak tomorrow, it would only bring back a fraction of the jobs.

      That said, while reform of Workplace safety in Victoria ought to be a much higher priority than it is, it will require some people with a pretty deep understanding of the problem to do it without causing workplace deaths – a simple rollback is definitely not the answer.

      • Stat
        ” it will require some people with a pretty deep understanding of the problem to do it without causing workplace deaths – a simple rollback is definitely not the answer.”

        If I might propose a slightly different take on this subject. I hope people might give it some thought.
        It seems like every time we have an industrial death we pass legislation which can be enormously costly to productive enterprises. Examples are plentiful to those of us who run businesses.
        The standard reply is “Well how much is a human life worth?” said to those of us, who have objections, as if we don’t give a stuff. In fact we don’t even have to have deaths to have this stuff imposed. Some bloke sitting in an office somewhere thinks up some fanciful scenario of something that MIGHT happen at some stage in the future and we get legislation covering that possibility.
        Just to throw around totally fictitious numbers for themoment to make the point clear.
        Suppose we have an industrial death. We can have regulations to cover that eventuality in future that cost say $1B across the nation. As a society could that money be better spent. Could we have saved more lives by spending that money elsewhere? Would it have saved more lives by investing it in money on kids leukaemia research?
        We act. always, as if there is no limit to the money available. We currently sustain what we do through more and more debt and more and more asset sales t5o foreigners. Even still we find very worthy causes, where people die every day, that have no funding.
        Can’t somebody at least think about this stuff.

        I speak as one who has been involved in many risky situations in life. Galloping horses through thick Brigalow scrub, driving Bull dozers, working on windmills, using explosives, builders labouring five decades ago etc etc etcf. One just does one’s best at the time. We can’t protect everybody in every situation not should we. Yet we try to at great cost to the nation and to our future as well as great cost to others who might really need a bit of funding.

      • flawse,

        Fair enough, but just to get a little more specific about it:

        The regulations are supposedly intended to drive an assurance culture – i.e. move from government’s taking responsibiltiy for safety by passing laws on specific safety issues to employers taking responsibility for safety via sound industrial risk management (which includes people imagining possible deaths and taking steps to prevent them)

        The problem is that the state has not ‘withered away’ (let’s face it, it never does!) and to some extent workers comp insurers have added their own set of regulations on top by offering differential premiums based on things like employees wearing PPE all the time, as opposed to when it is indicated by risk assessments, So there are now three sets of regulations at work, and the problem is distinguishing between the regs which improve safety and the regs which simply cost money.

      • @ flawse

        by spending one billion on something else we may save (prolong life) more people but not people who died in industrial accidents.

        Your approach is very utilitarian and as such only works for people who regard utilitarianism as a valid ethical stand.

        Some people will see your proposal as call to sacrifice one person’s life to save some other people. For many that is unacceptable moral choice.

        Some other people may go further than you and say we shouldn’t spend any money on people who are old because with that money we can say many more young people …. or why not kill a person and use his/her organs to save dozen other people …

        my point is that this is an ethical question and as such requires different and deeper approach – not financial one

      • doctorX,

        IMHO a bit of utilitarianism could benefit everyone.

        At least having a conversation about those choices in medical funding (which is finite) which ultimately mean bureaucrats choose to save people in group A at the expense of people in group B is honest.

        These choices get made – at least utilitarians take ownership for them. Taking ownership of the unpalatable final consequences of your decisions seems like a minimum requirement for a ‘grown-up’ government. Of course, Catholicism has produced some of the strongest critics of utilitarianism, even if their reliance on scripture undermines their relevance.

      • I’m not religious at all but I do not support utilitarian idea (I think it’s utopian).

        I don’t have issue with decision makers taking or not taking responsibility for their decisions. My issue is the lack of moral right to make these decision.

        Who has right to say that life of John Citizen is worth less than lives of two or ten or thousand other people, and if it does in some instances (workplace safety) than why it doesn’t in some other instances (forced organ donation example)

      • doctorX,

        As a self-described secularist who does not support utilitarianism, what is your alternative philosophical framework for dealing with questions of medical ethics?

