Tim Williams Blog

My long awaited blog on how the usual suspects who should have gone to gaol in the Global Financial Crisis are now speculating in commodities, is delaye further :I blame inertia and the fact I’ve been on the road for most of May. One fact while you patiently await the delivery of ‘Goldman Sachs doing God’s work again’ is this:whereas world demand has risen by a little over 2% in the last year metal prices have risen over30% . Before anyone shouts out ‘China’ consider a second fact. The amount of world currency circulating has by some measures increased by 50% since the crisis of 2008. The world is awash with cash.Again.This is what Quantitative Easing means.The consequence is the same as last time only the asset is different. Massive speculation is taking place in commodities and their derivatives.Inflation is rising significantly and spooked investors are flocking to gold. And yes again, we are hearing that ‘this time it’s different’ which we always hear when a bubble is passed off as rooted in real demand rather than in speculation and leverage. It isn’t different this time .It’s deja vu all over again…..

I said this piece on education was coming. Here it is. I was lucky enough to be asked by the reforming education minister in Wales, Leighton Andrews, to be a member of a task and finish group he was setting up. Its aim was to review “the structure of education services in Wales”. Our chair was the excellent and not unamusing Vivian Thomas, former director of education at the Neath/Port Talbot local authority. My committee colleagues were former or current heads of schools, colleges or education departments – all passionate about improving education and passionate about Wales. None of them satisfied with the system we have or the outcomes it is providing for Welsh kids. Read More »

Colleagues,comrades,friends,ladies and gentlemen,boneddigion a boneddigesau, boys and girls,fellow masons: I am back in the UK between 9th and 23 May to do some work with my former colleagues at Navigant Consulting. If anybody wants to meet up and chew the cud please contact me via this blog or indeed emma.trigg@navigantconsulting.com and we can make arrangements. I shall be in London most of the time but will get to Cardiff and Manchester during the visit. I am on a bit of world tour at the moment as I’m in New Zealand in the first week of May to launch a report on high speed broadband in New Zealand .

As to the blog,I’m posting a piece I’ve just done on the current commodities bubble – for such it is-followed by a summary of some work I’ve just been involved in for Wales on the reform of the structure of education in Wales. I was part of a group which apart from me was made up of former head teachers.We advocated pretty radical change in a report commissioned by the Minister for education,Leighton Andrews. I’d be intersted in your views on both.I will post the education piece tomorrow and the commodities piece (which is called :Goldman Sachs doing God’s work again)on Tuesday.

I used to work in print, running the publications sections of organisations like the Audit Commission and the National Union of Teachers. I was forever writing or proofing documents at printers at un-godly hours, invariably resulting in painful career-shortening typos and other errors. There seemed to be a law that a typo was never marginal but ended up subverting or contradicting the main argument. One of the many typos I remember I allowed through, or caused, when working for the NUT, was at two in the morning with one minute before we really had to put the document to bed. I let through ‘except’ where ‘accept’ should have been – a tad embarrassing when the Union was asking whether to ‘accept’ a pay offer. At least three people resigned from the Union over it. Quite right, though I don’t remember the Union members usually being that agitatated about educational standards. Read More »

Sometimes I read something which so destabilises my universe and dazzles me that, far from being confident that I can see clearly the strategic path ahead, I start worrying that I can’t even make out the shape of the sideboard to the right of me in the room where I write these reflections. What on earth should we make of the information which I’ve gleaned from work done by the McKinsey Global Institute called ‘Urban World: Mapping the Economic Power of Cities’?

First, a bit on McKinsey. Despite their involvement with the likes of Enron (just the title of a recent US blog gives you the flavour: No, Really, McKinsey is Evil/The Enron Blog), they have always been and remain the consultant’s consultant. Clever boyos. (Old joke from a despairing BBC friend when Blair chum and McKinsey alumnus Birt was the director general: “What’s the difference between ET and McKinsey? At least ET went home in the end.”) Good despite the “evil”.

Proof of the former comes in ‘Urban World’. McKinsey thinks big and has the capacity and the market penetration globally to do so. So the products of its Global Institute are always worth reading and certainly people in urban regeneration seeking to understood development issues should tap into their work.

‘Urban World’ is about the role that cities play in global GDP and how the next 15 years will see a shift in the make–up of the list of 600 cities currently producing 60% of economic output. In 2025 they will still produce 60% of output but ‘they’ will not be the same cities as today. The centre of gravity of the Earth’s urban landscape is shifting decisively eastwards and southwards. The numbers gave me vertigo.

At the moment 20% of global GDP comes from 190 North American cities alone. Of the 600 top cities identified by McKinsey 380 indeed are currently in the ‘developed region cities’ of the US, Europe and Australasia. However,by 2025 100 of these will have dropped from the top 600.They will be replaced by 136 new cities ‘all from the developing world and overwhelmingly from China. China will have 100 new cities on the list,India 13 and Latin America 8. If that wasn’t mind-boggling enough it appears that the dominance of the mega-city in world growth will fade and that the day of the ‘middleweight cities’ is nigh. In the emerging markets, middleweight cities with between 150,000 and ten million inhabitants are poised to delivery nearly 40% of global growth by 2025 – ‘more than the entire developed world and emerging market megacities combined’.

