Population growth and Infrastructure: the catch-up illusion

Yesterday, I flew up to Sydney to launch a new discussion paper with former NSW Premier Bob Carr, entitled “Population growth and Infrastructure in Australia: the catch-up illusion”, of which I was the lead author.

This paper was commissioned by Sustainable Population Australia (SPA), which “is an Australian, non-partisan, special advocacy group that seeks to establish an ecologically sustainable human population”.

Below is the table of contents for the paper:

And here are links to the Summary and the Full Report, which can both be downloaded in PDF format.

This is the first in a series of discussion papers that will be released by SPA.

Please pass this paper along to your friends and colleagues, as we need to educate the general public on these vitally important issues.

Leith van Onselen

Comments

  1. Well played Leith, and pleased to see that Ross Gittins has stepped forward to cover it. I despair of ever elevating Big Australia back to the party politics level. Whereas Scott Morrison and Anthony Albanese just want the Quiet Australians to suck it up, it is disturbing that the likes of Kev Rudd and Rob Stokes are adding a side serving of personal abuse to voters.

  2. Is ANYONE in Australia, an expert in the “Municipality Incorporation” model used in the USA to largely self-fund infrastructure in growing cities? This is really one of the vital ingredients in the fact that at least several dozen cities in the USA manage to sustain house price median multiples of around 3 even with some of the fastest growth in the world. And yes, this growth is as fast as, or even faster, than Sydney and Melbourne.

    The problem, in the US cities that have an affordability problem, and in Australia, is central planners incompetence and ideologically-based dishonesty. The central “big lie” is that “it is cheaper to intensify”. It is only “cheaper” because of the infrastructure deficit these people deliberately create. If the infrastructure was expanded as it should be, in the already-built-out locations, it would be far more expensive than just doing greenfields infrastructure for “edge cities”.

    The “Municipality Incorporation” model in the USA enables developers to do an end run around this shameless racket. The small-minded, warped thinkers in this part of the world look at such a system and throw up their hands in horror, “that can’t possibly work, yadda, yadda, yadda” – when all the evidence is that it DOES work, and very well! But if you describe OUR system to someone working within the system in, say, southern USA, their reaction is along the lines, how the f*** do you guys expect THAT to work????

    • those affordable fast growing cities are just lagging in time not so much in fundamentals
      if you look into Dallas, Houston, Atlanta you may recognize LA, Phoenix or Miami few decades back
      house prices in Houston, Dallas, Charlotte grew over 50% since 2012 with the cheapest houses rising the most – 80% or more
      price of land increased 80%, home prices in Atlanta doubled since 2012

      Texans were just lucky last time around they went for Enron ponzi in early 2000s instead of housing ponzi like some other parts of USA

      • You can make statistics prove anything you like. Median multiples don’t lie. All this spectacular inflation you describe by way of making excuses for the racket in Australia, involve median multiples increasing from perhaps 2.7 to 3.3. Partly cyclically normal; and partly explained by real increases in productivity and incomes in a natural relationship with land rents – truly differentially derived land rents, not extractively derived. These examples prove everything abouat Australia’s racket, by counter-example; even the real growth in productivity and income accompanying land markets able to function free of rentier-class sabotage.

        Meanwhile the median multiples in the Australian racket you are obviously some kind of paid watchdog apologist for, range from 7 to 11. And wait for the cyclical volatility on the downside. Ireland will look like the lucky country for getting the adjustment it needed in 2007, when the median multiples had hit 6.5 in Dublin (as the single highest market, with no other city over 5).

        It is remarkable just how much smarter the so-called redneck hicks of southern and heartland USA are, than the so-called “sophisticates” from elsewhere who love to sneer at them! It is quite clear to anyone with a modicum of intelligence and integrity, who the joke is really “on”.

    • MUD financing seems like a ripoff for taxpayers and giveaway for developers and bondholders.
      The government has a lower required rate of return v developers so should build the infrastructure itself and fund part of it through upfront taxes on developers. Just another PPP model which won’t work.
      If government doesn’t want to build infrastructure (by themselves), then don’t have the population growth.
      The deficit and blow out of cost of infrastructure has been caused by neoliberal models outsourcing infrastructure provision to the “free market”.

      • MUD financing “just another PPP which won’t work”.

        I already pointed out the bleedin’ obvious – it DOES work.And very well!

        You just prove you are someone’s useful idiot, for denying this.

