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Standing Committee on Infrastructure, Transport and Cities
29/08/2017
Australian government's role in the development of cities

COENEN, Professor Lars, City of Melbourne Chair of Resilient Cities, The University of Melbourne

WELLS, Dr Julie, Vice-Principal, Policy and Projects, The University of Melbourne

WHITZMAN, Professor Carolyn, Urban Planning, Faculty of Architecture, Building and Planning, The University of Melbourne.

WINTER, Professor Stephan, Spatial Information Science, Department of Infrastructure Engineering, The University of Melbourne

[13:54]

CHAIR: I now welcome representatives of The University of Melbourne to give evidence today. Although the committee does not require you to give evidence under oath I should advise you that this hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. I now invite you to make an opening statement before we proceed to discussion. Do you each want to make an opening statement?

Dr Wells : With your permission I would like to make a very brief opening statement and introduce my colleagues and then they each have a particular issue that they would like to point out to the committee.

CHAIR: Very good.

Dr Wells : Thank you for inviting us. The university really welcomes the opportunity to contribute to this inquiry. We believe that the federal government has a critical role to play in ensuring urban sustainability into the future, along with state and local government, as our submission sets out. Hopefully, you have also taken from our submission our eagerness to partner with government in this project because we do see ourselves, as universities, as both contributors to and beneficiaries from sustainable cities. There are 1.25 billion students enrolled in Australian universities and over 120,000 staff.

Mr WALLACE: Say that again?

Dr Wells : There are 1.5 million students—I am sorry—enrolled in Australian universities. A billion would be exciting!

Mr WALLACE: I was going to say that I knew the Melbourne Uni was big!

Dr Wells : We have 50,000. So it is 1.25 million. The point is that they are a part of the life of our cities and so the vibrancy, the affordability and the quality of life in our cities is a big enabler of the success of higher education in Australia and a big contributor to those urban economies. It is particularly important to our international education industry, which is, as I am sure you know, Australia's third largest export industry and the biggest service industry, worth $22 billion annually to the economy. I think, increasingly, we are big contributors to the urban economy more generally. We have an estimated pipeline, for example at The University of Melbourne, stretching out over the next 10 years' worth more than $2 billion. Capital developments are increasingly taken in partnership with the state and with the city, for example through the partnership which The University of Melbourne and RMIT have recently struck with the City of Melbourne to develop what we are calling the Innovation District immediately north of the CBD. So you have RMIT to the south, Melbourne Uni to the north, the biomedical precinct to the west and through our work with the city and state on the Southbank Cultural Precinct where we have the Victorian College of the Arts; so increasingly campus development and urban development are part and parcel of the same process. We have to think about the contribution we are making to the future of cities.

We are increasingly thinking of the value of this work in terms of the economic and social contribution we can make to the city, the state and to the nation, as well as to the university's own strategy and objectives, but I think the most significant contribution we can make in the long-term is through the collaborative and cross-disciplinary research and education that we offer undertaken by world-leading academics such as my colleagues. I will briefly introduce them with your permission. To my left is Professor Carolyn Whitzman. Professor Whitzman is a professor in urban planning and a fellow of the Planning Institute of Australia. She wants to focus on the importance of affordable housing supply and sustainable transport connections to areas of jobs growth and policy mechanisms that would help to achieve that.

Professor Stephan Winter, as you have heard, is a professor of infrastructure engineering who coordinates the university's work through the Melbourne School of Engineering on the Smart Cities agenda, with regard in particular to engineering and information technology. He wants to speak briefly on the importance of transport mobility within cities and particularly links to regions.

Professor Lars Coenen, the inaugural City of Melbourne chair in Resilient Cities, will speak about policy innovations that makes cities into engines of growth and innovation, including the role of key infrastructure and planning and is able to expand on the smart specialisation approach which we have referred to in our submission. I will hand over briefly to Professor Whitzman.

