Speech to the Australian Davos Connection: Creating Healthy Cities
30 November 2015
Healthy Cities Summit
It is a pleasure to be with you at this important forum concerning healthy cities.
I would like to particularly thank the Royal Automobile Club of Victoria for hosting this summit. Australia's motoring associations are respected participants in the community debate on how roads are planned, built, and funded—and consequently are important participants in the national dialogue concerning our cities.
Under Prime Minister Turnbull that dialogue has become considerably more vigorous, with my colleague Jamie Briggs appointed Minister for Cities and the Built Environment.
As it happens Jamie is in Europe examining some of the latest trends in cities' policy and so this week I happen to be the Acting Minister for Cities.
But in my day job as Minister for Major Projects, Territories and Local Government much of my work deals with urban infrastructure and its influence on the effective functioning and physical shape of our cities. That means I am working closely with Jamie to articulate and implement the Turnbull Government's agenda in enhancing our cities.
I want to touch on three important themes this evening. First I want to explain why Turnbull Government has given such strong emphasis to its cities agenda. Next, I will speak about the linkage between transport infrastructure and the effective planning and functioning of cities.
Finally I want to look at the challenge of funding the infrastructure of cities, highlighting both the changes we have seen over our history and the change in approach which the Turnbull Government aims to implement.
The Turnbull Government's Cities' Agenda
Let me turn first, then, to why the Turnbull Government has placed such a strong emphasis on an agenda for Australia's major cities. Announcing his Ministry a couple of months ago, the Prime Minister had this to say:
Liveable, vibrant cities are absolutely critical to our prosperity. Historically the Federal Government has had a limited engagement with cities and yet that is where most Australians live, it is where the bulk of our economic growth can be found… We have to ensure for our prosperity, for our future, for our competitiveness, that every level of Government works together, constructively and creatively to ensure that our cities progress.
Now if a Prime Minister had announced such a focus one hundred years ago, Australians would have been rather mystified. In 1911 there were more Australians living in regional and rural areas—60 per cent of the population—than in our capital cities.
We have since urbanised with a vengeance. The proportion of our populations living in cities is now 89 per cent—one of the highest such rates of any country in the world.
Here is one telling illustration, cited by NBN Co last year as part of planning its national network rollout: 74 percent of Australians live in areas with a population density exceeding 1,000 persons per square kilometre; the equivalent number in the UK is only 48 percent.
Not only do most of us live in cities; they have an economic importance which hugely exceeds their share of our landmass. Recent work by the Grattan Institute found that 80 per cent of the dollar value of all goods and services in Australia is produced on just 0.2 per cent of our land mass—and nearly all this share is produced in our cities.
The combined CBDs of Sydney and Melbourne—just 7.1 square kilometres in area—create almost 10 per cent of the total value of Australia's goods and services.
According to the Infrastructure Australia audit released earlier this year, Australia's capital cities contributed $854 billion to the economy in 2011—a very substantial proportion of our GDP.
None of this, of course, is to deny the considerable economic importance of our agricultural and resource industries, which are overwhelmingly based in regional and remote areas.
These industries have been critical to wealth generation in Australia since European colonisation—and the resources boom of the last fifteen years has dramatically enhanced our national prosperity.
But the transformation of our economy over the last one hundred years has, in turn, seen a shift in Australia's economic centre of gravity, from the bush to the city.
This has been associated with the services sector becoming increasingly dominant; and the relative importance of other sectors declining.
In 2010–11 services comprised $923.0 billion, or 77.6 per cent of industry output. This compares with the mining sector at 10.3 per cent and the manufacturing sector at 9.1 per cent. Services have been steadily increasing their importance for many years; sixty years ago the services sector's share stood at around 43 per cent.
Even the resources boom of the last few years, on closer analysis, turns out to also be a services boom. A recent analysis by the Reserve Bank of Australia found that 65 per cent of the inputs into mining are services.
The transition away from primary production and towards services has had a major impact on the form and function of our cities.
A critical part of this transition has been first the rise, and subsequently the relative contraction, of manufacturing as a share of our economy.
Between the 1940s and the 1970s, a key force driving our cities was the growth of manufacturing in metropolitan suburbs. At the same time rates of car ownership rose steadily, as cars became more affordable. Much of our existing road network was built between 1955 and 1975 to accommodate these dynamics.
Today, though, a key force in the Australian economy is the growth of knowledge-intensive businesses—increasingly concentrated in central business districts.
The data suggests that the economic value generated in a geographic area is correlated to the density of people working there. According to the Grattan Institute, the Sydney CBD produced $100 in value for every hour worked there in 2011–12; Parramatta, effectively the second CBD in the Sydney conurbation, produced $68 for each hour worked.
