The Coming Housing Apocalypse and The Folly of Prediction
Another week goes by, and another developer is quoted in the local rags spreading doom and gloom about lack of housing supply in Melbourne and that the meddling government and pesky residents are getting in the way of an upstanding and patriotic develeoper satisfying that need. This time it was Tim Gurner, everyone’s favourite flashy young developer who apparently has a magic touch and as legend has it he sells out entire developments within a matter of seconds. He was quoted in the Australian Financial Review (AFR) a week or so ago as saying that Yarra Council and residents are going to make some sites not financially feasible for redevelopment with their fancy planning controls, and that residents expressing concerns about developments are simply closed minded not-in-my-backyard ideologues. Similar sentiment abounds.
The implication here is clear: more housing is needed in Melbourne, and if everyone doesn’t get out of the way of developers then it is not going to happen and Melbourne is going to burst at the seams and no one will be able to afford what housing there is.
So should we be afraid of the coming housing apocalypse? Should we all get out of the way of progress, or is all this development really needed?
There are two arguements which could be made supporting that the end is near. The first is housing affordability. If you are a regular reader of the AFR, you’ll be have seen the obligatory weekly article about skyrocketing real estate prices and many conclusions have been drawn that high prices are partially due to lack of supply. Thus more supply will ease the prices, and any new development is good supply. Alas, I daresay Mr. Gurner(tm)’s ‘luxury’ ‘design-led’ pyramid in Fitzroy towering over the humble worker’s cottages below will not do much to solve the housing affordabilty problem.
The second arguement for residential development en masse, and a much more feasible one, is population growth. It’s been well reported recently (here and here are but two) that Australia’s population has been growing leaps and bounds recently, doubling in the last 48 years to 2016. And our beloved (bungled census aside) Australian Bureau of Statistics (ABS), has predicted that it will keep on blowing up. Once the government latched on to this idea and it became prevalent in the news, developers followed suit and used it as a justification for them to them to keep on building. Seems legitimate, right? If there are going to be more people, those people will need someplace to live. To me, much of the development we’re seeing is based on this premise, and all goes back to one thing. It’s not the hubris of developers like Mr. Gurner(tm). It’s not necessarily in response to out of control demand. Councils are encouraging growth and planning for it, but we have to look deeper than that. It all comes down to one thing: people predictions. Look to the ABS.
lI was listening to a Freakonomics Radio podcast the other day, an episode called the Folly of Prediction. The episode was an interesting look at why, despite the fact that we humans love to make predictions, and this is across any number of things from sports to share markets to…population growth, most of the predictions we do make are lousy and, more imporantly, why the predictions of experts are almost equally as lousy as those made by Joe Blogs.
The ABS are smart people and they understand all this, if not explicitly then at the very least they know that predicting the future is about as easy as predicting tomorrow’s weather in Melbourne. So instead of providing us with one firm-ish number, they hedge and provide three for Victoria and five for Melbourne. Here’s projected populations for Victoria and Melbourne through 2061:
In addition to running multiple scenarios, there’s a 10,000 word page on assumptions and this gem of a caveat from the ABS: ‘Population projections are not intended as forecasts or predictions’… Further, there are at least a dozen factors that go into the ABS’s projections, such that changes on any number of fronts could send the numbers off in a different direction.
There is also a lot of straight lines: If you look at the ABS graphs, you’ll notice all the pretty straight lines going up and to the right. This means that population is going to grow pretty consistently for the next 50 years. Unfortunately the world doesn’t really work in straight lines.
All of this points to one conclusion: the ABS’s predictions about the future are going to turn out about as well as the census. I predict.
This is a classic case of the telephone game. You know the one where you line up a few people, and the first person starts with a sentence that gets whispered down the line between people and you see what sentence comes out at the other end? So the ABS puts some numbers together and puts out a press release that says Melbourne is going to almost double in size in the next 40 years followed by a few statistic-y caveats. The mainstream press picks it up and says that Melbourne is growing like a weed and there’s no sign of stopping. Government then starts making frameworks and plans (like Plan Melbourne) which are based on growth, and the next thing you know developers are vaguely threatening government and complaining to the greater public that all these damn planning controls are going to make Council land undevelopable and that Melbourne is ultimately going to suffer because it needs at least 50,000 new homes per year to keep up with growth, and this gets quoted in the media, and ….
Let’s all just consider what we’re chasing here. Smart, considered development is fine, and Melbourne could do with a bit of density. However development premised solely on future population growth, a metric which is about as certain as catching a fish in the Yarra, is folly.
So should we believe that the housing apocalypse is coming? I’d say that instead of Apocalypse Now we are more realistically looking at Apocalypse Maybe.
