Speech to the 2017 Urban Development Summit
I am pleased to join you at the 2017 Urban Development Summit.
This is an important gathering of people and businesses involved in the urban development sector.
Yours is a sector which is critical to the future success of Australia’s cities – a topic of considerable priority for the Turnbull Government.
Announcing his Ministry in 2015, the Prime Minister had this to say:
Liveable, vibrant cities are absolutely critical to our prosperity. Historically the Federal Government has had a limited engagement with cities and yet that is where most Australians live, it is where the bulk of our economic growth can be found… We have to ensure for our prosperity, for our future, for our competitiveness, that every level of Government works together, constructively and creatively to ensure that our cities progress.[1]
Now one of the most important factors bearing upon the success of our cities is the transport infrastructure which serves those cities.
Today I want to speak to you firstly about the importance of an integrated approach between transport planning and urban development.
Next I want to touch on some of the global trends in achieving such integration. In the final part of my remarks I will discuss the Turnbull Government’s policy agenda in this area.
Integrated Transport Planning and Urban Development
Let me turn firstly then to the question of how better we can integrate transport planning and urban development – and why this matters.
To start with, one of the most effective ways to shape the layout of a city is by constructing transport arteries and nodes. When you do this, development follows.
Influential US cities theorist Edward Glaeser tells us that
Transport technologies have always determined the urban form.[2]
Look at the way Melbourne’s City Loop rail line, opened in 1981, stimulated residential construction in the Melbourne CBD – making it perhaps the leading example of dense mixed use urban development in Australia.[3]
Or in Sydney, look at the growth of warehouses, logistics facilities and other businesses along the route of the M7.
Railway lines built in the second half of the nineteenth century strongly influenced the development of suburbs and housing in all of our major cities.
In our major cities decisions concerning the road network taken in the fifties and sixties continue to influence the growth of the city today. Many of the projects successfully developed over the past ten to twenty years have been built on corridors protected in the mid-twentieth century.
Melbourne’s Eastern Freeway (known originally as the Scoresby Freeway) was constructed between the 2003 and 2008 – but its corridor was originally protected in the 1960s.
Sydney’s M2 Motorway was constructed in the 1990s – but it was planned under the 1951 County of Cumberland Plan, and its corridors were reserved in the 1950s and 1960s.
So there is clear evidence that transport planning is a major driver of urban development. But it is widely agreed that we do not yet give enough attention to integrating transport and urban planning.
Well known infrastructure economist Professor Henry Ergas observed in his submission to the recent Productivity Commission review into public infrastructure:
…land use and transport decisions remain poorly coordinated in virtually every state. They therefore end up imposing costs on each other – in some cases, inefficient land use decisions create pressures for otherwise avoidable transport investment, while in others, better transport investment would help ensure fuller and more efficient use of land.[4]
At a federal government level, we are interested in encouraging better coordination between land use and transport decisions. This is an issue highlighted by Infrastructure Australia.
Its 15 Year Australian Infrastructure Plan released last year contained the following recommendation:
Each state and territory governments should deliver and consistently update long-term land-use plans for all Australian cities. These plans should be integrated with corresponding infrastructure plans.[5]
Infrastructure Australia also pointed out that the need for such an approach is becoming more pressing as our big cities grow larger and become more dense.
The scale of population growth expected in Australia’s four biggest cities is considerably larger than the rest of the country. Sydney, Melbourne, Brisbane and Perth will need to transform the structure of their built environments to accommodate their projected population increases.[6]
Urban planning academics Ian Woodcock and Iain Lawrie made a similar observation, about Melbourne specifically, in a recent piece in ‘The Conversation’:
Victoria urgently needs a transport plan premised on integrated public transport and land-use planning. Only then might it work toward a liveable city for 8 million people.[7]
Already we are seeing a noticeable increase in the density of our housing stock in our biggest cities. Across Australia the proportion of townhouses and semi-detached dwellings rose from 10 to 13 per cent between 2011 and 2016. In Sydney, the overall supply of higher density housing grew by just over a third, in the five years between the Census in 2011 and 2016.[8]
This is not just about inner-city hipsters or empty nesters. There was a 60 per cent increase in the number of families with children living in higher density apartment blocks, of four or more stories.
There was a 43 per cent increase in the number of families living in semi-detached, terrace or townhouses.[9]
These trends have very significant implications for transport planning, as I will discuss a little later.
Global trends in integrating urban planning and transport planning
It is easy to state a desire to better integrate urban planning and transport planning. But how this ambitious objective is to be achieved raises complex questions.
Let me therefore discuss three international trends which offer some pointers. The first is the use of value capture; the next is transport oriented development; and the third is the trend to towards more inner urban living, often achieved through urban renewal of older light industrial areas close to the centre of the city.
Let me start with value capture. As Infrastructure Victoria recently noted, there is a clear connection between value capture and a better coordination of transport and urban planning.