To add grist to the mill, although the middleweight cities will be ‘arrival cities’ for migrants ,their expanding populations are not the largest drivers of urban growth. Really important to grasp is that in most of these cities ,rising per capita GDP is the major factor,’fuelled by agglomeration benefits in larger cities and their capacity to attract higher investments and talented workers’.

Three of the 600 top cities in 2025 are Manchester,Sydney and Melbourne. However, Manchester will be holding on by its teeth to its place on the list and its GDP rise by 2025 will be of the order of 25%. By contrast the two Australian cities GDP will both grow by 50%. By further contrast Chinese cities I’ve never head of will grow their GDP by 500% in the same period. However , the differences between Sydney and Melbourne on the one hand and Perth and Brisbane on the other are as interesting as that between the cities in the developed and the developing world. For Sydney and Melbourne’s overall GDP will grow approximately 66% and 65% respectively whilst GDP capita goes up by 50% in both. However in Perth and Brisbane the GDP goes up by 72% and 74% respectively while again GDP per capita will rise 50% in both. So the wealth of the ‘mineral cities’ is rising faster and population growth thus takes place in a more dynamic and prosperous context even than in Sydney and Melbourne. Having said that ,perhaps because it starts from a low base,the Australian city with the fastest growing GDP in the list of 600 is…Canberra, at 75% by 2025.

There is actually a concealed warning in the McKinsey work for how Australian cities need to plan their growth. Concealed because explicitly McKinsey looks at sub optimal growth patterns from some of the larger South American cities such as Rio ,Buenos Aires and Lima – but I think the analysis is relevant to Aussie cities too.

So ‘while in the past Latin America’s large cities have captured the scale benefits of their size,today they have run up against diseconomies of scale.As urban centres have expanded they have ‘swallowed up’ smaller neighbouring towns outside the large c ity’s jurisdiction.Fragmented political boundaries have often spread urban management responsibilities to mayors in multiple municipalities,state governments and federal institutions responsible for housing or economic development , for instance. Planning and policy laws have too often been uncoordinated and typically don’t look far enough ahead.This has led to congestion,pollution, damagingly high levels of informal economic activity and a failure to generate sufficient high productivity jobs needed for an expanding labour force….Latin America needs to identify what is preventing its largest cities from fulfilling their potential and act to put these aspects right’.For Latin America read south-east Australia and particularly Sydney.

It’s at the very moment that Sydney needs to be directed towards the London model of governance – a strategic authority covering all of Greater London and its 8 million people and not just the inner city , having strategic planning, development control (for major applications),public transport, public housing investment and economic development all in its tool kit for the whole city – that the incoming New South Wales Government announces it is restoring planning powers over major applications to the myriad of small local authorities which Sydney has and which prevent a strategic approach to city-wide development. At the moment Clover Moore, Sydney’s equivalent of Ken Livingstone – there is no equivalent of Boris Johnson in Christendom – is mayor of an area only about the size of three or four of London’s 32 boroughs. Until this is fixed Sydney’s basically sub-optimal approach to managing growth carries on. Great city, great shame.

I reproduce below a piece I wrote for the BBC website set up around the time of the referendum in Wales in March on whether Wales should have more powers. It speaks for itself apart from two points. One is this:this was the first intervention I have made in Welsh politics for a decade – though it is a non party intervention and so one I thought appropriate for this site too. The second point is this:one of the things which has driven me in this direction is real experience of the over centralisation of the British state when I was an advisor in the Blair government on regeneration,housing and local government. Britain needs more decentralisation – to its cities and local government and not just to something vague and mysterious as ‘communities’ .The new government’s Big Society agenda is faltering it seems to me for two reasons. 1)The central state is actually taking money and power away from the only forces capable of taking that agenda forward – local and city government .2) The attempt to call new community activism into being through rhetoric from the centre alone never works in the UK and always ends , by cutting out the essential institutions of ‘localism’(local and city government),in giving even greater strength to centralisation.

In Australia where I’m working at the moment ,I see the advantages of devolved governments .I realise many Australians would like to see the Federal Government have more clout over the states but having lived in Australia and seen the economic and political positives of having devolved governments – not least for the city-states at the heart of them -and having worked in the UK system at top level , I see the need to reinvigorate real devolution in the UK.That means not just more power to Wales and Scotland but to the cities and local government too throughout the UK. That’s the context in which I broke my ten year silence on devolution in Wales. Here’s the piece:-

‘I was one of the leaders of the anti-devolution campaign in 1997. Indeed, at one point I was characterised as “Dr No”. I believe the Labour Party did some research afterwards showing that I had played a role, as a Labour Party member myself, in persuading a number of Labour voters to vote No.

In this referendum I am supporting a Yes vote. I will explain why.

Whatever one’s view in 1997, the issue now is in ensuring Wales has a system of governance in which its problems can be addressed and solved.