Prof. Whitzman : Thank you for the opportunity to meet with you today. I am going to be focusing my comments on the first aspect of the term of reference, which is identifying how the trajectories of existing cities can be directed towards a more sustainable urban form that enhances urban liveability and quality of life.

The Australian Cities Smart Cities Plan released last year focuses on the increasing mismatch between the location of employment and services and the location of affordable housing as a major threat to liveability and sustainability. As the plan points out, there are three possible solutions that need to be supported by the federal government in combination. First, affordable housing near job opportunities and sustainable transport connections need to be increased. Second, jobs growth near to where people already live needs to be encouraged, and that is true for both regional Australia and rapidly growing outer suburbs of Australia's capital cities. Third, sustainable transport connectivity between affordable housing and job centres needs to be improved.

As we state in our submission, the current affordable housing crisis is untenable. The median household income in Melbourne, according to 2016 Census data, is $1,750 a week. Using the standard safe mortgage calculation of three times gross annual household income which is used by Demographia, the firm that supplies international housing affordability comparisons, that would mean an affordable home purchase price for a median income household in Melbourne would be $273,000. According to background research for a recent metropolitan strategy plan in Melbourne the only substantial clusters of housing for purchase at $415,000 or less—and that is the lowest quartile of housing price—are in areas well outside the urban growth boundary. Those include Koo Wee Rup, the capital of asparagus farming, which is deep in Gippsland, over 70 kilometres south-east of Melbourne, and Bacchus Marsh, which is the equivalent farming area to the west. You would need to earn well over median income to securely purchase a first home in those areas, which are not serviced by public transport or nearby non-agricultural employment.

Turning to renters, who are a growing proportion of the population, a little less than 15 per cent or 45,000 private market renter households in Greater Melbourne are earning less than 35 per cent of area median income. An additional one-third or 100,000 renter households in the private market are in between 35 and 80 per cent of area median income. Those 145,000 households are effectively locked out of the home ownership market.

In 2011 the Australian Housing and Urban Research Institute calculated a shortfall of 271,000 affordable and available homes for the lowest quintile of households across the country. In Victoria, Infrastructure Victoria estimates that 75,000 to 100,000 vulnerable low income households are not having their housing requirements met in Victoria.

The combined public and non-profit housing market share is now the lowest it has been for decades with 2.5 per cent of the housing stock in Victoria, which is the lowest in the country, and about 10,000 of those units are nearing obsolescence. These are the vulnerable households that are most at risk of homelessness.

Metropolitan Melbourne, which is 80 per cent of Victoria's population, is expected to double in population between 2010 and 2050 and the growth has been estimated as requiring 1.6 million additional housing units in 30 years, half of which would logically be affordable to those earning a median income and below.

Essentially Melbourne—and this is true of Sydney as well as other capital cities—needs a sustainable stream of about 60,000 units per year of an asset class that does not presently exist in Australia, which is low-income market rental housing, as well as about 6,000 units per year of public and non-profit social housing.

The Smart City Plan recommends an adequate supply of affordable housing in well located areas, as well as encouraging coordinated delivery of housing, transport infrastructure and jobs and, as it points out, the key role of the federal government is in the area of taxation and finance.

So, first, affordable housing needs more investment now. The role of the Commonwealth government, as a direct investor as well as a bond guarantor and investment partner with other levels of government, the private sector and non-profits, is key. When the nation-building economic stimulus plan was in full swing in 2010 social housing represented over 12 per cent of total housing starts as opposed to less than two per cent in 2014. Providing housing first for very low-income households represents a sustainable investment with, as recently calculated by research in our university, a 2.7 to 1 cost benefit ratio, and the Commonwealth government needs to set social and low-income build-to-rent markets and then invest accordingly.

Our second recommendation is that the federal government needs to shift taxation relief mechanisms such as negative gearing from individual household investors to help create that asset class of build-to-rent affordable housing at specified income targets. One fairly simple way to improve financing for affordable rental housing is to classify social housing as essential infrastructure, as Infrastructure Victoria does but Infrastructure Australia does not. At the moment superannuation funds are investing over $1 billion in US low income housing, not Australian housing, simply because the tax structures are not there to support adequate returns on investment.