The North American academic Richard Florida has written extensively about the way that cities foster economic activity, particularly by bringing knowledge workers together in a way that demonstrably stimulates creativity and productivity. In the economic jargon, greater density fosters knowledge sharing between firms and knowledge ‘spillovers’ between sectors.
In a newspaper opinion piece following the recent Canadian election, Florida called for a Ministry of Cities, arguing that cities are key to innovation, productivity and economic growth:
Each of those things revolves around one central pivot—the health and well-being of our cities. Along with talent and technological innovation, it is urbanization—dense, diverse cities—that powers innovation and economic growth today.
When we look at the layout and design of Australian cities, there are some issues we need to tackle if we are to optimise their performance as generators of economic value—and as pleasant and lively places to live.
As John Daley of the Grattan Institute has pointed out, most new jobs are created within 10 kilometres of our central business districts, but much of our new housing stock is being built more than 20 km away. This tends to increase urban sprawl and creates transport infrastructure challenges.
Another significant issue we need to consider is the way that Australia is dominated by a handful of cities which are very large in relation to our total national population—and likely to grow even larger.
In its infrastructure audit issued earlier this year, Infrastructure Australia pointed out that Sydney, Melbourne, Brisbane and Perth, together with their extended metropolitan areas, are expected to make up more than two thirds of Australia's population by 2031.
This will present us with some significant challenges if we are to maintain and improve the productivity and liveability of our cities. One of the most obvious is the growing problem of congestion on our transport networks; the Bureau of Infrastructure and Transport Economics estimates that this cost us $12.8 billion in 2010 and could rise to around $37.7 billion in 2031 if we do not take action.
Australia's cities, then, are vital economic assets. Just as importantly, well planned cities are critical to our collective quality of life—particularly when such a high proportion of Australians live in cities. This is why the Turnbull Government attaches a high priority to cities policy.
Transport Infrastructure and Cities
Let me turn next to the linkage between transport infrastructure and the effective planning and functioning of cities.
The cities' agenda, of course, extends well beyond the role of transport infrastructure, for example to encompass such priorities as greening cities for a more liveable environment; and as the Prime Minister has noted the complex issue of housing affordability.
But it is clear that federal government decisions concerning transport infrastructure represent one of our most significant policy levers when it comes to securing outcomes in relation to cities. Let me expand upon that by highlighting, firstly, the way transport infrastructure decisions affect the physical layout of cities; secondly the nexus between transport infrastructure and economic activity; and thirdly the obvious desirability of better integrating transport planning and urban planning.
Transport Infrastructure and the Physical Layout of Cities
The evidence for my first proposition, that transport infrastructure affects the physical layout of cities, emerges from even a cursory comparison between key features of our cities and key transport infrastructure decisions. It is striking how decisions taken fifty, a hundred or even two hundred years ago continue to affect the shape and functioning of our cities today.
One good example is seen in my electorate of Bradfield on Sydney's Upper North Shore. What is now known as the North Shore Line was built in the 1890s; it was not connected to the city until the Sydney Harbour Bridge opened in 1931.
As soon as the railway line began operating, the land around the stations started to be subdivided and sold. In the last few years, the zoning around the stations has changed to permit apartment blocks of up to five stories, and these are steadily replacing the older single dwelling homes—not, it must be said, to the universal acclaim of my constituents.
The same can be seen in the legacy of the man after whom my electorate is named, Dr JJC Bradfield. The construction of the Harbour Bridge and the City Circle Railway Line, as well as the electrification of Sydney's railways, is due largely to his work. He has had a profound influence on the shape of Sydney over the last eighty years.
In our major cities decisions concerning the road network taken in the fifties and sixties continue to influence the growth of the city today. Many of the projects successfully developed over the past ten to twenty years have been built on corridors protected in the mid-twentieth century.
Melbourne's Eastern Freeway (known originally as the Scoresby Freeway) was constructed between the 2003 and 2008—but its corridor was originally protected in the 1960s.
Sydney's M2 Motorway was constructed in the 1990s—but it was planned under the 1951 County of Cumberland Plan, and its corridors were reserved in the 1950s and 1960s.
It is also telling that bad decisions concerning transport infrastructure can have negative impacts many years later. In Perth, land had been preserved for the Eastern Fremantle Bypass for many years—until 2003, when Western Australia's then Planning and Infrastructure Minister Alannah MacTiernan removed the legislative protection and allowed residential development.
That decision has created considerable complexities for the present WA and federal governments as we work on the Perth Freight Link project. This is designed to create an efficient transport corridor running north from the Port of Fremantle to connect it to other parts of Perth and Western Australia.
Transport Infrastructure and Economic Activity
If transport infrastructure shapes the physical layout of a city, it also has a critical influence on economic activity. A good example is Sydney's Chatswood to Epping rail link opened in 2009, with three new stations, including Macquarie Park.