        And it’s nothing to do with “neoliberalism” – “incorporation” is an institutional norm for around a century already in the USA. “MUD” is just what they call it in some areas.

        If anything changed in the modern era, it was some States adopting growth planning that promptly created the bubble conditions. The problem isn’t your bogeyman of “neoliberalism”, it is a deliberate rentier-capitalist ploy using useful idiots like economically illiterate “save the planet” sandal-wearers.

          • What “higher rate of return”? In competitive markets where the end housing prices are around 3 times household income? You’re just trying to bury the realities in BS.

          • What does some multiple comparing an asset price against an unrelated cash flow have to do with a developers cost of capital?
            A developer who can go belly up fairly easily cost of capital is higher than a government. Do you deny that?
            And then when they do go belly up the taxpayer still has top fork out the coupon to the developers lender.

          • An “incorporated municipality” is not “just a developer”. It is a de facto new Council with property-taxing powers. I suspect you don’t WANT to learn anything about this subject, and all your arguments are from a position of not even understanding what I am talking about!

          • One distraction after another.
            Phil I’m not arguing local governments shouldn’t be able to borrow. I’m saying the proceeds should not be going to developers to meet their required rate of return.
            Do developers have a higher cost of capital v government. Yes or no?

          • Sweeper, that’s not how it works. A developer usually has to have completed about 30% of the development and associated infrastructure before it is able to create a MUD and raise bond finance to finance the completion of the remainder of the project. In Texas it’s the TECQ that approves the creation of MUDs and the TECQ must be satisfied of developer bona fides and that the development itself will be financially viable otherwise permission to create a MUD will be refused.

            When the project is completed and sold to residents and businesses it is the residents and businesses that repay the bonds and the return on the bonds through additional property taxes over 20-30 years.

            If a property owner defaults on their MUD property taxes MUDs have priority over the mortgagee and can force a sale of the property to recoup unpaid MUD property taxes. Therefore how can ‘taxpayers be forking out the coupon to developers’. That’s simply not how it works.

          • You clearly don’t even understand what I am talking about. I am not arguing that local governments “should be allowed to borrow”. I am arguing that the US system allows the de facto creation of new local governments with the same borrowing powers as existing ones. It is certainly not ME creating “one distraction after another” here. As Timon says below, “we can’t actually have house prices falling, now, can we”? Who is paying these trolls to constantly sabotage sensible discussion of genuine solutions?

          • Meaningless distinction. The de facto government can only carry the debt because it’s been given powers to levy taxes.

          • “The de facto government can only carry the debt because it’s been given powers to levy taxes.”

            And you say this like it is a bad thing, or like it isn’t what I was saying all along? Meaningless distinction??? It is the whole point!

            Guess what: it is not just house prices that are competitive under the American model; it is the property taxes too. People aren’t so dumb they will only look at the sticker price of the new houses. Some people haven’t been born with the faculties to understand how “competition” works, when it is allowed to work.

      • It is also revealing that you don’t care about ripoffs in raw land prices, paid for by first home buyers. This rip-off is orders of magnitude larger than the cost of bond financing of infrastructure, which is not a rip-off at all. It is merely a perfectly fair way of matching costs with users. The bond costs in the mature markets in the USA provide interest rates little different to those available to government. In fact the “incorporations” are recognized “AS” government, just as much as any local government with property tax revenue. The security is exactly the same. It is more likely for incompetent, corrupt, over-powerful local government to be insolvent, than it is for a recent incorporation.

        • Of course the interest rate is little different. The bond is issued by a government body and is tax exempt. The issue is the overall cost to taxpayers and the amount which needs to be borrowed v upfront taxes.

          • And this difference is, what? $50 per house per annum? What cost might be worth sustaining if it averts another $500,000 in mortgage debt, for NOTHING other than a gouge in the price of land, which demonstrably was worth $30,000 per acre before the racket, and ends up $2,000,000 per acre after the racket?

            But I doubt there is even much of a cost difference once incumbent Councils inevitable incompetence, waste and corruption is taken into account. The whole “intensification” thing is riddled with false assumptions and is exhibit number one for this incompetence and (maybe unintentional) corruption.

          • The difference is one cost is quantifiable the other is fantasy ‘let developers do what they want and house prices will be lower’ with no supporting evidence or theory in land use economics.

          • “No supporting evidence”?????? FFS, you are the slimiest lying scum I have ever encountered online. I’m not wasting my time on you any longer.