        My whole point is that when you get to a point when you can say “No, I won’t kill those two people over here to save the thousand people over there”, you are saying “Yes, I’m comfortable to kill those thousand people over there”.

        The answer to organ donation seems fairly easy – the chance of failure is significant, so you could have a substantial reduction in the life quality and expectation for the donor potentially in return for only a small improvement in the outcome for the receiver.

        Returning to the original issue, flawse’s idea was to attempt to trade off value added to the economy with a reduction in workplace safety – I suspect it’s far from clear that many utilitarians would find that an acceptable trade off. My answer was and is that there are instances of over-regulation – which costs money without saving lives. The goal is to remove those instances. No trade off in utility required.

      • drsmithyMEMBER

        Just to throw around totally fictitious numbers for themoment to make the point clear.
        Suppose we have an industrial death. We can have regulations to cover that eventuality in future that cost say $1B across the nation. As a society could that money be better spent.

        The problem with your argument is that the random numbers thrown around vastly change the argument.

        You use $1B as an extreme example, but then make an argument that the same logic should be applied if the cost is a $1M, $0.

      • I do not support utilitarian idea because it is impossible to know outcome of an decision before it’s actually made. The basic premise of utilitarianism is that intention doesn’t matter only consequence does.

        maybe $1b spend on cancer research would be fruitless (like many billions spent in past) not saving anyone or very few people only while $1b spend on safety may prevent a single large disaster saving tens or hundreds.
        Who can claim that something will actually happen (even knowing exact probabilities is not enough because less likely event may happen making decision wrong in utilitarian sense)

        As “self-described” atheist (not secularist) I think that some combination of virtue and deontological ethics (based on other peoples rights and duties) is much better way.

        I think that nobody has moral right to take or risk somebody else’s life.

      • That’s all good DoctorX, but I still think you’re dodging my major point:

        Any decision that sets the budget for medical help – i.e. hospital funding, GP funding etc – risks lives. Mr Abbott and his merry men are doing it with their co-payment, for example.

        Don’t agree that knowledge of the future is necessary – that’s why the good Lord gave us Thomas Bayes and John Forbes Nash et al. We can pretty much always find an optimal decision given our current state of knowledge. At the same time happy to aknowledge that zero regard for intentions is a little artificial, but so is zero regard for consequences.

        Utopian ?- the sense I get is that most critics of utilitarianism find it dystopian, especially at the Singer end of the spectrum!

      • The reason why politicians risk lives of others is because utilitarian (risk based) ethics quietly became mainstream (unfortunately and without even discussion about that).

        You are also confusing risking lives by making an ethical decision and risking them by not doing anything. These are two ethically very different things.

        Using probability for ethical decision making is problematic from two aspects: 1. in most of instances it’s impossible to exactly know probability of an outcome in highly non-linear and complex system we live in (chaos theory); 2. It is impossible to predict an even even f probability is well known (even the most unlikely events happen before the likely one).

        Utilitarianism has so many issues enabling people to critique from various prospective. From ideological prospective utilitarianism is utopia because it enables people to always make right decision.

        In reality is dystopia because it is impractical and often gets misused “for common good”. Many tyrants used utilitarian principles to justify they decisions using ultimate common good as justification. Even today, civil casualties are often justified using false assumptions and the same utilitarian argument.

      • If outcomes are paramount, inactivity is a decision, and there is no ethical difference except as defined by the outcome. Inactivity and activity being ethically different is a choice you made by choosing a deontological framework, not inherently true.

        re: your objections wrt to probability. Yes, those objections are why I specifically referenced Bayesian statistics, which allows for uncertainty in the assessment of the probability. See, for example, the cancer treatment example in this excellent book:

        http://www.amazon.com/Bayesian-Analysis-Edition-Chapman-Statistical/dp/158488388X/ref=sr_1_1?ie=UTF8&qid=1406698016&sr=8-1&keywords=bayesian+data+analysis+2nd+ed

        page 552

        Don’t see utilitarian ethics becoming mainstream, exactly for the reasons you cite.

        Fortunately for you Mr Abbott and those closest to him are highly opposed to utilitarianism, and are working on removing as much of its (fairly light, I’d have thought, given, for example, responses to Philip Nitschke) influence where possible.

