North Australia Could Solve Housing Affordability Problem

I want to speak tonight about the affordability of housing in Australia. It is certainly something that I am passionate about myself, having been a first home buyer post the house price boom that we experienced at the beginning of this century.

I bought that house here in Canberra, and it was a difficult market to buy in. But I have also now moved to a regional town, Yeppoon, just outside Rockhampton. It is certainly a tale of two cities. The housing affordability issues are not necessarily the same in regional towns and centres as they are in our major cities. I think it is sometimes unremarked enough that one of the solutions perhaps to the issue Australia has with affordable housing is to develop new cities and new opportunities where land supply is not as a scarce and housing affordability, therefore, would be improved.

At the moment the median house price in Sydney is around $930,000—a remarkable figure. In Melbourne, it is $688,000. For all capital cities it is around the $660,000 mark. But when you go to regional Australia, you get prices at around half that amount. Indeed, I will just focus on some towns in Queensland were I am from. In Cairns, the median house price is $380,000; in Charters Towers it is $207,000; in Townsville it is $350,000; in Bundaberg it is $275,000; in Gladstone it is $356,000; in Mackay it is $370,000; in Rockhampton it is $294,000; and in Toowoomba it is $350,000. It is very much affordable on today's average wages. So the question should be asked: if we are serious about housing affordability, why don't we spend more time considering developing our regions as a solution to this issue rather than simply focusing on the solution or the answer in our capital cities? It is not that no-one has made this point before; I just think it is one that does not get enough attention.

 Around a decade ago the Reserve Bank looked at housing policy issues. It made a number of submissions to inquiries at the time. It was a time when housing affordability was coming to the forefront of our policy debate. The bank did comment in one of its papers on this issue that:

A possible reconciliation of this pattern — That is, the high house prices and concentration of wealth in capital cities — …may be the unusual concentration of Australia’s population in two large cities. Average housing prices tend to be higher in larger cities than smaller ones. Therefore, the expensive cities in Australia drag up the average level of dwelling prices more than in other countries…

It is not something that goes unremarked but it is perhaps not remarked upon enough: that the concentration of our population in two major cities in a bit of a crescent in the south-eastern part of Australia limits our opportunities and makes it harder for younger families to get a start in life. Indeed, there was something I came across a few years ago called Zipf's law—and I am probably not pronouncing that right; I have only ever read it, not pronounced it, before. George Zipf was a Harvard linguist who came up with this ranked versus frequency rule which applies not just to the development of cities but also to linguistics and population settlement. It applies to commonality of use of words in different languages.

Zipf's law says that: a nation's second-largest city tends to be about half the size of its largest city; and its third-largest city tends to be about one-third of the size of the largest, the fourth-largest one-quarter of the size and so on and so on. For example, in the United States, New York—when it is defined as a city—has 8½ million, not in its larger contiguous area, but 8½ million. It is around twice the size of Los Angeles at 3.9 million, about three times the size of Chicago, four times the size of Houston and approximately five times the size of Philadelphia. There does not seem to be any reason or rationale for why that relationship holds, but it also holds for France, Mexico, Peru and for a bunch of other countries.

Australia is one of the few countries—the United Kingdom is another—where this law does not hold. Sydney has a population of 4.4 million and Melbourne has just over four million, and our top five largest cities, rather than gradually declining according to Zipf's law, fall away very rapidly. Only 17 Australian cities have a population of more than 100,000. Indeed, when you compare us to the United States—a country we are often compared with although we are so much younger—the top five cities in the United States have somewhere between five and 15 per cent of the population, depending on how you define it. Whereas, here in Australia, our top five cities have almost 60 per cent of our population; a remarkable difference. It probably goes a long way to explain the high cost of housing in this country.

In terms of trying to develop new cities to take the pressure off our major capital cities, I think we should not go west but move north to northern Australia. Our more recent successful cities as a nation have been developed in northern Australia. Of those 17 cities that are above 100,000, three of the youngest, or more recently settled, of those cities—Cairns, Townsville and Darwin—are in northern Australia and all have populations of over 100,000. Then you have got Mackay and Rockhampton sitting just below 100,000 as well. All of those cities were developed in more recent times; indeed, most of them were developed in the 1880s, just after the Burke and Wills expedition and a period of development in Australia.

That period of development was somewhat funded by a mining boom that occurred in the 1860s that helped fund the Burke and Wills expedition directly. Then, subsequently, people moved up north and developed new towns and cities. We have just gone through a mining boom ourselves—albeit we have not been left with the resources to develop as we should have been—and we should be using the legacy of that boom to lock in and strengthen the development of northern Australia, particularly its towns and cities.

I applaud the government for bringing on a northern Australia agenda for developing a northern Australia white paper and I hope that it delivers something that is going to attract young people away from our major cities to new frontiers and opportunities in our nation. We cannot force—and I do not want to force—people to leave Sydney, Melbourne or Brisbane but we should try and encourage them to do so by creating new jobs and opportunities. We should do this by building on our great strengths in agriculture in the north, in particular through the development of dams, better road networks for our beef sector—all of these things that create jobs will attract people. That will attract more people, take the pressure off our capital cities and spur development in new towns and cities.

What we need to do in this country, quite clearly, is to engage in some form of arbitrage between our major capital cities and our regional towns and centres. When you are approaching a million dollars for a house in Sydney and only $300,000 in a regional centre, surely the right policy solution is to encourage more people to sell their house for a million dollars in Sydney and buy a house for $300,000 in a regional town or centre. That will be better for our economy. It will be a more efficient distribution of our population and save young people costs. They are not going to move, though, if there are not the jobs, opportunities and development that would exist in those towns and centres, and that is what we need to spur and create. I very much hope we do do that in the development of our northern Australia policy.

It is not just our agricultural sector. We have three very good universities in the north: James Cook University in Townsville; Central Queensland University, which is based in Rockhampton but has campuses all over the place; and Charles Darwin University. All of those universities have a role to play in developing the north. The government has already announced that they will house a tropical medicine unit at James Cook University, and I also hope that education is a major focus of the northern Australian white paper, because there are enormous opportunities in the north. A lot of research is done there on the Great Barrier Reef and in other areas, and more needs to be done.

I think that, if you want to get cheaper houses in Australia, our solution must be regional development. If we are serious about regional development, northern Australia is the frontier for this country. We should have a forensic focus on that—not just for the next term of government, not just for the next five, 10 or 20 years, but a decade-long plan to develop the north of our country and spread our prosperity and population all over this great land.

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