It seems to me that as the status quo ante 1997 cannot be restored and the current settlement does not give Wales the tools it needs to transform the country, the only serious option is to acquire those tools and powers. We have to go forward to a more self-governing Wales

Those who opt for the status quo or even hanker for an impossible return to the world before 1997 need to understand this.

England, which is struggling to sort out the problems of its own communities outside the south east, has lost the habit of governing the UK well. It has very little interest now in Wales or much understanding of or sympathy for its challenges. This isn’t a party political matter.

This is just about the gravitational pull on Westminster and Whitehall of the dominant English element within the polity and the relative importance accorded to it by increasingly anglo-centric political parties and civil servants east of Offa’s Dyke.

Yes, much of this was brought about by the 1997 vote but the issue here is not history but our nation’s future. That increasingly will lie in Welsh hands whether or not there is a Yes vote in this referendum. The need in those circumstances is to ensure those who care about and are accountable to the Welsh people have sufficient powers to deal with the country’s challenging problems.

I write this not just as a former leader of the No campaign but also someone who has worked as a special or policy advisor to five ministers in the last Labour government.

In their bones English ministers now simply do not think of Wales when framing laws and policy interventions. Someone needs to. That would be us, then.

I say this without delusion or a lack of realism. The experience of the first decade or so of devolution has been less exciting than many of its advocates had expected.

But the greatest achievement has perhaps been under-estimated. That has been to show that in a very basic and big picture way the Welsh could run their own show. The challenge now is to go from demonstrating capacity to really breaking through – to the game-changing interventions which will lift Wales out of its current struggling economic trajectory.

We are a poor nation getting poorer and the main task of a post referendum Wales is to focus determination, policy and resources on reversing that trend, decisively.

I believe that England will be focused for the next decade ahead – at the very least – on sorting out its own problems in the wake of the global financial crisis.

So we have to find more of our own solutions within Wales – and many of them will involve hard choices and sacrifices – around welfare reform and making our communities less dependent, making Wales a welcoming place for private enterprise and around the educational revolution which as someone working as a consultant, internationally, I see as patently required to make Wales competitive again.

A Welsh democracy with the powers it needs can make those choices with more legitimacy and, I think, effect than anyone else.

To those who like me said No last time, I urge them to vote Yes this time. My aim remains the same as it always was and in this I think I share the feelings of many. We wanted then, and want now, effective government for the Welsh people. We haven’t changed. The realities have.

I know in saying this I will be criticised by those who thought me a traitor in 1997 and those who think I am a traitor now. I have always ploughed my own furrow and do so now. I care passionately about Wales and have always done so. This has led me to my current position.’

I’ve had a life-long commitment to the cooperative movement .I’ve also been interested in private sector business models which incorporate respect for and the involvement of employees through such things as share schemes or bonus systems –or simply through the way in which people are treated. I’ve never worked for a cooperative although I did used to run a not for profit partnership which I deluded myself was run along egalitarian lines but which probably felt more akin to auto-than demo-cracy to my work colleagues. I have usually worked for companies and with clients structured on the classic Anglo-Saxon or Washington Consensus model in which employees , even though well paid, are essentially factors in production and share-holder interests –as filtered by senior management – are paramount.

Hence my shock at reading a biography of the founder of Lend Lease the Australian blue-chip which built the Sydney Opera House and Australia Square and is currently building the Olympic Athletes’ Village in Stratford , East London. Its title will hint at the reason for my surprise. It’s called ‘Finding a Common Interest:the story of Dick Dusseldorp and Lend Lease’(Lindie Clark, Cambridge University Press,2002).The ‘common interest’ turns out to be that partnership or cooperation between employees, management, shareholders and indeed the wider stakeholder group of customers and the community at large. Dusseldorp spent his amazing life building a massively successful company on these principles. It’s an incredible story which makes you realise how limited and indeed, anti-social , is the usual Anglo-Saxon model of doing business – and how different Lend Lease was in the Australia in which it emerged.

I declare an interest at this moment. I used to advise the current UK Chief Executive of Lend Lease , as a consultant. He is called Dan Labbad and his name will be familiar to many in Sydney. I also worked closely with the project manager of the Olympic Athletes’ Village, Rob Johnson, now working back in Sydney. I will embarrass them by saying that they are impressive individuals both good at what they do and committed to an ethical community-oriented approach to business. What I hadn’t understood was that this was the culture that Dusseldorp aimed to build and the kind of work colleague he wished to recruit and to develop.

Dusseldorp’s origins were unusual and probably the making of him. He came from a long line of wealthy Dutch merchants though himself an engineer. He was a Dutch Catholic in a very Protestant country. A combination of his religion and the experience of Holland in the war years drove him towards a communitarian direction in which respect for one’s fellow man and woman was central. He seems to have been a kind of Christian Democrat with a Tawney-ite commitment to cooperatives , guilds and indeed unions .He was very entrepreneurial but saw profit not as the end in itself but as a means for living and promoting the good life .His company delivered on what years later became knows as the triple bottom line:profit for the company,community and the environment. He was decades ahead of his peers in the construction industry and to be honest most in my acquaintance aren’t yet on the same page.