      • Thanks stat for your reply. This isn’t just related to WHS. It’s a society wide problem.
        For others please just put your brain in gear over this!!!!!!! So we should never cost anything? We always presume that we have infinite resources to throw at any small problem any clown sitting behind a desk somewhere can dream up? We should never ever cost anything that might or might not save a life no matter how many other lives might be saved by a better allocation of resources?

        On specifics i do know a job that cost some $270K that would, in the past, before banning the use of ladders, would have been done by a tradesman in a morning. Before you go off the deep end at me you two might like to visit the real world instead of just living in your own rarefied atmosphere.

        It’s frankly hard to put stats on it because there are none. There are no detailed justifications for anything. I have NOT SAID that there should be no regulations. Just that some sort of cost/benefit should be applied. Dr X and Smithy are both asking ME for detailed cost/benefit analysis on this. I’m just a bloke trying to run a small business and provide some thought here from time to time. FFS in WHS in this country you have AT LEAST tens of thousands of people employed to simply run that – why aren’t you asking them for cost/benefit???????

        As to utilitarian….frankly what a load of hogwash you’ve pulled out to justify your own set in concrete thought process. In fact your own approach is more utilatarian This bloke is working so we need to save him…that lot aren’t worth anything so let them die…one thing is for damned sure – you aren’t a medical doctor and if you are you should immediately quit.
        I’m not putting a cost on a life. I’m asking how many lives can be saved otherwise. Billions invested in kids leukaemia, or other diseases, research is surely a worthwhile notion and would CERTAINLY result in many less kids dying!!! Or in our own Narcissistic bloody world are kids now not worth the bother Dr X?????????????????????

        Now an example…take pool fences. At the time of the adoption of the new standards there were approx 2.2 million swimming pools in this country. Pretty much all the fences built to the old standard have to be pulled down and new ones erected. Soe will be OK so let’s say cost $2000 per pool (Note cost of a new fence, gates etc is between $4000 and $10000. So we are spending $4.4 Billion for what? How many kids could have been made safe in pretty much all water circumstances for that $4BILLION… repeat…$4BILLION?
        Now there are stats on drownings. However the stats published to justify this enormous amount of money give no detail as to whether the drownings were due to negligence wrt the old fence or whatever and how many were due to teh standard not being strict enough. We don’t KNOW what effect having a pool fence 50 cms higher is going to have. I have my own ideas but where is the published data to justify this enormous expenditure????? We simply have an apostolic pursuit of an idea that has hairs all over it. Bear in mind here the people working on this standard had an interest in knocking all the old ones down in favour of new ones.
        (Note: This lot once set a standard that camping stove hoses had to be able to withstand an impact of 200k per hour!!!!!!!

      • @Stat, @DrX Interesting thread,

        My sentiments naturally go with Stat.
        I’d like to introduce the concept of integrating Automation and Labour to this discussion. In many ways Automation (Robotics) is the answer to dangerous work place activities YET today it is actively discouraged especially in the highly unionized sectors of the economy. From my experience unions would prefer a dangerous work place (that’s highly regulated…more jobs) staffed by human labour over a decidedly less dangerous place staffed by robots.

        This aspect kinda turns the whole utilitarian argument upside down….utopia starts to look like a very different place when cheap robotics are part of the mix.

      • Hockey’s budget balancing by cutting life support for many is all based on utilitarian idea that surplus and tax breaks for big businesses is inherently providing better utility for everyone. Neoliberal capitalism is all “justified” with similar utilitarian premises.

        Only within utilitarian framework not acting is equivalent to making a decision and this is not inherently true either.
        In basic terms, utilitarian idea claims that all bad things happen because of bad decisions made by people (even if that decision was not to do anything) this is a basic premise that we disagree on so I don’t think we can progress on this topic any further.

        Bayesian statistics and uncertainty in the assessment of the probability actually completely qualifies utility calculation as impractical, even impossible. If someone is not able to calculate utilities and with absolute certainty, he cannot make a good ethical decision because final outcome may be different making decision unethical (even if probability and uncertainty of that decision is known).