The third and last point is that investment in sustainable transport needs to be coupled with value-capture mechanisms that take back some of the increases in land costs caused by improved connectivity and plough it back into affordable housing near those assets. While it is state rather than Commonwealth government that makes those strategic planning decisions, the Commonwealth government needs to encourage that state governments develop affordable housing targets at specified household income points at both the immediate precinct level as well as the local government level overall. Thank you again for the opportunity to speak today and I am happy to supply supplementary data on our recent calculations of affordable housing targets at various price points.

CHAIR: Thank you.

Prof. Winter : Thank you for the opportunity to speak with you today. I will concentrate, in my comments, on smart cities and in particular in terms of mobility in smart cities. Our recommendations are in the submission and I will concentrate on two suggestions. We are all aware of the challenges of current cities with mobility and access, all the challenges of regional cities and towns with connectedness. This will only be reinforced in the future by population growth, mentioned already, and the consequences of the current laissez-faire urban development. There is also a need for action from the federal government, but there are also opportunities for long impacting change, some of them, should I say, historic opportunities.

Overall core investments of the federal government should be forward looking, anticipating change and disruption in urban and regional mobility. Infrastructure commitments can shape urban form. We know that and they do impact on liveability and sustainability. For Australian cities much of the public transport infrastructure has been designed and built more than 100 years ago and by then for very different cities. As a result, modern Melbourne, for example, suffers from a star shaped train and tram network that forms a bottleneck in the centre and does not serve the outskirts with sufficient density or interconnectedness.

For the second-most liveable city in the world, Vienna, the Austrian government invests in subways into greenfields before the development and Vienna has public transport fares at group level, so 40 per cent of Melbourne. This example shows the short-sightedness of public/private partnerships as an investment instrument into transport infrastructure, which is serving commercial interests, not the public interests, and thus reinforces the observed increasing inequality in mobility and access.

Instead the federal government should embrace the opportunities in the expected disruptions of mobility. For one, core investments to the extension of public mass transport are required. Additionally, however, mass transport should be seen as a backbone of a differentiated but highly integrated and innovative mobility infrastructure formed by the sharing economy and by autonomist and connected driving in the future. This requires core investments into communication infrastructure and an intelligent transportation framework that integrates services—private and public, shared, autonomous and collaborative—and all of this in a single platform and payment system with, in other words, mobility as a service. Finally, it requires speeding up the regulatory framework for connected autonomously driven vehicles.

Between cities and regional centres how inspirational would a train connection be that provides regional centres with a 30-minute access to the city? Currently it is two hours. This point is touching on a question that you asked to the prior candidate. The government's Smart Cities Plan says a 30-minute city is one where no matter where you live you can easily access the places you need to visit on a daily basis. Now, cities and the hinterland are not homogenous. They form central places serving a hierarchy of needs but if people do not feel cut off by moving to regional centres, if they have easy access, 30-minute access to the services of the metropolis, regional cities will attract minds and jobs.

In both cases I refer to an investment with a long-term return on investment that is not covered by a business case. It is nation building but the inspiration would transpire to innovation and then, with innovation, being the first in the world is critically important. We all do not know how to do it; however, others are speaking about partnership approaches that gets us there faster, about living life approaches for experimentation and co-creation. One example is the world first connector transport living lab formed at The University of Melbourne. Thank you.

Prof. Coenen : Thank you for giving me the opportunity to speak here. As Dr Wells mentioned, The University of Melbourne is very keen in having a partnership with the City of Melbourne, and I probably embody that. My chair is co-funded by the City of Melbourne around the theme of Resilient Cities and I have been in this role now since January 2017. In my opening statement I will focus on the first theme—sustainability transitions in existing cities—and focus particularly on the regulations and barriers that exist that the Commonwealth could influence.