Last year the Tourism and Transport Forum published a fascinating economic study about the economic impact of this project. It found that the total economic output of Macquarie Park rose from $4,684 million in 2002 to $9,113 million in 2013—and identified the rail line as a major driver of this growth.
I was a senior executive at Optus between 2000 and 2008—and during that time Optus moved into a new corporate campus at Macquarie Park. This choice was heavily influenced by the imminent development of the rail link. It is clear that lots of other companies made similar decisions.
Of course one indicator that an area is seeing more economic activity is an increase in real estate values. There is plenty of evidence of this occurring as a result of new transport infrastructure. For example, a report commissioned by Infrastructure Australia in 2013 looked at the land value uplift from selected motorways in Melbourne, Brisbane and Sydney; it showed property value increases of between 21 and 49 per cent.
A number of reports have found the Sydney Orbital Network and Melbourne's freeway network are estimated to contribute about $2 billion a year to the economy. Melbourne's CityLink alone is estimated to have created land value improvements of nearly $30 billion and 70,000 new jobs.
Better Integrating Transport Planning and Urban Planning
Almost everybody seems to agree that there needs to be better coordination between the way we plan transport infrastructure and our broader urban planning. Andrew Constance, NSW Minister for Transport, regularly makes the point that the Transport Department needs to see the Planning Department as its client.
Well known infrastructure economist Professor Henry Ergas had this to say in his submission to last year's Productivity Commission review into public infrastructure:
…land use and transport decisions remain poorly coordinated in virtually every state. They therefore end up imposing costs on each other—in some cases, inefficient land use decisions create pressures for otherwise avoidable transport investment, while in others, better transport investment would help ensure fuller and more efficient use of land.
At a federal government level, we are interested in encouraging better coordination between land use and transport decisions. This is an important part of the work of Infrastructure Australia. Its job is to provide high quality, evidence-based and independent advice to governments on nationally significant infrastructure—and its planning.
By early next year, Infrastructure Australia will provide the Australian Government with its 15-year Australian Infrastructure Plan. A 15-year plan for Australian infrastructure is a key part of the Commonwealth government's planning agenda for cities and infrastructure investment. It will identify projects across the country with significant economic and productive value that will support growth in our cities that governments can take forward.
Another aspect of the plan will be an emphasis on key principles of good infrastructure planning, particularly corridor protection.
If the 15-year plan is one tool the Turnbull Government will use to encourage better coordination of transport infrastructure planning and urban planning, another tool is the way we conduct ourselves in relation to a very high profile infrastructure project for which the Commonwealth has primary responsibility. I speak of course of Western Sydney Airport.
There has been much good work done over many decades to get to where we are today. The Australian Government purchased land for an airport at Badgerys Creek in the mid-1980s. Importantly, the NSW Government's land-use planning around the site has protected this area from incompatible development.
Just a few weeks ago, the two governments announced further cooperative work in relation to the airport and the future of Western Sydney. We will jointly conduct a scoping study into the rail needs of Western Sydney and the airport: what is the right route, when should it be built and how should it be funded.
This is an exciting opportunity to consider, in an integrated fashion, transport infrastructure including the airport, the rail network and of course the new roads we are building under the $3.6 billion Western Sydney Infrastructure Plan; and the future urban development of Western Sydney, where an extra one million people are expected to live in twenty years' time.
Funding Transport Infrastructure in Cities
Let me turn, in the final part of my remarks tonight, to the question of how we should fund transport infrastructure in our cities.
Over the years, the federal government has become increasingly involved in answering this question. As a strict constitutional matter, the only area of land transport for which the Commonwealth has responsibility is interstate rail. However we have been active across the board in both road and rail for almost 100 years.
A key factor underpinning the involvement of the Commonwealth is the sheer cost of major infrastructure projects.
The updated business case for WestConnex in Sydney puts that project's total cost at $16.8 billion. The Melbourne Metro rail project here in Melbourne is estimated to cost between nine and eleven billion dollars.
As a consequence, projects of this scale typically require at least some federal government funding if they are to proceed.
The Turnbull Government has a very extensive program of infrastructure investment, the majority of which will go to projects in our major capital cities. Our spending commitment on transport infrastructure is $50 billion, with the expectation that this will leverage total spending of around $125 billion.
But one of the pressing challenges for future infrastructure development is to expand the pool of funding for it.
Ultimately there are only two sources of funding for new and upgraded infrastructure: from tax payers, or from those who directly benefit from the infrastructure.
Naturally state governments have an incentive to press the federal government to maximise grant funding towards transport infrastructure projects in their state.
But we have a collective responsibility to explore innovative approaches to the funding of projects.
The Baird Government in New South Wales has led the way in recycling public capital. It is withdrawing capital from mature infrastructure such as electricity distribution networks and reinvesting that capital in vitally needed new infrastructure such as the WestConnex motorway project and the Sydney Metro rail project.