The evidence for this is in Clark’s book. But the proof of the pudding comes early in Dusseldorp’s work and it took the form of the extraordinary rapport he had with Australia’s otherwise very combative building trade unions. They’d never worked with someone who gave them such respect but also offered workers better wages,conditions ,safety ,training and personal development opportunities than they themselves were campaigning for or had even thought of. In an industry notorious for poisonous industrial relations and militancy from both capital and labour, Lend Lease brought both sides together in ‘a common interest’.

One of the devices for this was not just profit sharing with the workers. It was also the share capital given to employees. I don’t know what the employee share ownership is now in Lend Lease but at one stage it reached 26% of the company.Using language no conventional capitalist would use Dusseldorp pondered:’Coud ity be that corporate democracy was a minimum requirement for economic well-being ..Should we be sharing more equitably in addition to caring…I concluded the answer to that question had to be yes’. Bob Hawke, the union head who became Prime Minister,said of him:’He had a broad vision and created a magnificent enterprise. He thought that workers really were fundamental elements in the creation of wealth and they were entitled to participate in it’. Dusseldorp’s summed up his extraordinary perspective on the very purpose of enterprise thuis:’Pursuit of profits for its own sake is a sterile activity.Profits must serve a purpose…Whilst we arte busy making profits for our benefit,this should always benefit others as well,never be at their expense.In short the pursuit of a community of interests’. He doesn’t sound like a builder , or a banker for that matter.

This mentality meant that the community was a key stakeholder in the business with Dusseldorp pusing ‘corporate social responsibility’ before the term was invented:’The time is not far off when companies will have to justify their worth to society…with greater emphasis being placed on environmental and social impact than straight economics’.. He had a basic principle that the company was part of the community.

I don’t know the extent to which Lend Lease as a company still embody or promote such principles and Dusseldorp himself died in 2000. I do know that the individuals I have worked with from that company have shared the attitude towards community benefit of their founder in a way which remains – sadly – unusual in business. I know that the Olympic Village ,despite the many challenges it faces in terms of legacy, will be much better than it might have been if someone with the usual Anglo Saxon business model was doing it. I have been out to see Rouse Hill in Western Sydney where my Lend Lease mate Rob Johnson was the project manager – and it stands out from the surrounding suburban ‘ugliness’( to cite the famous Boyd book) as a serious and successful attempt to create a good place , a town centre rather than a retail box, with streets, homes ,retail units , mixed together – and the rail link coming- underpinned by excellent urban design. Nothing’s perfect in life but this is way better than what the industry and its conventional business models normally achieve. A visit to Rouse Hill or the Olympic Village shows some of the Dusseldorp spirit survives. I was knocked out by finding out about the man. Check the book and him out.I suspect by the way ,that a reading of the book might offer those leading Lend Lease’s now controversial Barangaroo project some timely inspiration.

I now realise I was born in a failed ‘arrival city’, spent much of my working life in the world’s most successful one and currently live in a city that doesn’t know it is one. I conclude all this after reading Doug Saunders’s really useful ‘Arrival City:how the largest migration in history is reshaping our world’.

The three places are respectively the South Wales coal-field , East London and Sydney. Saunders says a lot about East London and particularly Tower Hamlets which he sees as a very successful example of the type of rural-to-urban migration which his book highlights. He refers to Sydney where I live but it is not one of his 20 or so case studies. He makes no reference to the Welsh Valleys where I’m from. I’ll exonerate him for the omission of the latter as I concede that only someone actually from the Valleys would ever be able to see it in the same context as that other failed arrival city , Shenzhen in China.The fact that the Valleys – which experienced in-migration in the last half of the 19th century at a rate second only to that of Chicago – is not actually a city may also explain Mr Saunder’s blindness in relation to the global significance of my native turf. He ‘s pretty much right about everything else so I’m not complaining.

The ‘arrival city’ can be found wherever large numbers of former rural villagers congregate,live,work,marry ,integrate , become urban and indeed citizens and flourish. In other words,it’s a normative concept indicating a necessary set of attributes , a positive role and a benign set of outcomes in relation to the successful absorption of what Saunders see as the ‘final migration’. Final, as there will be in no further migrations from the rural world to the urban largely because there will be few people left to be rural – and to receive the remittances from their newly urban relatives- after this process.

The necessary attributes for an arrival city are identified in parts of London,Rio,Los Angeles ,Toronto ,Istanbul, Bombay. What they have in common , despite massive differences (and where they differ from Shenzhen for example)is: welcoming committees of first wave migrants from the same rural village,family , region or religion(which Saunders doesn’t make much of :see below); space for development in places the indigenous never thought to live and at densities which encourage community engagement and social facilities ; openness to –or at least not active violence towards – migrants(though Istanbul and Rio tried to hold back the tides initially);the availability of opportunities for self-employment and enterprise ;affordable housing to rent and buy or land to build on, officially(preferably) or otherwise ; a pathway to citizenship for migrants from other nations ;access non-discriminatory public services ; and reasonable connectivity to CBD or jobs market .