      • So you agree with me that it is the choice of philospophical framework that determines the ethical value of inactivity.

        I don’t understand what you are trying to say about Bayesian statistics – clearly one of the strongest reasons for choosing the Bayesian approach is that absolute certainty is not required, and more importantly in this context a subjective view of the the level of uncertainty can be encoded in the calculation. Indeed now that Monte Carlo methods mean that mathematical tractability is usually a non-issue, we can even place uncertainties on the utility function, if we need to. Hence its leading role in the analysis of decision making under uncertainty from around 1950 to the present.

        I don’t accept the LNP as utilitarians, except possibly as a smokescreen (I include their references to the magic of the market in the smokescreen) – they appear to be entirely unconcerned with outcomes in any of their policy-making decisions, based on the way they present their policies.

    • @CB,

      Take your point re robotics. As far as I can see, any new factory will be increasingly automated. Not just unions make robots more difficult in brownfield sites, so I think sometimes it all adds to the too hard basket.
      But I think workers, as opposed to unions, are actually pretty happy to avoid jobs they think are dangerous. The problem is they can’t tell which are the real dangerous jobs and which are just unpleasant. The workers usually think it will be someone else who ends up redundant. Unions a bit more calculating…

  3. “the predominant sector that yields the most “knowledge intensive” gains in Australia comes from the FIRE industry (finance, insurance, and real estate)– which has its infrastructure webbed like a parasite on the back of the great Australian housing boom.”

    This goes right to the heart of Australia’s tragic economy and the mystery to me is why the businesses in the real economy stand for it? Why do people in the real economy keep voting to hand more largesse and power to the FIRE industry and keep shooting themselves in the foot?

    It’s farcical.

    • moderate mouse

      ‘Why do people in the real economy keep voting to hand more largesse and power to the FIRE industry and keep shooting themselves in the foot?’

      Because, as NAB says: “A ship in the harbour is safe, but an investment property or three is safest.”

      • How come the guy on the nab ad can understand a question in english but cannot reply in english.

      • moderate mouse

        @gunitgaz….

        In advertising, as with the housing bubble itself, it’s best to ignore any inconvenient realities.

      • I think the analogy is true for cash vs debt as well.

        “Cash is the bank is relatively safe, but cash isn’t built for sitting in the bank.”

      • moderate mouse

        @Andy!

        Cash in the bank…..or to use the technical industry jargon, “Enough for a deposit.”

    • Hong Kong and Manhattan have everyone living in tall buildings and riding on subway systems, therefore we will be rich like them if we too force everyone to live in tall buildings and ride on subway systems.

      Makes about as much sense as the underlying rationale of the people in this video:

      http://www.youtube.com/watch?v=L610AsKBYtk

      • Those cities along with say Singapore do share with Houston something Australia is never likely to have – a port of true world significance.

      • I don’t think anyone in Australia wants “everyone living in tall buildings and riding on subway systems”.

        If they do they would get rid of NIMBYs, allow high-rise developments and start building bloody subway system. Sydney and Melbourne are among the largest cities without subway systems and even without plans to ever build one.

        What people in Australia want is not Hong Kong or NYC style development. They want to limit number of homes (of any kind low or high rise) and increase population so that home prices go up forever so that we can all become rich without need to do anything else.

    • @aj That’s the point where I got off the Aussie merry-go-round.

      Real productive businesses must in effect seek permission (support) from the parasites….boggles the imagination.

      Can anyone name a single eco-system where the parasites are so clearly in control? In the process the whole “Say’s-Law” bargain / saving regime has been turned completely upside down removing every logical basis for societies to build cooperative economies.

      The fools are those that still believe!

      • China-Bob: you see the connection with Say’s law? It is self-evident to me that zero-sum rent extracted from the economy reduces production/demand for/of the stuff that IS “wealth”. Is that what you mean?

  4. “If we were living in ancient Rome..” The Romans invented the multi storey apartment, rather like a tenement in an American city, but in another sense we still live in Rome as we are controlled by an oligarchy.

    If the next tech wave comes as the IT industry sees it, and it yields high automation in the FIRE sector we may see cities depopulate of workers as productive capacity is run by machines and in data centres.

