Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 17 February 2016

Infrastructure plan (building up, not out!)

Infrastructure investment

Last month I took a look here at the Infrastructure Audit background paper and what it might mean for Australian cities of the future. 

Today Infrastructure Australia released its detailed plan which you can find here.

In terms of where Australia's population is expected to grow, there were few surprises, with an extra 8.2 million people expected between 2011 and 2031.

7 million of those will be found in our "cities", which in this context means the eight capital cities, plus Geelong, the Gold Coast, Sunshine Coast, Newcastle and Wollongong.   

Almost three quarters of the projected population growth will be in the four largest cities: Sydney, Melbourne, Brisbane and Perth, which ecollectively are expected to grow by more than 6 million people over the two decade period. 

By contrast, our other cities are projected to grow, but collectively by under one million people.

Whilst the "cities" surrounding Brisbane (essentially the Goldie and the Sunny Coast) are expected to grow strongly, most of the other conurbations classified as "cities" - namely Hobart, Adelaide, Geelong, Newcastle, and "The Gong" - are expected to grow more slowly.

Building up not out!

There were many recommendations in the plan to absorb, so the full document is well worth a read if you have the time. 

From a housing market perspective, by far the most important point is that the four largest cities are expected to see a population explosion ("considerably larger than the rest of the country"), and consequently a higher density transformation.

The infrastructure audit found that each of these four cities will individually need to deliver around 500,000 to 700,000 additional dwellings over the next 15 to 20 years. 

The capacity of infrastructure networks will need to expand, with growing populations already exerting significant pressure on transport infrastructure, while the capacity of each city's social infrastructure such as schools and hospitals will require significant investment in order to meet the demands of the population expansion.

This can potentially be a tremendous boost for the economies of those four largest cities, but it will require concerted investment now in order to meet demands.

We already know from a report released by SGS Economics and Planning this week that the economies of the largest cities such as Sydney and Melbourne are coasting along at a very healthy pace, while GDP per capita in regional New South Wales, regional Victoria, and regional Queensland is actually sinking, and in turn living standards in the regions are limping along.

Infill development - city boundaries contained

Historically Australian cities have expanded outwards through the building of low density housing at the city fringes, which was previously a suitable plan as car ownership rates increased and there were comparatively higher rates of manufacturing employment on the outskirts of cities.

Moving forward residential development will be mainly contained within existing urban boundaries. with medium to high density development in established urban areas and close to transport infrastructure. 

Indeed, a specific recommendation of the infrastructure plan is to "reduce urban sprawl".

This means that new dwellings will be largely close to transport links, employment centres, amenities and services, benefiting residents through shorter journey times, reduced transport costs, and more opportunities for walking and cycling.

This infill development should also help to limit growth in greenhouse gas emissions as car ownership rates fall.

Building higher, not high density

Governments are thus expected to focus on the delivery of five to eight storey developments ("higher rather than high density") along transport corridors.

One thing that is implied by this document is that property investments close to the centre of the largest four capital cities which have the appearance of homes should perform tremendously well over the next 15 years. 

On the other hand, those which have an appearance more akin to a tower block, may not perform quite so well, as there will a renewed focus on the delivery of more five to eight storey developments. 

A point made many times before on this blog that is also germane here: higher density cities will over time see road travel times blow out and car ownership rates fall, while the importance of public transport links will increase significantly. 

Aim to own property near key train stations with direct links to the city!