Saunders sees these attributes as assisting in the positive role of arrival cities as conveyor belts to social or national integration ,economic success and social mobility and ,fundamentally, citizenship. While I don’t think he is right in all respects this is an important and largely correct work which those working in urban regeneration ,city development and social cohesion should look at.

Where is he wrong? I think he is over optimistic of the capacity of the arrival city to break down key cultural differences which will always mark certain migrants off from others and bind themselves to each other. He has the modern secular liberal’s blind-spot about religion and particularly Islam. He suggests that the Islamic momentum of the last generation has roots in such edge places and the inequity they have suffered and he writes interestingly in this respect about Istanbul and Tehran and the migrant populations which gave new life to Islam as a political and cultural force in previously more secular cities.

The problem is that because he is secular himself he assumes essentially that Islamic fundamentalism is rooted in social injustice or poverty and will thus be eroded by economic success. He thus also assumes that Moslem migrants will see the erosion of their cultural differences as all other migrants cultures have experienced as they get better jobs,bigger houses, education and a higher standard of living within the system- which then becomes ‘their system’.

I think this overestimates the current attractions of Western culture and downgrades the incredible value –and social capital – Moslems see in Islam. A religion that has resisted alcohol successfully for 1500 years is no pushover.When this sense of separate self worth is reinforced , as it is in the case of migrant Turks , by a national self-confidence and a very flourishing national language with a modern multi-media presence in the heart of western Europe and in every Turkish home,what we have is not ‘arrival cities’ but ‘dish cities’,with less integration than ever before as modern mass communications ironically now enable migrants to move physically without leaving home linguistically ,culturally or spiritually. He thinks London is better than Berlin as an engine of integration but I can tell Mr Saunders that there are as many Kurdish or Pakistani honour killings in the former as in the latter – and more than ever before. Villagers don’t throw away traditions just because they move to the city –especially (and ironically) in the modern world where the values of their homeland live on ,on TV or the Internet.

As to South Wales and Sydney. I now understand that the Valleys acted as ‘an arrival city’ of some success in their first 60-70 years of boom as their coal supplies fed the world’s steam driven economy between the 1850s and the First World War. The Rhondda Valley went from a rural area of maybe 1000 in the 1830s to an industrial stronghold of 160,000 by 1910 as not just the Welsh countryside but also the West of England emptied of their young labour eager to escape – as all unromantic rural dwellers do – the poverty, terrible working conditions and boredom of the middle of nowhere for the comparative wealth,freedom and excitement of urban living.

The migrants put down roots ,bought their own homes(in high density terraces) , became equal citizens , assimilated to (or rather created)a new unifying English-speaking Welsh identity – and then watched their ‘arrival city’ leave them , as boom gave way to bust , the markets for coal collapsed and in-migration gave way to out-migration. Overall, the Rhondda population has nearly halved since its peak – gone to England or the Welsh cities along the coast – leaving behind a somewhat hollowed out society with remaindered communities struggling with a declining GDP, rising social dislocation and worklessness , eroded social capital and increasingly dependent on increasingly parsimonious welfare.

The question for South Wales is how to either regenerate those communities of the coal –field by finding a new economic rationale or underpinning for them ,which frankly is easier said than done – or to manage their decline a whole lot better than we are doing at the moment. That will involve assisting what in some senses have become again rural villagers to leave for more dynamic ‘arrival cities’ . My sense at the moment is that neither is happening.

This is decidedly not true of Sydney. This is an ‘arrival city’ par excellence in all but self-understanding. Of course Sydney is and always has been a migrant city and Australia has had for some decades a commendably open approach to citizenship. Wave after wave of migrants from Europe and more recently Asia have been accepted and more or less absorbed though as a non Australian myself I can see that ‘Australian-ness’ has already been re-engineered by these waves so markedly that I’m not sure that much of the ‘ness’ remains in what is becoming less a multi-cultural than a multi-national even post-national reality.

And still people come to Sydney, increasingly from the middle or near east with the Moslem population of some electorates in Western Sydney now being close to 20%. This city of 4.5 million will have 6 million by 2030 , most of them in the unannounced ‘arrival city’ of Western Sydney.

I suggested in my previous piece that the likelihood of bad growth in Western Sydney over the next generation is greater than that of good growth. The latter requires the kind of infrastructure,density of development , connectivity and planning (of all kinds )that I fear is not going to happen. Saunders also raises the possibility that because of this imminent failure to plan properly for the advent in dispersed suburbia of perhaps half a million new migrants from rural communities from the third world , what has been a very successful reception culture for migrants could easily become a failed ‘arrival city’ with all the social immobility and problems associated with it.

I don’t think failure is written in stone with Sydney. The right choices can still be made.This is a naturally fantastic – though challenging – place where the performance of nature has often surpassed the efforts of people to shape it. Every second day I’m positive that its future growth can be delivered in a way no other city could achieve.On alternate days by contrast I go all Gramscian experiencing that ‘pessimism of the intellect and optimism of the will’ he wrote of. Those charged with running Sydney could do worse than have a look at Arrival City because, despite having only two mentions in the book,it’s really about your city.