As also stated in the Smart Cities Plan, cities present great opportunities for innovation and productivity as they attract, retain and develop increasingly mobile talent and organisations through the formation of knowledge based industry clusters and hubs of excellence. Australian cities thus, both the metropolitan city regions like Melbourne and Sydney but also the regional cities and towns, offer the agglomeration economies on which Australia will rely in its transition to a knowledge based economy in a globalised world.

A variety of different types of evidence support the underlying assumption that cities are the site for innovation as the urban environment is more knowledge intensive, it is more diverse and more specialised than non-urban areas. There tend to be more patents per capita in cities. World-first new products tend to be introduced in cities and new industries tend to emerge first in cities. So while it is encouraging that the government's Smart City Plan sets out the future for innovation and creates jobs and growth, it remains rather silent as to how to achieve these objectives. Moreover it runs the risk of adopting a partial view on innovation, limited only to information and communication technologies and the digital economy. Somehow, paradoxically, this partial and narrow view runs counter to one of the core elements of the urban innovation environment, its diversity that also includes social innovations and practice based innovations.

So, learning from the limitations of a one-size-fits-all blueprint for urban innovation and acknowledging the diversity by which innovation processes are leveraged and delivered current approaches in Europe—15 years my home base—under the paradigm of smart specialisation, emphasising points of place based innovation and policies in cities and regions. To harness their innovative and creative potentials cities should build upon existing capabilities, resources and assets and their specific economic, social and environmental challenges in order to identify unique opportunities for innovation and growth. To facilitate the identification of future-facing pathways for investment and development, smart city specialisation suggests inclusive participatory stakeholder governance arrangements, including business, universities, research organisations as well as community representatives.

The establishment of urban innovation districts that Dr Wells was referring to earlier, as is here pioneered in Melbourne, but equally experimental urban renewal programs such as Resilient Melbourne, provide a critical test case for setting up such place-based innovation strategies in cities. They develop sites where stakeholders come together in order to design, test and learn from social and technical innovation in real time, also referred to as living labs. When based on effective and fit-for-purpose institutional design they offer an opportunity to generate innovations that combine economic opportunity but also meet social needs and environmental challenges in future cities related to, for example, urban transport and affordable housing.

Unfortunately, cities are hardly mentioned in the Australian government's science and innovation agenda that falls under the remit of the Commonwealth. For such an extremely urbanised country as Australia this is a real, missed opportunity. There is thus a need for a more coordinated and integrated whole-of-government approach to innovation where a more prominent role of local government is long overdue.

Finally, and to conclude, to inform such a whole-of-government approach there is an urgent need for better, more realistic data about innovation and cities. Currently the default measurement of innovation in Australia is through patterns. There is, however, a global academic consensus that this indicator is partial at best and misleading as the worst. The Australian government could easily expand and supplement the current measurement of innovation in cities by smarter and more comprehensive indicators. Thank you for the opportunity to speak today and I am also happy to answer any questions.

CHAIR: Thank you. I think the time we have is nowhere near enough to explore even part of what each of you had to say but thank you for those opening comments.

Ms BIRD: I have one question for each if that is all right.

CHAIR: Absolutely.

Ms BIRD: You touched on an issue that has consistently come up for us with housing in that there is the segment of housing that is public or social housing, under supplied, under pressure and all of those things, but still gets focus. There are programs and policies around that. You have the completely marketised end that no-one needs to worry about, where high-cost, beautiful, cutting-edge housing stock is built and people who can afford it buy it. I have a real concern about cities in that space with maybe lowish- to average-income people, which is probably the vast bulk of the workforce. We automatically think of the key worker issue but I also think of the fact that the huge numbers of people sitting in a major finance office in the middle of the CBD are probably doing some form of clerical-level paid work. There does not seem to be any policy or programs for housing around that. It strikes me that there is no incentivising to deliver in that space and that sometimes what we are told is going to be an answer, which is an increased densification, simply because of demand ends up just as expensive as the top end and still those people on those average incomes cannot afford to get into what is a smaller, more dense development because it is still just as expensive. Have you seen anything that is a good policy lever or program, nationally or internationally, that focuses on that part of the market, the cities?