  5. The graph of Portland’s “Spatial Distribution of Density” on page 12 in this paper by Alain Bertaud, should have the “planners” asking what result they really want? Increased density at the fringe but NOT nearer the CBD?

    http://alainbertaud.com/wp-content/uploads/2013/06/AB_The-Costs-of-Utopia_BJM4b.pdf

    This is because lower income households have been forced by higher land values, to accept smaller homes further away from the CBD; as Bertaud says:

    “…….instead of being able to make a trade-off between distance and land consumption. …….”

    “……..the practical outcome of a positive density gradient is longer trips for more people…..”

    “…… As predicted, land prices are going up because of the supply constraint imposed by the UGB, developers respond by developing higher density housing in the vacant areas between the limits of the current built-up area and the UGB. This of course has a tendency to reverse the slope of the gradient…. …..In the long run, the higher density which will built-up on the vacant land along the UGB will increase the accessibility of suburban shopping malls at the expense of the relative accessibility of the CBD. This is not the outcome that the planners intended…. …”

    Another useful quote on the same subject, is from Jan Breuckner, “Urban Growth Boundaries: An Effective Second-Best Remedy For Unpriced Traffic Congestion?”

    “…….failure of the Urban Growth Boundary to appreciably raise densities near employment centers is the main reason for its poor performance, and this failure will persist regardless of whether the city has one or many such centers….. .”

    http://www.socsci.uci.edu/~jkbrueck/course%20readings/ugb.pdf

  6. Patrick Troy in “The Perils of Urban Consolidation” (1996):

    “……..The present policy has had the perverse result of increasing density of dwellings at the fringe……”

    And later in the book:

    “……A high proportion of the new high density housing is now occurring on the fringes of the city. This is a direct outcome of government policy and produces the perverse doughnut effect of an annulus of high density housing ringing the lower density middle suburbs. The greater accessibility claimed for inner suburban consolidation does not occur….”

  7. Every city with a UGB or a proxy for it, and hence inflated housing costs, suffers an increased incidence of ultra-long commutes. Anthony Downs; “Can Transit Tame Sprawl?” Jan 2002:

    “…..In “The Costs of Sprawl 2000″, a recent study conducted by Rutgers University, the Brookings Institution and several other organizations, part of the research examined how housing prices vary with distance from the regional downtown of each metropolitan area. Although only a few areas were analyzed, the study showed consistently that prices of similar homes tended to decline about 1.2 to 1.5 percent per additional mile from the regional downtown, except where proximity to the ocean had more influence on prices—as in Southern California.

    Meanwhile, longer-distance commutes added to fuel and travel-time costs by about the same amount per mile in every region. The study also found that per-mile housing-cost savings from added commuting distance were much larger in regions with absolutely very high housing costs than in those with absolutely low housing costs. Therefore, it was more likely to be economically worthwhile for households to move further out to gain cheaper housing in high-housing-cost regions such as the San Francisco Bay and Boston areas, than in low-housing-cost areas…….”

  8. Anthony Downs is one of the few people who has been pointing out the essential flaw with “smart growth” – for example: “A Growth Strategy for the Greater Vancouver Region”, 2007:

    “……The cost of land poses a key dilemma for urban planners everywhere who want to concentrate jobs together so they can be best served by public transit. Such concentration raises the costs of land near centers; in fact, it would confer a monopoly advantage on landowners who owned such land and could exploit firms trying to locate there. Now firms want to locate elsewhere to cut their land costs.

    Planned concentration of jobs in a few centers is not consistent with private ownership and control of land. Some type of collective control over that land would be necessary to prevent monopolistic exploitation of land values. In theory, this could be done with high land taxes in such areas and special zoning rules. But adopting those devices is politically difficult in a free enterprise economy…….

    “……A similar but less intensive dilemma concerns land near transit stops, where it would be most efficient to concentrate high-density housing and jobs. That also creates ownership monopolies over such land unless it is specially controlled or taxed. Yet focusing development near transit stops is a key to using more transit…..”