Regular fellow bloggers will know that before absconding to Sydney I advised rather a lot of housing ministers in England , helped draft the London Mayor’s Design Guide for London and chaired a Housing Corporation inquiry into affordable housing in the Thames Gateway.Prior to that I had been Chief executive of the Thames Gateway London Partnership when the Gateway became a national housing and regeneration priority. I advised ministers David Miliband and Yvette Cooper about the government’s response to the Barker Report which advocated a speed up in house-building . I learned a lot –about what to do as well as what not to do – from that experience and bring this to bear on a proposal by the Barry O’Farrell ,the Leader of the Opposition in New South Wales , to change the current Metropolitan Plan for Sydney in such a way as to direct a shed-load of housing to greenfield sites on one side of Sydney:the West. I think the issues for Sydney have echoes for some of the debates in the UK though the scale is very different. Tell me what you think.

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The proposal by the Leader of the Opposition in New South Wales to amend the brownfield emphasis of the ‘Metropolitan Strategy’ so that housing development will be 50% on greenfield sites and 50% on brownfield ,as compared with the proposed ’70-30’ split of current policy , has been critiqued by planners from a variety of angles.

The burden of such critiques has been that Mr O’Farell’s Sydney will be one where the benefits to society of agglomeration and density of development will be lost and where greater costs are incurred by government. The December 2010 report by the Centre for International Economics ,’The benefits and costs of alternative growth paths for Sydney’ looks at the economic, social and environmental impacts of two paths – the 50-50 and 70-30 paths- and concludes that the former scenario focused on Greenfield development has net costs of $5.0 billion relative to the 2005 Metropolitan Strategy. This reflects ,‘the additional physical and transport infrastructure and environmental costs required for this scenario but with no additional transformation benefit to households. That is, this scenario requires greater costs for government to produce dwellings that are less valued by households. In per dwelling terms, the Greenfield focused scenario has net costs of $11 000 per new dwelling ‘.

So the focus of critiques has been on the costs to the environment ,economy ,society and indeed government of the more dispersed approach to develop implicit in a 50-50 Greenfield-Brownfield scenario of the kind now favoured by Mr O’Farrell. Although this is not surprising – all planning studies, domestic or international, stress the benefits of agglomeration and those Sydney inhabitants who live in dispersed developments distant from shops, services, public transport and employment understand the issues all too well – what has been missing from the current discussion is consideration of the differential impact on house prices and family wealth of the different scenarios. Although the CIE study alludes to ‘dwellings that are less valued’ –in essence house values being discounted by the market – this highly significant dimension to the discussion ,particularly for areas where ‘dwellings are less valued’, is considered here for the first time.

This aspect has been missed thus far – probably because there are so many other reasons to dislike the proposal it’s distracted attention from it.

One reason has been referred to:a move from an agglomeration model to a dispersal or sprawl model of the kind advocated by Mr O’Farrell will result in development which is either not well connected to labour markets and services or very expensive for the public purse to so connect. It is also a land hungry car-based model with adverse consequences for the environment, carbon emissions and congestion. I recognise Mr O’Farrell has said that new rail connections to the north and south west of Sydney will be a priority for any government he might run but saying this and doing it either at all or any time soon are different things. If the links happen it is likely they will arrive some time after a large number of homes do, not before.

I advised the UK government on housing at the time that government committed to a significant increase in housing numbers .I also recall the response of the UK’s parliamentary housing select committee of the time: infrastructure first, housing numbers second. Where that injunction has been ignored lower quality development –housing for people with less choice and resource – has everywhere been the result. In England the Thames Gateway developments show how good the results can be when focused around new public transport links and how bad they are when not.

These aspects have dominated the response to Mr O’Farrell and I believe them to be all valid. But they miss a key point which householders in the Western Suburbs will get instantly. Hidden in the ‘pan-Sydney’ consequences of the dispersal approach to development is a dramatic shift of development geographically within the city – and this will have significantly different consequences for the various local housing markets in Sydney.

We can sum up both in a single sentence: the radical shift of development focus to Western Sydney – and the extent and pace of it – will bring new downward pressures on house values in areas with already lower housing values while the shift away from brownfield first and in-fill development will enhance house prices further in the Northern Suburbs.

Given the importance of housing equity to family wealth and well being ,the ‘two speed’ Sydney envisaged in Mr O’Farrell’s scenario is all too likely to exacerbate the existing tendency for housing investment in different parts of the City to lead to different long term returns for that investment. House values have been increasing in the Northern and eastern suburbs closest to the CBD relative to the Western Suburbs for some time. As the knowledge economy has grown in importance so have higher value jobs clustered closer to the CBD – intensifying housing demand in areas around it.