Prof. Whitzman : There is the sort of build-to-rent program that I was discussing in my remarks. There is an article in The Conversation today, the online journal that is written by my colleague, Matt Palm, sitting over there, and this is something that has been exercising us a great deal as researchers. As you say, not that public and social housing is getting anywhere close to the investment that it needs nor is it something that the market can provide without some form of subsidy, direct or indirect, but, yes, there is a big chunk of the population—

Ms BIRD: Build-to-rent is government builds to rent at an affordable—

Prof. Whitzman : Not necessarily. Usually, in the US for instance, it is built by the private sector with a tax incentivisation scheme such as the low-income housing tax credit. NRAS was a little bit of an experiment in that direction but this would be a new type of program. It does not necessarily cost any more money if some of the current subsidisation of home ownership that is going on through negative gearing or capital gains tax exemptions is put into it.

Ms BIRD: But it is a presumption of the long-term rental lifestyle for people on that income in cities?

Prof. Whitzman : Yes, because you can have a happy and healthy life as a renter. At the moment the notion is that a paid-off mortgage will provide secure retirement income. With an ageing population that is not necessarily true. The money that you get from selling your house and moving into retirement type accommodation is not necessarily going to support you towards the end of life and there are other ways to invest your money that might have more stable, long-term returns.

Ms BIRD: Providing you have money left over after you rent to put into those other savings.

Prof. Whitzman : Absolutely. We have to decouple housing as a place where people live from housing as an investment and then look at the close to 40 per cent of Australian households right now that rent.

Ms BIRD: A big cultural shift.

Prof. Whitzman : Absolutely it takes a big cultural shift but it is a cultural shift that is happening in other countries.

Ms BIRD: The culture in London of government partnering purchase for first homebuyers as a model as well. Have you seen that?

Prof. Whitzman : It is a limited equity type arrangement where the government would put in part of the equity and then when you sell your house you get limited return afterwards.

Ms BIRD: An agreed figure.

Prof. Whitzman : That is another possible model. I think some of the meta-research that has happened would indicate that it is a better bang in the buck to put the money in large-scale rental accommodation. It also would serve other forms of innovation. For instance, the University of Melbourne hosts a prefabricated housing government funded project and you really start seeing the benefits in prefab housing when you are at the point, as Sweden is, where about 40 per cent of the housing is prefab. We need more housing. We need more housing now. We need more centrally located housing. It is a good fit with the prefab housing agenda.

Ms BIRD: It seems to me that if you are looking in the CBDs and so forth that the build-to-rent type thing would be attractive and then as you get to towards outer suburbs a more co-equity purchasing because just with the way lifestyles develop I think it is going to be very hard to shift people from their lifestyle decisions, although I take your point.

Prof. Whitzman : It is and it is not. I think that planners have been blindsided or surprised by the extent to which families are willing to live in apartments. My previous research was on children growing up in apartments. When I got here in 2003 it was considered very strange, indeed, although that is the way I grew up.

Ms BIRD: It is shifting.

Prof. Whitzman : It is shifting. It is not as though the consumer demand is a constant in Australia. It is shifting here as it is anywhere else.

Ms BIRD: Thank you. The issue you raised about data being built into infrastructure has been raised with us on a number of occasions. I cannot remember which of you raised the point about living hubs.

Prof. Winter : I did.

