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Deconstructing Adelaide's construction lobby

By Malcolm King - posted Friday, 12 December 2014


One of the most persistent myths in South Australia is the facile old economy belief that Adelaide needs more buildings. It needs another office block in the CBD like a chocolate teapot needs hot water.

South Australia's economy is in dire structural trouble. We have a serious brain drain and shrinking private investment, flat real wages and retail spending, low investment in hard capital and a high attrition of executive public sector and NGO staff. Unemployment and under employment is trending up, kindling a catastrophe in the northern suburbs.

Over the last few years I have publicly criticized the no-growth 'nay-sayers' in South Australia but now it's time to examine the other side - the rent seekers and 'yea-sayers' behind SA's property and construction industry.

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Rent-seeking is the act by lobbyists to gain and redistribute government monies to their clients without creating new wealth.This includes the SA Property Council, the HIA and the REISA – to name just a few – who consistently harangue one of the worst state governments in recent memory, to release more land for development.

A key element of the property development propaganda campaign includes the standard fear tactic, ie, if the state doesn't keep driving urban sprawl and building new glass towers in the CBD, then we can kiss SA's economy goodbye. This 'all or nothing' thinking is childish. What the state really needs is jobs and they won't be in the construction industry. Their use of dodgy, self-generated and self-serving surveys is laughable.

The other dubious tactic is one they stole from former Premier John Bannon. If you're against 'building stuff', you're anti-development, a traitor, a heretic. That's got a touch of 'Mississippi Burning' about it. You ain't from around here, are you boy?

The SA Property Council recently appointed former Liberal Party spin-doctor Daniel Gannon as its new executive director. He escaped the career wilderness of being the Opposition leader's media adviser. One of his predecessors, Nathan Paine, a mover and shaker in property lobby circles, began his career with former SA Planning Minister Paul Holloway.

Paine recently established a new advisory business, Property & Consulting Australia, with Matt Clemow, a former chief of staff to ex-Infrastructure Minister Pat Conlon. They represent a group called State Forward Consortium, which has no public record of its membership nor its aims.

Paine and Clemow also work together at MacroPlan Dimasi, a property/project management business.Clemow is also the General Manager of the Committee for Adelaide, tasked with trying to regenerate the local economy. The Committee's blog has been dead for six months.

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The SA construction industry is propped up by a range of state and Federal Government funded projects. These include(d) the South Road Upgrade program, the government-underwritten New Royal Adelaide Hospital, the $200 million South Australian Health and Medical Research Institute (SAHMRI) and the $1 billion Tonsley Park redevelopment.

While the property industry pays more than $1 billion in state taxes, this is simply returning monies to the public purse. If you think this is capitalism in action, you're wrong. This is trade protectionism. What will happen to the local workforce? It will go to where the work is. If there's a major contract, the work must be tendered nationally. As a lobby group, its core function should be working overtime to ensure private investment in the state – something SA desperately needs.

Adelaide's preoccupation with CBD development stems from failing to ask the most basic question – do we need it? The city is chock full of empty office space (12.4 per cent vacant in August 2014. Now 13.8 per cent and rising). Some parts of the city look like the Ebola virus has hit.

According to the ABS, (5220.0 - Australian National Accounts: State Accounts, 2013-14), SA's construction industry contributed zero in Gross Value Add to the economy. Agriculture, forestry and fishing are doing the job. In Crowland, it's as if Alfred Deakin was still Prime Minister, so little has the economy diversified; so unprepared is it for trading in a global economy.

Apart from the structural and cyclical economic problems, retailers in Adelaide's suburbs have been hit with extraordinarily high rents by landlords. Research on Jetty Road, Glenelg, King William Road, Unley and Semaphore Road, Semaphore, shows that some landlords are charging more than $3000 per week in rent. This is greed, pure and simple.

Planning Minister Rau wants to double the CBD's population within 15 years from 25,000 to 50,000. He'll be lucky to hold on to the 25,000 who currently live there. This is Economics 101 but having a job is the precursor to building a house or buying an apartment. It's not the other way around. Pleading for more migrants won't help the job market unless they plan to establish businesses in SA, although skilled migrants can help.

Former builder and SA Family First Senator Bob Day hit the nail on the head when he said (AFR 1 August 2014) sections of the propertyindustry were "carpet-bagging, rent-seekingbootleggers" who use political donations to wield influence to restrict land supply and drive up prices of high and medium-density apartments."

While I part company with Day on his call to increase urban sprawl (watch those infrastructure costs climb), he makes the crucial point that younger generations may be forced to retire without the financial security of owning a home due, in part, to rapacious profiteering by developers.

There's a flip side to this that causes nightmares for those knee deep in a mortgage. Were house prices to fall – and this is a distinct possibility in some areas of Adelaide - highly indebted householders would be at risk of having negative equity in their properties. House prices can't keep rising faster than incomes and population growth. Both were strong a few years back. Now only immigration is strong and there's every sign that'll wind back.

In tough and enduring economic times, it's important to remember that across the life cycle of a large commercial building (30 years), only 60 per cent of the cost lies in construction. The rest lies in ongoing costs including utilities, maintenance and service and system replacements.

While HQ offices may need to be large – although less so if HR can ever put up a solid legal case for select staff to work two days a week from home thereby reducing traffic congestion – in SA, the backbone of the economy is small business. For them, small and practical with low rents is the way to go. They should consider the extraordinary range of digital solutions instead of renting a brick box. That has to be part of the mix.

There are strategic benefits in building apartments for first home buyers in the city (remember the caveat – they'll need a job).Adelaide doesn't need more houses built 30 kilometres north and south of the CBD. In the next 20 years, the concentric rings of Boomer occupied housing in the City of Marion, the City of Charles Sturt and the City of Enfield and Port Adelaide will collapse, as many of them become single owner properties (usually female) or as the occupants move to aged care accommodation or die.

That means thousands of 'cheap' properties will come up for sale. All of them within 20 minutes drive from the CBD. Yet if you've bought a large property in the southern suburbs for $350,000, you won't sellit when you can get a two bedroom house in Marion for $400,000. The hollowing out of the Boomer occupied properties means a migration by predominantly young, first home buyers, back to the inner suburbs.

There are plans to build colossal estates in the north of Adelaide over the next ten years, with the state government spinning the numbers of up to 100,000 people. This is 'white man dreaming'. There's not enough water up that way to quench the thirst of 10,000 people in summer let alone ten times that number. As for jobs – forget it. They will come as the economy modernizes and diversifies – but don't hold your breath.

What passes for political debate on town planning and development in SA is dominated by a rent seeking lobby group arguing for reforms from which the chief beneficiaries are themselves. What I find astounding is how blatantly this is tolerated. It is as if the era of economic rationalism - with its belief that the economy is driven by self-interest - has sanctified selfishness and refused to co-operate for the common good.

As Jane Jacobs said in The Death and Life of Great American Cities, "There is no logic that can be superimposed on the city; people make it, and it is to them, not buildings, that we must fit our plans."

Yielding to pressure for a concession never satisfies, it just shows you're an easy touch and prompts developers to think of something else they want. Meanwhile, giving them a lolly just makes their rivals envious and prompts them to demand one too. That's not the future for South Australia.

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About the Author

Malcolm King is a journalist and professional writer. He was an associate director at DEEWR Labour Market Strategy in Canberra and the senior communications strategist at Carnegie Mellon University in Adelaide. He runs a writing business called Republic.

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