Melbourne added one million residents in the last decade, followed by Sydney (806,000), Brisbane (449,000) and Perth (415,000). Housing that many people was a major challenge for each of these cities.
The speed of the urban development, driven by strong migration figures, over the past 10 years determined where and what type of housing was built. As the demand for housing soared, housing affordability became an issue of national importance. Melbourne and Sydney had to rapidly add to their housing stock.
This led to a boom in the construction industry. Over the last decade, Australia added 220,000 workers to the construction industry. That’s 22,000 new, mostly middle-class jobs every year. Today the construction industry employs 1.2 million Aussies, or 10 per cent of the total workforce.
Let’s take a closer look at the sector. Data from the Australian Bureau of Statistics shows that the number of Australian construction businesses grew by 62,000 to 371,000 from 2007 to 2017.
Over the past decade the industry transformed. The number of big players (over 200 staff) fell from 306 to 188. Part of this might be due to reclassification of businesses, but mostly this suggests that in the current market a few big players dominate the game. While the number of big players declined, there was an increase of 14 per cent in self-employed construction workers (tradies of all sorts) and even stronger growth in small construction businesses (under 20 staff members) at 34 per cent.
The small firms and individual self-employed tradesmen work on building sites of all shapes and sizes as subcontractors for big and small developers.
It is the big projects developed by the largest of large firms that really changed the form of our cities for generations to come.
The big developers don’t waste time and capital on small projects; they need big projects to deliver efficiency. They think big. Also, this was during a period of elevated demand so there was ample scope for players to take on big projects.
When time is of the essence there are two types of housing that allow big developers to achieve success. Firstly, they built large residential towers near the job centres in the inner city. Secondly, they developed large greenfield projects near the urban fringe.
The result is that population growth in the city centre and on the urban fringe is, and has been for a decade, the most intense. In absolute terms the number of people moving into the city centre is relatively low compared with those moving to greenfield sites on the fringe. In the case of Melbourne, the population within a 5km radius of the CBD grew by 127,000 over the past 10 years (that’s a whopping 50 per cent growth) while the population on the fringe (more than 25km form the CBD) grew by 353,000. And because the best-paid jobs still can be found in the city centre, the new fringe residents commute further, thereby exacerbating traffic congestion.
Had the additional one million residents of Melbourne been distributed somewhat evenly throughout the existing urban canvas traffic would have been easier to manage. Increasing housing density in established suburbs, however, is a very difficult task. Many suburbs fight tooth and nail to avoid new developments. Meanwhile, the densification of suburbia isn’t a game the big developers can play. Projects are slow, involve a complex series of subcontractors and are usually delivered by small developers (tear down a house on a quarter-acre block and squeeze in two town houses) or medium developers (establish a four-storey apartment block near a main road or train station).
We wouldn’t have come close to housing an additional million people in Melbourne over the past decade if we had relied on putting more people into established suburbs. We needed the large-scale developments on the fringe and in the centre.
But there is a big problem with these big developments. In pressured housing markets like Sydney and Melbourne, supply drives demand. In slower housing markets such as in regional Australia, the demand for a specific type of housing with certain features drives supply. The bottom line is that more or less any house on offer in Melbourne and Sydney will find a buyer, whereas in regional towns it can be quite hard to sell a sub-standard house.
What’s the life expectancy of an average house? The average European house (masonry and wood) lasts for about 120 years, according to the Getty Center. High-quality buildings that are regularly renovated last for centuries — in central Paris you’ll struggle to find anything newer than 150 years old. Building up a dense housing stock of medium height (four-stories) and of the highest quality is a tried and proven European way to create wealth within a city over centuries. Walk through any sizeable European city that wasn’t bombed during World War II and see how effective this method of storing wealth really is.
How many of the houses that we have been building in Melton, Point Cook, Penrith and Campbelltown, for example, will last the next 50 years, without significant renovations? Will any still be there in 100 years? Our residential skyscrapers won’t be around forever either. I’ve been told modernist skyscrapers have a life expectancy of about 60 years before they need an overhaul.
Good maintenance can prolong the lifespan of our buildings, but I cannot not see how the current housing stock can collectively function as a storage of wealth for future generations.
I’m not finger pointing. We didn’t have any other choice but to quickly provide cheapish housing; it’s too hard to do anything else when you must provide housing for so many people so quickly.
The current state of our housing landscape, especially in Melbourne and Sydney, suggests to me a certain type of future for the construction industry.
We will need to spend a lot of money to maintain and upgrade our individual houses over the coming decades. Hundreds of thousands of homes will either need a complete overhaul or will be torn down to be replaced with new (likely denser) options.
If we stick to our current urban growth boundaries, there will be less space available for big developers to pull off large-scale projects. This will mean quite a few of the big developers are likely to go out of business if they don’t change their service offerings.
An ever-growing share of new housing will be in-fill development in the middle suburbs. Such jobs have traditionally been dominated by small construction businesses. I see a bright future for the small players in the industry who deliver good work. There will be ample appetite in the market for small and even medium-sized projects. A smart big developer will eventually come up with a way to enter this market. This is going to be the future of residential development and redevelopment.
Meanwhile, the commercial market will continue to be dominated by the big guns.
This article was originally published in The Australian newspaper on 21 June 2018.