Ms BIRD: I was interested in that because Wollongong has just become a digital living lab with the deployment of an internet of things across the city. I will be very interested to see how that can inform policy for the city. Professor Winter, the point that you raise around understanding how our infrastructure is working is significantly important for how we plan into the future. How well do you think we are doing it at this point in time and how well are we understanding, given the rapid pace of change, how we can get ahead of that? I am thinking specifically of an issue that was raised with me. We have an issue with Wollongong to Sydney roads and train lines under huge pressure and it was pointed out to me that if we beefed up communications a lot of those people who are working in back offices in the city—clerk grade 7 or 8 with the Public Service doing policy writing or whatever—you could probably pull a third of the people off the transport system if you had decent connectivity. That was about 10 years ago and to some extent that is already playing out. I am interested in what you were saying, from our perspective, in terms of recommendations. Is there somewhere you could say to us, as a federal government, 'You need to get into this space on either data collection or policy development urgently'? Where would you point us to with what you are looking at?

Prof. Winter : What it needs is connectivity, that is a communications infrastructure, along the roads for all modes of transport.

Ms BIRD: It was raised with us that one of the problems we have is the silo issue. I have experienced it where transport sits on one and communication sits on the other, saying, 'You're building the road. Why aren't you building communications into it?', or whatever.

Prof. Winter : There are issues for governance.

Ms BIRD: Yes.

Prof. Winter : I am not shying away from that but, of course, you put the thing on the pressure point. The important thing about data collection is not collecting the data but integrating the data and making the data accessible. We want to use it. That needs partnerships—there is no way around it—between data communication companies, road authorities, local governments and also between all the people who are moving in that space and want better services. They have to be willing to share some of the data about themselves.

Ms BIRD: So government intervening in a place that creates some open data sharing?

Prof. Winter : There is a technical aspect to it, yes, data collection and data sharing. There is a regulatory aspect to that as well that is currently also missing, which makes it more tricky.

Ms BIRD: Are you talking in terms of standards or privacy regulation? What is the problem there?

Prof. Winter : There are very generic privacy regulations. How they apply to the sorts of data that we are collecting in traffic and what should be shared and could be shared about movements of people without violating their privacy is an interesting issue. It is an issue for research. There is currently no clear answer out there in research. It is clear from tracking people over only short periods, a fortnight, they can be identified in a dataset for the places where they live and where they work. It is relatively easy to be intrusive into privacy from that data.

Ms BIRD: Thank you. Just finally, Professor Coenen, one of the things that has some real interest for us is a lot of the things that you were talking about in terms of developing major cities and regional cities is capacity. Some of the projects that you are talking about quite often are driven in a city, and I know in my own area the fact that we established a smart infrastructure facility at Wollongong University has driven so much of what I have seen as innovation in the city. It is not any great expertise, with all due respect to my wonderful local council. Cities, particularly the major cities, can miss out because of capability on some of those opportunities and I worry that we will see a growing divide between our cities in terms of those that are innovative, agile, growing, sustainable and liveable and those that become really under the pump. I am wondering if you have a bit of advice for us, in a policy sense, about capability for our cities. We do not want to leave it to the dog-eat-dog world of the free market completely.

Prof. Coenen : Thank you for raising that point. The approach that I was referring to in my opening speech, around smart specialisation, is exactly about capability building among not just government but among all stakeholders that are involved in urban development and urban innovation. It strikes me, having been a bit of a newcomer to Australia, that there is a distinction that is made here between the urban and the regional, whereas in Europe, within the EU, the urban cities and regions are sort of treated as not the same but within the same sort of idea of policymaking, of subnational policymaking with feet on the ground and intelligence on what is happening.

I think there is a missed opportunity, again, that a lot of policymakers and stakeholders in general could learn a lot if we tried to dismiss a bit of that distinction between the urban and the regional and rather see how regional cities and metropolitan cities are actually interconnected and deal with similar issues. There is a need for cities in the different context of Australia to learn from each other around solutions in relation to affordable housing or in relation to transport. There is definitely a role for the Commonwealth to facilitate that capability building around learning across context across cities.

Ms BIRD: Thank you.

Mr WALLACE: I am not sure who I will direct my question to so you can decide amongst yourselves who is best to answer it. It is more of a policy question. One of the witnesses that gave evidence this morning was talking about a lack of federal government intervention or a lack of federal government involvement in housing, infrastructure and cities and pulling them all together. His main concern was that there is no housing minister. What was the figure he said? How many trillion?