      • Phil is right. In practice MUD finance rates are similar to those of government bonds as the default on MUD bonds is very low – as they would be as they are paid over a period of 20-30 years by residents as additional land taxes (on houses which are affordable in the first place). Because developers in southern US cities are subject to actual competition in the market for development the MUD financing has to be competitive – because if they’re not consumers have the choice to buy in a different development where MUD financing rates are lower.
        Leading up to the 2017 NZ election the labor govt proposed to introduced a very similar financing model to ease the affordability crisis in NZ as Hugh Pavletich has covered many times on these pages. It’s a model that works and I suspect the only reason why it hasn’t been implemented is because it will have the effect of bringing house prices down…and we can’t have that now can we?

          • Phil is spot on re US MUDs structures being the way to go in financing subdivision infrastructure.

            This is something that is well recognized in New Zealand. Refer the screeds of stuff on my archival website http://www.PerformanceUrbanPlanning.org and the MUD info down the left column.

            As I recall, the Muni Bond Market in the US is about $US3.7 trillion.

            We should have had this in place in Australia and New Zealand decades ago.

            As NZ Urban development Minister Phil Twyford said, it is a no – brainer.

          • Definitely the way to go if:
            1. You want to give a handout to bondholders and developers
            2. Ripoff taxpayers
            3. Handover control of infrastructure provision and quality to developers
            4. Remove democratic control over infrastructure
            5. Encourage greater population growth as it will be the easiest way to dilute debt burden created by MUD financing.

          • @sweeper
            “2. Ripoff taxpayers
            3. Handover control of infrastructure provision and quality to developers
            4. Remove democratic control over infrastructure”
            Been paying any attention the last decade or 3? Most of our infrastructure provision has already been transferred to private sector, so it’s a bit late to whine about the last few bits.

          • Sweeper, how are taxpayers being ‘ripped off’. If there’s a default on a MUD bond, the MUD can force sale of properties of defaulting owners to recoup the bond payments. This is the same power that Australian councils have if you don’t pay your land rates.

            If there’s a wider bond default (many owners who can’t pay their MUD property taxes such that the coupon rate can’t be met) it is the bond holders who wear the loss. Government and by extension taxpayers do not under any circumstances make good any losses on MUD bond issues.

            This is why they are a successful financing tool because the debt is NOT govt debt. Government can facilitate development by creating the regulatory system in which MUDs can be created but without being financially responsible for MUD bond issues.

            ‘Handouts to developers’ how is a MUD a handout? A developer makes a commercial decision to create a MUD and investors make a commercial decision to buy the bond issues. Where is the handout? And from whom?

            Yes, MUDs DO reduce the debt burden related to infrastructure provision and that is the whole point and it DOES facilitate population growth but without the gouging in land prices and without lowering standards of living. It’s much better than Australia’s first user pays all model of infrastructure financing where the cost of basic infrastructure associated with new development is front end loaded onto the price of new housing and paid for through much more expensive mortgage rates by mortgage holders. MUD financing rates are much lower than mortgage rates.

            You’re making a bunch of assertions without any coherent argument to back them up.

            Maybe it’s because you’re a beneficiary of the current system or an anti-urban sprawl evangilist?

        • In my first comment, I asked if Australia had an expert in the USA’s “municipal incorporation” system. Maybe Timon is that. But perhaps he is a New Zealander? Several New Zealanders are experts in this system including Housing Minister Phil Twyford (who was poiinted the right way by good concerned citizens; not “expert” bureaucrats who can be relied on NOT to solve anything).

        • For the purposes of this discussion. MUD financing would actually encourage population growth as it would be the easiest and quickest way to lower the debt burden created by this sort of financing.

      • “The government has a lower required rate of return …”

        The gubbermint actually has a ‘rate of return’? I thought they just shovelled vast quantities of other people’s money into a black hole, but perhaps I’m being unfair 😉

  3. Loved it. Would have liked to have seen ‘Myth: Population growth makes us all richer’ and ‘Myth: We need to import younger people to contribute to our ageing taxbase’, thrown into the Summary as you’ve debunked them superbly in the past. They seem to be the go to arguments by the big Australians.

  4. I sent a copy of the paper to the commercial radio here in Perth … suggested they get you on too.
    However the station is infested with progressives, and I sense management is hungry for the profits the advertising revenue brings in from the immigration industry… so probably unlikely.