The very purpose of a 70-30 policy was to release residential land to accommodate this demand and by so doing make such areas more affordable which in effect would also help balance the housing market across the city. A 50-50 shift implies a decision to accept the ‘unaffordability’ of the suburbs closer to the CBD and the beach. This is also to embrace a city divided by returns from property investment with permanently ‘affordable housing’ and lower investment returns targeted to the Western Suburbs for the 25 year life of the plan and possibly beyond. Put simply: this is a policy to lift prices in one part of the city and depress them in another. Given the centrality of housing equity in Australia to leveraging wealth this is also a policy which will have significant – and differential – economic impact.

In any market prices are driven by supply and demand. In understanding house prices what is often missed is the need to factor in credit availability as a factor in demand and regulation or planning requirements as factors in supply. We under-estimated this at the time of Barker. Family formation numbers are only part of the equation. In a regulated market what government does radically affects the outcomes. Housing is a highly regulated market where land supply is channeled by public policy.

Comparing the UK with Germany takes one to the heart of the debate on house values in Sydney under different planning and land supply scenarios. There are 13m hectares of land in England. As I understand it, in an average year, around 8,000 ha of undeveloped English land is converted into new development (with housing making up for about 40 percent of this total).Internationally-comparable land use statistics are hard to find , but are available for Germany, a country with a similar population density to the UK. There, around 42,000 ha are used for new settlements every year – around twice as much as the UK as a proportion of total land area.

This could go some way to explaining why real house prices in Germany are 10 percent lower now than 30 years ago while England has seen one of the highest increases in housing values in Europe. One should stress immediately that neither scenario is optimal and a more balanced result needs to be planned by governments concerned both to meet housing need and protect household wealth.

It is worth bearing in mind that the attempt by the previous UK government to increase housing supply to reduce problems of affordability was always tempered by a recognition that to over supply the housing market would undermine house values and family wealth. I am not breaking the Official Secrets Act to say that ministers took that danger very seriously. They were criticised accordingly by those who wanted supply to significantly reduce house price inflation or indeed to actively bring about house price deflation. That government refused to do this for fear of the economic consequences for hard working families who had invested in and leveraged their homes. Government is about balancing priorities.

At the heart of the difference between England and Germany has been the highly regulated and planned housing market of England, particularly in the high demand areas of London and the south-east versus a more laissez faire and indeed dispersed approach . My understanding of Mr O’Farrell’s proposal is that it runs the danger of achieving an ‘English’ solution in one part of Sydney and a ‘German’ approach in the other part of the city – and as housing markets are usually quite localized it is possible to spome degree achieve this -with sub-optimal consequences for both. And the gap between the two widens further over time.

Mr O’Farrell cannot intend this. He is neither a planner nor developer. He probably under-estimates the radical about turn represented in housing and planning terms by what he proposes. On paper a move from 70-30 to 50-50 appears easy to accomplish as it’s not that big a difference is it?

The first thing to grasp is how decisively the direction of development would move on the ground. The 70-30 of the plan is actually a long term average of a ratio that is currently ,in reality, at 86-14 To achieve a 50-50 split from that real world dominance currently of infill or brownfield development in practice requires an early and radical shift beyond 50-50 in favour of greenfield development. Targets are usually overshot in the zeal to innovate and deliver – precisely what happened with the brownfield emphasis in reality with planning authorities currently tempted to reject all greenfield applications in their jurisdiction so as to be sure to achieve –or ‘improve on’ – the brownfield target. It is likely that, if Mr O’Farrell’s plan is implemented , there will be pressure coming to do a mirror image of this in favour of greenfield applications in future.

It is also likely that anti-development forces in other parts of the city will feel empowered by the shift of policy to reject brownfield and infill applications in their area and claim that they are seeking to help achieve the new 50-50 policy.

The force of this policy shift will then be exacerbated in the Western Suburbs precisely because they are in or adjacent to the city’s growth areas with the available supplies of greenfield sites. That is, the Western Suburbs will be turned to heavily to achieve the 50-50 target for the city overall .The implication of that is that 50-50 for the city means in reality most housing development action in practice turns westward as that is where the greenfield land substantially is.

There is also an issue of housing typology concealed in this shift. Sydney’s family size is reducing and family formation is increasing so many more homes will be needed in future to accommodate small or single households. This is why the current Metropolitan Plan envisages a growth in population of 40% to 2036 but of 46% in housing units. The brownfield and infill emphasis of existing policy and provision is consistent with this demographic trend and with the infill/brownfield and inner urban locations favoured by smaller familes or single households. A 50-50 split will not be .Or rather it means an under/over provision of appropriate housing for the different segments of Sydney society.

It also means less affordable housing in the inner city or infill areas in the formal sense of affordable rented accommodation for lower income groups .This is because affordable rented units in infill locations have been a windfall of the 70-30 policy and a demography which favours flatted(apartment) development. How such lower income groups will be housed in future is not clear from the O’Farrell plan.