CHAIR: Six trillion.

Mr WALLACE: The value of housing in Australia is $6 trillion and yet there is no housing minister or department working together—this was his view, and I am not saying it is necessarily correct—with infrastructure and transport. Would you like to proffer a view on that?

Prof. Whitzman : That was probably Professor Dodson from RMIT. One of the lovely things about Melbourne is that the four leading urban research institutions work together pretty closely. In Vancouver, to give one example, the creation of the Vancouver Affordable Housing Agency made coordination in that city of 600,000 people so much easier, so if you have a country of 22 million and rapidly growing it makes sense to have a designated affordable housing agency. I work a little bit more closely with the state government than I do with the Commonwealth government at the moment, but there are 14 different departments and agencies at the state government level that have skin in the game of affordable housing, and just trying to get them together and talk about affordable housing in a coherent way is sometimes a bit of a challenge. It makes sense, from a governance perspective, to have a minister for housing to bring together the various arms of housing which have to do with not just social housing, which would be considered a social service, but also looking into housing as a major ground for innovation and for activities. As we know, it is a huge employer in terms of construction jobs.

CHAIR: It was a concern in a previous inquiry we had on home ownership affordability that there has been a terrific spike in housing prices in the major markets in Sydney and Melbourne largely driven by investors. So, is this figure of $6 trillion a real value?

Prof. Whitzman : You are starting to sound like Karl Marx.

Mr WALLACE: I am going to repeat that in the party room on Tuesday morning.

Prof. Whitzman : Marx spoke about use value versus exchange value and you are absolutely right that that $6 trillion figure is exchange value; it is not use value. So we have internationally mobile capital and a large number of people—and it is fantastic—who want to invest in Australian goods because it is a stable place to invest in Australian goods. That is awesome but the problem is that when so much of it goes into housing units it takes already very high land and housing values and shoots them out of the grasp of ordinary Australians. Then the question becomes: how do you keep strong investment in Australia while not making it the highest bidder for every single unit? One of the ways that you can do that is by moving investment through taxation and financing mechanisms towards collective buildings as opposed to individual units through a kind of renter built program. The other thing, which given the terms of reference I say very cautiously, is that there needs to be a greater regulation of the housing market because the housing market clearly is not working very well.

Mr WALLACE: Is that one of the perennial problems that we are dealing with: dealing with making housing more affordable but then not reducing the asset value of housing that people already own?

Prof. Whitzman : Yes. Everyone is afraid of a crash in home ownership prices. It would be a unique situation if there were constant rises without any dips, but at the moment house price rises have been so rapid.

Mr WALLACE: I would point out only in Melbourne and Sydney.

CHAIR: But I would like to point out, for my State-of-Origin person here from Queensland, that while it is only 40 per cent of the market of the total number of housing, if you gave a dollar value to it, because housing in Melbourne and Sydney is worth two and three times elsewhere, it might be 70 or 80 per cent of the market, so it is a significant part of the market.

Mr WALLACE: This is my point, with great respect, that we hear a lot about the outrageous costs that are being charged in Melbourne and Sydney for housing. In fact, we all—academics included, with great respect—talk about the massive spike in Australian house prices but it is really only in Melbourne and Sydney and nowhere else. Brisbane, for example, where I live on the Sunshine Coast, is only just starting to lift out of the depths of depression as far as real estate prices go. Houses have remained the same price for 10 to 12 years. In parts of Central Queensland they have gone down considerably and are still not what they were 12 years ago. I am just imploring you to remember that there is more to Australia than just Melbourne and Sydney.

Prof. Whitzman : Absolutely. Housing is not a unitary market and in a way who cares what happens to houses that are worth $6 million or $12 million or whatever; the real concern is whether people can afford where they live at lower price points. That is really the challenge for the federal government.