    Perversely, intensification and redevelopment at the intended, efficient locations, is slowed down by the owners of the lucky sites “holding out” for the maximum possible gain. It is disgraceful that public subsidies often end up as the impasse-breaker; this is straight-out wealth transfer and might as well be deliberate corruption. It also adds to the public cost of the whole utopian experiment. If “T.O.D.” is not going to be done by way of compulsory acquisition/eminent domain, it should be outlawed by legislation.

  9. Anthony Downs is one of the few people who has been pointing out the essential flaw with “smart growth” – for example: “A Growth Strategy for the Greater Vancouver Region”, 2007:

    “……The cost of land poses a key dilemma for urban planners everywhere who want to concentrate jobs together so they can be best served by public transit. Such concentration raises the costs of land near centers; in fact, it would confer a monopoly advantage on landowners who owned such land and could exploit firms trying to locate there. Now firms want to locate elsewhere to cut their land costs.

    Planned concentration of jobs in a few centers is not consistent with private ownership and control of land. Some type of collective control over that land would be necessary to prevent monopolistic exploitation of land values. In theory, this could be done with high land taxes in such areas and special zoning rules. But adopting those devices is politically difficult in a free enterprise economy…….

    “……A similar but less intensive dilemma concerns land near transit stops, where it would be most efficient to concentrate high-density housing and jobs. That also creates ownership monopolies over such land unless it is specially controlled or taxed. Yet focusing development near transit stops is a key to using more transit…..”

    • Perversely, intensification and redevelopment at the intended, efficient locations, is slowed down by the owners of the lucky sites “holding out” for the maximum possible gain. It is disgraceful that public subsidies often end up as the impasse-breaker; this is straight-out wealth transfer and might as well be deliberate corruption. It also adds to the public cost of the whole utopian experiment. If “T.O.D.” is not going to be done by way of compulsory acquisition/eminent domain, it should be outlawed by legislation.

    • moderate mouse

      And he’s off….look at Phil go.

      Altogether now….

      “Supply, supply, supply, supply, SUPPLYYYYYYY, how could it be anything but supply??…..SUPPLY!!!”

      • @moderate mouse

        supply supply supply and ignore ignore ignore the fact that property bubbles happen even in places where supply is limitless

      • drsmithyMEMBER

        supply supply supply and ignore ignore ignore the fact that property bubbles happen even in places where supply is limitless

        This is a false dichotomy fallacy.

        No-one pretends they don’t happen in cities with little supply restrictions.

        The point they make is that those bubbles are much, much smaller (and consequently less destructive when they burst).

        I seem to recall from Phil’s earlier posts that even peak bubble values in Houston only hit a median multiplier of 4.5-5x. I’m sure he’ll be along later to post the actual numbers.

      • moderate mouse

        @Phil

        Yes I read your reBUTTal the first time around. If you look closely in the comments….you’ll find my position remains the same.

        Altogether now……..SUPPLY!!!!

      • You can’t possibly be sincere in the light of the evidence and reason. Vested interests explain a lot, and there is no lack of them. We need a revolution in “freedom to build”, and young people need to be able to see who is going to line up to stop them, and act appropriately; such people being morally definable as fiscal child molesters.

      • moderate mouse

        @Phil…

        Mate, sometimes people should just quit. You are one of those people.

        Your logic and reason is simplistic in the extreme. You’ve said your piece a million times on here. Hammering the point over and over and over again, doesn’t make it right.

        And BTW – watch your language.

      • You are among the isolated hold-outs on this forum, pal. Most people are honest and intelligent enough to see who is right when the argument is done fairly – which it is NOT in the “mainstream” media. Urban growth containment is like a neo-pagan establishment religious value that cannot be questioned. Like other historical establishment religious values, it benefits certain vested interests along the way.

  10. Stephen Morris

    Catherine Cashmore has described the symptoms but she hasn’t really identified the root cause of the problem. It is all very well pointing out how certain policies lead to certain outcomes, but that doesn’t explain why those policies come to be in the first place.

    Why does Australia – or more precisely why do Australian politicians – support city-centric policies?

    The answer lies in the field of economics and law, or constitutional economics.

