Crikey

Here’s a cool idea for Kevin Rudd, Wayne Swan and Tanya Plibersek (and the Opposition, for that matter). Arguably the biggest waste of public space that I am aware of are public golf courses. Let me apologise up front to any mad keen golfers out there — you are going to hate what I am about to say. The bottom line is that public golf courses consume huge tracts of incredibly valuable land in inner-urban areas that only benefit a tiny minority of the population. Given the likes of Sydney and Melbourne face the prospect of having to accommodate 7-8 million residents within four decades, why wouldn’t policy makers consider converting all of our public golf courses into at least public parkland for the benefit of all residents? And then retain the option to subsequently subdivide a portion of this newly created parkland — say 30-50% — into dwellings if and only if the requisite infrastructure is put in place.

Let’s take one very germane example: eastern Sydney. In view of its close proximity to the CBD, harbour, airport, beaches, and other significant labour markets, this region is characterised by extremely high housing demand. But it is awfully difficult to bring new supply online given that most greenfield and brownfield sites have already been utilised, combined with the fact that existing home owners hate higher densities (otherwise known as Nimbyism).

Off the top of my head, I can think of four large public golf courses smack bang in the middle of eastern Sydney that are only used by, I would venture, about 5% of residents: Eastlakes (see image below); Moore Park; Bondi and Woollahra. Two of these are 18-hole courses. If you converted all of this space into new residential lots, you could presumably accommodate tens of thousands of new homes. Now, to be clear, I am not proposing that. Currently, these vast swathes of beautiful grassland are used exclusively by golfers. Few non-golfing residents are willing to brave the risk of a fractured skull care of a rogue golf ball (obviously there are exceptions to this general risk-aversion). And so in eastern Sydney alone we have many billions of dollars of public amenity being lavished on the exceptional few.

Click to enlarge

Politically, the notion of transforming public golf courses into parkland should be exceedingly powerful: you disenfranchise a small percentage of the electorate while massively empowering the large majority of constituents. If there was a commitment to convert most of the land into open-access parks, with a limit on any new development that would be conditional on commensurate infrastructure investment, I would be surprised if this idea was not very well received.

Before adding any new supply, governments have to boost amenities. There is no point building hundreds or thousands of new homes if the roads and existing transport networks cannot support them, which is certainly the case in eastern Sydney. In many ways the debate around zoning and Nimbyism misses the mark: the key to minimising the “negative externalities” new supply imposes on existing residents is enhancing the quality of the public goods in the proximate region. If new supply is accompanied by a substantial increase in transport capacity, which could be partly or wholly funded by the sale of parts of the parkland for qualifying development, the adverse impacts on incumbent residents would be presumably mitigated.

This brings me to a related point. The 2008 Nobel laureate, Paul Krugman, has recently blogged about so-called “flatlands” and “Zone Zone”, or, more specifically, the relationship between relative zoning intensity and the cost of housing. This is nothing new. We’ve been writing about the critical dependencies between these two variables (i.e. house prices and land use restrictions) since 2003, and were the first to comprehensively document how the rise in the real cost of Australian housing over the past 30 years had been heavily influenced by the increase in the direct and indirect costs of bringing new supply online. Yet as I noted above, it is not as simple as simply relaxing zoning restrictions and speeding up approval processes — although these are vital components of the ultimate solution. Or, in Kevin Rudd’s words, it is not just about “letting the market rip”.

We first started introducing exclusionary zoning ordinances in the post-WWII period precisely because new supply can adversely affect existing owners (these are the so-called “negative externalities” I refer to above). To quote my 2003 report to the Prime Minster:

If the innate value of land does not explain the disjunction between house prices and production costs, what does? One obvious candidate is zoning. A quarter acre, valued using the hedonic method, is just an extra 10,890 square feet of land. However, a quarter acre that is zoned incorporates the legal right to have a house of a particular size and type. Since zoning, and the myriad other land use controls that one encounters at the municipal level, have made it difficult to erect new homes on vacant land or to subdivide existing plots, this right carries with it immense value. Interpreted another way, regulatory restrictions such as zoning have created a huge new tax that acts to stymie construction and push up the price of housing …

Exclusionary zoning became popular in the 1960s as a result of growth in the rate of home ownership and the widespread introduction of more efficient transportation technologies such as the bus, car, truck, and intra-urban highway systems. (The very first recorded use of the zoning ordinance is said to have occurred in Germany in 1870.) These events combined to raise the risk of disruptive, high-density development impacting on the value of a household’s most important asset holding — their own home. Breton (1970) was the first to posit that zoning might in fact serve as a surrogate for the absence of insurance contracts that insulate dwellers from fluctuations in the value of their housing equity. Regrettably, much of the later literature has not recognized this pioneering contribution (see also Fischel (2001)).

So governments need to strike a balance between the interests of incumbent owners, prospective entrants, and future generations of families. I have previously outlined a range of supply-side proposals that I think would afford a better alignment between the needs and wants of local government decision-makers and the community at large. One thing these ideas do not directly address, however, is the quality of public goods. Adequate infrastructure investment is an absolute condition precedent to both ‘enabling’ new supply on the outskirts of cities (ie, by providing some equivalence between the amenity value of the fresh supply and the existing stock in established urban areas), and to minimising the negative externalities wrought on residents in already built burbs.

If policy makers can begin to acknowledge that infrastructure investment is a sine qua non to enabling the production of new housing, public golf courses in turn provide the prospect of an untapped gold mine to the urban supply-side problem, which is one of the chief challenges of our time.

Christopher Joye writes an economics, finance and real estate blog for Business Spectator. His ‘after-hours’ blog can be found here.