CHAIR: Just moving to the infrastructure and the trains invested to go to greenfield sites outside of Vienna, what was the size of the community that was going to be developed around those train stations? Do you have a ballpark figure?

Prof. Winter : I am not quite sure. I say that with all caution. It is in the ballpark of 10,000 to 15,000 people.

CHAIR: Is there any effort in that the lands, whatever they were previously used for, when used for housing that there would be a very large uplift in the value of those lands? Is that correct?

Prof. Winter : Yes. That comes through the connection to public transport.

CHAIR: Is there any attempt to capture the value of that uplift to partially fund the cost of the rail?

Prof. Winter : I cannot answer that question.

CHAIR: We had evidence at a previous hearing from the representative of Hitachi who said that because of the differential of prices in Sydney, Melbourne and the corridor between Sydney and Melbourne, there was the opportunity of such incredible uplift of value of lands and that with an appropriate value capture system it was the number one place on the planet that could totally fund high-speed rail through value capture. I am sure you understand that. Would you agree that that is a reasonable prospect?

Prof. Winter : Yes. You are bringing up the extreme examples.

CHAIR: Karl Marx was an extremist, was he not?

Prof. Whitzman : Yes.

Prof. Winter : My prior experience is also from Europe—

CHAIR: I am not going to live this down. Are you from Canada?

Prof. Whitzman : Yes, I am.

Prof. Winter : I am more familiar with the German system of land development, in particular. Legislation in Germany is that way that when a piece of land is developed that is split and the parts are sold, the value increase that happens through the planning process is taken back by the state in form of land. So, the public land that is created is taken out of the pool and what everybody gets out of the distribution, the prior owners get out of the distribution, is less in square metres but higher in value. That is a very simple mechanism that has applied for decades.

CHAIR: Could you provide that to us?

Ms BIRD: That sounds a bit like what we saw yesterday when the council was saying that they got the community centre and library out of the development. Was that at Docklands?

Mr WALLACE: Docklands, yes.

Prof. Whitzman : We can send some information. I was just checking with my team economist behind me about value capture mechanisms that are used in other jurisdictions. Generally you would take about 10 to 20 per cent of the additional value capture which you can calculate with transport infrastructure improvement.

CHAIR: We had testimony last week from Tim Williams, who had been involved in the cross-city London rail and the value capture. He said it is often held up as the poster child for value capture. He said that they had rightly messed up in that they had not taken any uplift of the capital value of land and they could have done much better. Then he cited the plight of Castle Hill in Sydney, where so many households sold their private homes for many multiples of 10, 20 and 30 times the value of their houses with no value capture being applied and that this should never happen again.

What we are looking at is whether it is the retrofitting of infrastructure in our cities and the zoning around it to create densification which creates uplift or a decentralisation where there is taxpayer money invested in infrastructure to liberate regional areas and to bring them into commuter distances into CBDs, that on both occasions our taxpayer moneys are providing the uplift so, therefore, it should only be fair for those who receive the unearned benefit that they should contribute back and, therefore, as we are making unprecedented investment in infrastructure should we not be capitalising on that investment through an overarching value capture mechanism to stop this value escape that we are suffering? To my mind, the government is being negligent in not closing that off to the taxpayers who are funding the infrastructure, that we are not capitalising on it. Do you have some positive comment? If you have negative comments, keep them to yourself.

Prof. Whitzman : Victoria has a recent very good report on value capture mechanisms in Infrastructure Victoria. We will pass it on.

CHAIR: Thank you. We have run out of time, unfortunately. We could have spent many more hours but we will leave it there. Thank you for your attendance today and for your scholarship. Thank you for the promise of sending more information to us. If you have been asked to provide this information could you please forward it to the secretary by Tuesday, 12 September 2017. You will be sent a copy of the transcript of your evidence and will have the opportunity to request corrections to transcription errors, including the references to the chair.

Mr WALLACE: Can I ask before you go that if any of you have any research articles on the benefits between light rail versus heavy rail, could you provide them to me through the secretariat? That would be great. Thank you.