The Turnbull Government supports such policies from state and territory governments with our $4.2 billion Asset Recycling Initiative. States which raise capital from selling or leasing existing assets, with a view to reinvesting the capital in new infrastructure, can receive a contribution, up to 15 per cent of the amount raised, from the Commonwealth.
It is also important that state and territory governments seek opportunities to fund new transport infrastructure through the use of user charges. This is not always politically popular—although increasingly the heavy vehicle industry has shown a preparedness to support new toll roads where it can be demonstrated that the road will deliver time and cost savings to trucks which exceed the cost of the toll the truck is charged to use the road.
For example, the Australian Trucking Association expressed its support for NorthConnex, the toll road being built as a tunnel under Pennant Hills Road in Sydney to connect the M1 in Wahroonga with the M2 in Pennant Hills.
Since COAG agreed in 2008 to a phased reform agenda for heavy vehicle investment and charging arrangements, the heavy vehicle industry has been actively engaged with governments in discussions around reform.
The heavy vehicle industry has signalled its acceptance of the proposition that reform of road planning and investment arrangements is needed to ensure the right infrastructure is built that best meets the industry's needs—something that ultimately benefits us all in lower transport costs and more competitive exports.
For example, in a paper the Australian Trucking Association commissioned from PWC in 2013, entitled “A future strategy for road supply and charging in Australia”, PWC noted:
A more transparent and efficient model for investment in roads and charging for their use is overdue.
Of course acceptance of the principle is one thing; agreement on the details is another. There is a lot of work to do, between government and the heavy vehicle industry, in determining exactly how such an approach would work, particularly the method of charging users.
Just in the last week, the Turnbull Government issued its response to the Harper Review into competition policy. The Review called for cost-reflective road pricing across the country. In our response, the Turnbull Government stated that we support this recommendation as a long-term option and will accelerate work with states and territories on heavy vehicle road reform.
Another direction we are interested to explore is the sharing of the value which can be generated through increased property values when new roads or rail links are built.
This is in some respects the revival of an old idea. In the 19th century, railway companies in the United States received major land grants along their routes; the profits from land development helped defray the costs of building the lines. This had a major influence in shaping American cities. While there were aspects of this process we would not want to replicate today, it nevertheless illustrates the value that infrastructure adds to economic assets and activity.
As Prime Minister said recently in announcing the Commonwealth's contribution towards the cost of Gold Coast Light Rail stage 2:
In the future, we want to look at more innovative approaches. We want to look at arrangements where we can partner the state governments or with city governments as shareholders, as investors. We also have to look creatively at how we capture the value that arises from the increase in property values and the improvement in the utility of adjacent land from the building of infrastructure like this. This might be by owning part of the land or it might be from some sort of differential rating arrangement.
There is a fair amount of work being carried out around the country on these kinds of value sharing arrangements. Indeed Gold Coast Light Rail Stage 1 is one good example: it was funded partially through a rate surcharge imposed by the Gold Coast City Council, with the rationale being that property values would increase once the light rail began operating. Both the NSW and Victorian governments are currently looking at value sharing options for the Parramatta Light Rail and the Melbourne Metro projects.
A key question which we are working on at the federal level is how we should structure our funding in major projects in the future to get the outcomes we need to support economic growth and sustainable cities. There are a number of possibilities as the Prime Minister signalled in his comments.
As one example, if the Commonwealth were requested to provide grant funding to a state government to support a particular project, we might make it conditional upon the state government demonstrating that the project was supported by a suitable value sharing strategy. That might involve the rezoning of land around new stations to permit multi-storey apartment blocks, allowing a significant increase in land value which could be tapped under a value sharing approach to contribute towards the cost of the new railway line.
This approach seems likely to be particularly important when it comes to public transport projects, which typically do not generate revenues sufficient to even cover their operating costs, let alone contribute to the capital cost of the project. Yet such projects can generate significant economic value in areas close to the station—value which can be shared through methods such as charges on local properties and the sale of development rights.
This approach is most likely to be successful if the transport infrastructure project is incorporated into larger infrastructure and land use strategies.
Of course, there are lots of transport projects where the Commonwealth will not be involved. We will continue to apply the principle that a project must be of national significance to attract Commonwealth funding.
Let me conclude, then, with the observation that infrastructure assets are very long lasting.
Decisions made many years ago continue to shape our cities today. Decisions made by today's governments will shape our cities for many years into the future.
Today I have sought to explain why the Turnbull Government attaches so much importance to Australia's cities—and why we are setting out some clear policy ambitions to make our cities even better than they are today.
In particular, our investment in transport infrastructure is a key policy tool.
We aim to deploy that tool to support the broader objectives of the government—to make our cities exciting, vibrant, liveable and economically productive, and in turn to generate growth and prosperity to the benefit of all Australians.