    As argued the other day, metropolitan spruikers equate incomes to output. Outfits like the Grattan Institute (and more generally economists like Ed Glaeser) point to the higher incomes of metropolitans and conclude that their production is of greater value. Under this simplistic theory, people move to cities because they are more productive there.

    The absurdity of this may be seen by taking an extreme example: are we asked to believe that Tripoli under the Gaddafi regime was the most productive place in Libya? Or could it just be that there was another factor at work: the presence of the Gaddafi family itself which controlled the disbursement of rents to its favourites?

    In fact this phenomenon has been known to historians (if not economists) for generations. Under monarchies, courtiers had to be at Court in order to ingratiate themselves and gain access to the rents disbursed by the King.

    [In terms of psychology, this is the phenomenon of “presenteeism”, the tendency of human beings to reward more highly individuals who are physically present. See, for example, this article on modern-day presenteeism from The Economist.]

    Going back to our courtiers, they often paid for lavish displays and entertainments for the King (in anticipation of even greater reward) and this expenditure boosted the production of the capital city.

    Thus we see that there are “primary rent-seekers” (the courtiers in this case) and “secondary rent-seekers” (their suppliers) whose incomes are boosted. And beyond that are “tertiary rent-seekers” supplying the secondaries . . . and so on outwards like the ripples on a pond radiating from the “fountainhead of rents”.

    Dictatorships (including monarchies) are extreme examples, but the same phenomenon applies to all centralised government. Thus, in Australia, high incomes do not occur in just any old cities; they occur in the capital cities which are home to the federal, state and territory Cabinets, the fountainheads of rent under the Westminster system of “elective dictatorship”.

    Thus we can see that cities may exist for two reasons:

    a) agglomeration efficiency (the efficiencies of proximity which really do increase productive capacity); and

    b) rent-seeking efficiency (the efficiency with which city-dwellers collude to exercise rent-seeking power over others).

    This is not just an Australian phenomenon. Such concentrations may be seen in many countries where the Executive is strong relative to the Legislature.

    It is significant that in the US, under the constitutional separation of Legislature and Executive, populations do not concentrate around political capitals.

    Amongst the manifold ways in which rent-seeking capital cities act to extract rents from the rest of the country are:

    a) disproportionate public expenditure, for example the fact that London receives far and away the highest per capita public spending of any region in England;

    b) state sponsored sport and sporting facilities;

    c) city-centric transport infrastructure policy;

    d) state sponsored high culture; and

    e) fuel taxes, that is distance-based taxes over and above the cost of fuel resources used, out of all proportion to the externalities of fuel usage, and perversely often used to cover the externalities of urban traffic congestion!

    In Australia we might add to that list government support for the largely Sydney-based funds management and finance industries. (Historically we might have added government support for the largely Melbourne-based manufacturing industries.)

    We might also add business concentration in general which allows metropolitan oligopolies to extract rents.

    We might also add the advantage of having well-organised metropolitan propaganda organisations (like the Grattan Institute) to pump out reports purporting to demonstrate the “superiority” of metropolises!

    If city-centrism is regarded as a problem (and not everyone does regard it as a problem – rent-seekers love it!), then the ultimate remedy lies in changing the constitutional features which ensure that it occurs.

    If an Executive exercising monopoly power is the ultimate source of rents, then the solution to rent-seeking is to remove or limit that monopoly power.

    Amongst the ways in which this can be done are:

    a) constitutional separation of powers (on the US model) to prevent legislators being “bribed” with the offer of Cabinet positions; and

    b) the introduction Democracy – genuine Democracy – to transfer power into the hands of the People . . . whose country it is anyway!

    • “city-centric policies” you described force house prices up in capital cities and actually works the other way: these policies choke big cities, decrease city quality of life and force people into more affordable rural areas that may now offer better quality of life that the diminishing quality in big cities.

      Letting our capital cities grow into agricultural areas around would just exacerbate the problem. What we need is to make city expansion so expensive that promotes and stimulates development in rural areas. Offering more cheap homes on fringes of our cities will just attract more people from rural areas who would give up on relatively good quality of life and start wasting their precious time on endless commutes.