Or maybe it is:all are to be housed in Western Sydney. The avalanche of housing coming to Western Sydney in a 50-50 world would be spectacular were it not so problematical. Estimates are inevitably difficult and made even more difficult by the imprecision of Mr O’Farrell’s proposal: it really is not helpful to proper city development to take years to develop an impressive metropolitan plan rooted in consultation and professional planning approaches and then have a politician come in from right field and replace a plan with a slogan. Also at the heart of proper planning is to model the consequences of policy, particularly something which affects people’s wealth.I have seen no outline of the methodology or modelling Mr O’Farell’s team used to produce the 50-50 strategy and would be interested to see it.

Whilst awaiting full modeling of the 50-50 proposal –specifically on its impact on house prices – one can make some assumptions and raise the key issues for debate.

When I was advising on policy In the UK anything over 1 per cent new (net additions) housing stock a year was considered to have a modest but real impact on affordability ,that is bringing down ward pressure on house values nationally –in pockets where the development was concentrated that pressure would be greater. This is not just a public sector view. In the UK developers restrain supply in order to keep up their returns and deliberately build out slower than they might to do so, fearing to over supply local markets.

The UK government in practice avoided committing to anything over 1.5 per cent net additions a year because of the even bigger downward impact on housing values associated with such numbers, and again in pockets that impact would be greater still.

The current Sydney Metropolitan Plan envisages around 2% net annual additions which if achieved would have a moderating affect on house price inflation across the city,with some downward pressure in the infill areas and suburbs closer to the CBD.

However, a proposal to in effect raise the share of housing taken by Western Sydney by at least 60% would mean net annual additions in one part of the city amounting to closer to 3% and much more in some pockets. That is much more like the German scenario and if implemented over a generation or more is likely to have a similar impact on housing values : a real term reduction in housing values particularly in areas of high impact which runs the risk of actually lowering demand for such areas further ,causing a spiral downwards. There are plenty of areas in the world where a surfeit of supply and insufficient demand has caused a collapse in values. A divided society results.
In the UK in the 1970s one could buy a house in Chelsea for the same amount that would buy 5 houses in Fife,Scotland. Today a Chelsea house would pay for 25 houses in Fife. As challengingly, a house in Chelsea which a generation ago would fund 3 houses in east London would now get you 5 or 6 there.

A failure to plan properly and manage housing supply and demand has been at the heart of this widening divide. One should not imagine that such problems or the need to manage them properly through policy and good government are confined to the UK. They exist and need to be managed in Sydney. The current Metropolitan Plan is an attempt to balance development in a city in which a 50-50 development approach will lead to an imbalanced city. Equity for the few;negative equity for others.

These matters are not glibly sorted. Affordability is a virtue but so is wealth leveraged by hard working families from their homes. The dangers of the 50-50 world is that the benefits of rising values are carried off by what economists call ‘insiders’ – those with equity in the areas to see less development under the O’Farrell approach than envisaged in the current Plan – leaving those in Western Sydney to incur even more housing than envisaged in the Plan as ‘outsiders’ with lower returns or worse and with knock on consequences such as differential or more costly access to mortgage finance.

Most planners and urbanists endorse the Metropolitan Plan as is. In their bones householders in Western Sydney know more about supply and demand than the fanciest of economists. They will also appreciate the old joke : ‘Buy land’ advised the wise man. ‘They’ve stopped making it’.’Except in Western Sydney ‘he added.

Mr O’Farrell has talked of his 50-50 approach as being about the desire to build more of the bigger houses on ¼ acre blocks which are beloved of Australians. I know the virtues of this and do not sneer. But in reality the best ,most sustainable and attractive suburbs are the ones closest to and best connected with to the urbs , not far flung.

There are other reasons to stress this which have to do with what are being called ‘arrival cities’. These are the edge of city places to which third world or rural migrants are moving. The journalist Doug Sanders has popularised this term and he see them as positive places where the habits of urbanism are acquired and where social mobility and citizenship are promoted to the extent that the arrival city is ultimately left behind by the migrant going mainstream and actually moving to another part of the city.

But not every edge of a city has the virtues of an ‘arrival city’. Sanders says:‘Around the world, it appears that a good part of the success or failure of an arrival city has to do with its physical form- the layout of streets and buildings, the transportation links to the economic and cultural core of the city,the direct access to the street from the buildings, the proximity to schools, health centres and social services ,the existence of a sufficiently high density of housing …’.

In other words ,good planning ,connectivity and density are at the heart of success of ‘arrival cities’. These build great places not ¼ acre plot after ¼ acre plot. Their absence leads to what Sanders calls ‘places of failed arrival’. There is an acute danger of bad planning turning parts of Western Sydney into such failed places. It is indeed ironic that such an approach comes in the very week that the new Liberal Party government in Victoria unveiled its own new approach to development in Melbourne. Planning Minister Matthew Guy on Thursday outlined plans to redevelop 200 hectares of land at Fishermans Bend, near the West Gate Bridge, to provide housing for tens of thousands of people. Mr Guy said the project would focus on affordable housing and become an inner-city growth corridor. Has anyone told Mr O’Farrell?

This time out I’m inflicting a speech I gave yesterday at the National Press Club in Canberra. I’ve written a report on high speed broadband. Read More »