      In addition to limiting growth of our cities, government has to charge extra levies to business that operate in capital cities to stimulate them moving into smaller cities and rural towns.

      There is nothing worse than making people live in endless distant suburbs that do not offer anything of both worlds: neither amenities of big city nor space and convenience of rural towns.

      • Stephen Morris

        . . . these policies choke big cities, decrease city quality of life and force people into more affordable rural areas that may now offer better quality of life that the diminishing quality in big cities.

        Then why haven’t people moved out into the smaller cities and towns? Why are cities like Newcastle or Mackay or Townsville not huge metropolises? Why does the proportion of people living in and around the capital cities grow even as the population grows?

        There is clearly some force at work that sucks people into capital cities notwithstanding the diminishing quality of life.

        What that force might be is suggested by the proposed remedy:

        government has to charge extra levies to business that operate in capital cities to stimulate them moving into smaller cities and rural towns.

        So why do governments – or more precisely, why do politicians – not do precisely that?

        Tha answer lies in the rent-seeking incentives of the constitutional arrangements.

        All-powerful Cabinet Ministers living in the centres of the political capitals, surrounded by their rent-seeking courtiers, are not going to implement policies that adversely affect those courtiers. On the contrary, they will implement policies that benefit them.

        To participate in that largesse, courtiers must be in close proximity to the Ministers (“presenteeism”). Notwithstanding the “diminishing quality of life” there is a net benefit in being close to the fountainhead of rents.

        The inflated incomes of these primary rent-seekers draws in secondary rent-seekers. And so on.

        To understand urban geography one needs to understand the realpolitik constitutional political economy that drives it.

      • Then design the suburbs better and provide them with amenities.

        Land markets ration “location” according to ability to pay. NOT decentralising the provision of amenities is inherently anti-egalitarian.

        BTW everywhere that “splatter” development is allowed, employment tends to disperse roughly in balance with residences. Infill development of fragmented land is always more efficient than mandated incremental carpet growth.

      • Stephen Morris

        NOT decentralising the provision of amenities is inherently anti-egalitarian.

        Non-democratic elective government (“government-by-politician”) is inherently anti-egalitarian!!

        The symptoms will never be cured unless the root cause of the disease is identified. The root cause is the constitutional system which rewards courtiers who are in close proximity to the Ministers.

        To complain about symptoms while ignoring the cause of the disease is an exercise in futility.

  11. “For example, when land values depress due to a drop in consumer confidence, buyers would have less tax to pay, and therefore more discretionary income to spend into other areas of the economy”

    Tooth fairy.

    When we’re asked to reduce electricity and water supply use, we do our best with energy and water saving devices…. However our rates increase to compensate suppliers so that their revenue is protected.

    • Catherine Cashmore

      I agree, as I said, in the enclosed brackets that followed that quote – “Albeit – there are many variables to this, and points to discuss.”

      Stephen Morris makes important observations and further emphasises why the reforms we promote are currently overruled – significantly concluding our need for;

      “b) the introduction Democracy – genuine Democracy – to transfer power into the hands of the People . . . whose country it is anyway!”

      There are bigger battles to fight before we’ll see any marked improvement.

  12. There is an extremely interesting analysis here, of the New York urban area:

    http://www.newgeography.com/content/004095-the-evolving-urban-form-greater-new-york-expands

    Manhattan has 2.5 times as much employment as residences. The surrounding boroughs of NYC have a major shortfall in employment and a large share of residents commute in to Manhattan.

    BUT – here is the interesting bit – in the boroughs beyond the NYC inner ones, there is near parity of employment and residences, and minimal commuting to Manhattan.

    Really smart growth, I suggest?

    • in low density areas large lawns require large workforce to keep them nice while not providing many residents to actually do the job.

      There are many inefficiencies in low density suburbs that create numerous jobs: people needed to mow lawns, clean pools, more people needed to clean snow, to drive local school buses, to collect rubbish, more people needed to clean and maintain large homes, more jobs at local petrol stations, more car mechanics and dealers, more delivery people … many of these jobs used to be done by owners in the past, now suburbs are ageing quickly so all these jobs get created in addition to numerous local medical and age-care jobs …

      so I don’t think it’s smart growth