Evaluation of value capture mechanisms for future projects and our research has led us to conclude that better integration and coordination of land use, transport and infrastructure planning results in increased opportunities for value capture.[10]
Around the world governments are facing the challenge of how best to fund major infrastructure projects, particularly as cities grow in population. Increasingly governments are looking to the increase in value which is typically experienced by property owners and businesses located along the route of the infrastructure.
Some examples are very well known and regularly cited. One is the massive London Crossrail project. Another is Hong Kong’s MTR, essentially an urban rail company which is also a property developer. The profit it generates from developments located around new rail stations cross-subsidises the capital cost of building the new rail line.
I recently had the chance to visit Crossrail, a project with new stations and around 118 kilometres of line, of which 42 kilometres is new, including a tunnel through central London.
Value Capture mechanisms will contribute around one third of the $28 billion cost of the project. They include a Business Rate Supplement (BRS) of 2% on commercial properties with a rateable value of more than £55,000 in the Greater London Area; development revenues; and funds from the resale of surplus land and property.
The rationale for these charges is that the properties and businesses located near the new rail line will obtain substantial economic benefit. Indeed at least one of the new stations (Woolwich) is being funded almost entirely by the private sector landowner.
Transport oriented development is also an increasing priority. This is the idea that an obvious place to build higher density residential and commercial projects is around, for example, the stations on a light rail or heavy rail line.
A good example is the Transbay Transit Center in San Francisco which I visited last year.
This $6 billion project brings together 11 local, regional and state-wide transit systems in a central hub. But it is much more than just a new terminal building for rail, light rail and bus. It is also the centrepiece of significant urban regeneration.
Many vacant lots are now building sites – indeed across several blocks the downtown area of San Francisco is being regenerated.
Now transport oriented development often involves a value capture element. Private developers are contributing to the cost of the new Transit Centre, in the knowledge that their building will be more valuable because the area where it is located is becoming more vibrant – and will have first class transport connections to virtually every part of the Bay Area.
This project is also an example of urban regeneration – and typically such projects involve a significant transport element as a means of attracting people to live and work in areas that previously were typically light industrial and not visited by anybody who did not have a specific reason to go there.
Last month I visited two more large urban regeneration projects in the US - Downtown Waterfront South in Portland, Oregon and Hudson Yards in New York City.
Waterfront South covers a large expanse of formerly industrial land along the Willamette River which runs through the centre of Portland - a city of over two million people.
It is now being regenerated into a vibrant mixed-use area including apartments, commercial buildings, shops and restaurants, and the campus of the Oregon Health Sciences University.
Hudson Yards is a former light industrial area on the lower west side of Manhattan, including a large train marshalling yard for the New York subway system. It is being redeveloped as a complex of large apartment buildings and commercial buildings, some located above a ‘roof’ built over the train yard.
Some of the lessons from these two projects are straightforward and directly transferable to the Australian context.
Land located close to existing urban areas is valuable - and with the right public policy framework, private developers will be eager to take up opportunities in urban regeneration areas.
An overall master planning approach is important to give confidence that the area will be attractive for people to live and work. In turn that is important in attracting private developers.
In both South Waterfront and Hudson Yards, the city government planned new streets and parks before releasing land for development.
Key to the success of both developments was extending public transport networks. Portland’s urban light rail network was extended to connect South Waterfront. The New York subway system was extended over two kilometres from Times Square to a new station in the centre of the Hudson Yards development, at a cost of USD 2.4 billion.
Both projects also involved a significant value capture element, including the use of tax increment financing. That particular approach is heavily dependent on particular features of the US tax and financing system, such as the way property tax is levied in that country.
But whatever the country and the particular tax and other mechanisms the underlying principle is clear: a co-ordinated approach to urban development in a particular zone can materially increase property values in that zone.
In turn, tapping into that increased property value is an effective way for government to fund necessary infrastructure improvements - including new public transport. These improvements make the properties in that zone more attractive places to live and work, and in turn tend to cause their value to increase.
Such an approach makes increasing sense in Australia as the populations of our cities grow, as older industrial areas close to cities fall out of use, and as Australians show a growing appetite for urban living.
Turnbull Government’s Policy Agenda
Let me turn then to the Turnbull Government’s policy agenda in this area.
I want to speak firstly about our work to stimulate the rollout of light and heavy rail in our cities; next our record levels of infrastructure spending, around Australia including here in Victoria; then our use of city deals as a policy framework; and lastly our work to integrate a value capture approach into transport infrastructure projects which are the recipients of substantial Commonwealth funding.
When it comes to rail, the Turnbull Government has a lot of work under way – including some significant elements announced in the 2017 budget.
To start with, we have a strong existing pipeline of investment around Australia. This includes $95 million for Gold Coast Light Rail Stage 2 in Queensland; $490 million for the Forrestfield Airport Link in Perth; $42.8 million for Flinders Link in Adelaide; $1.7 billion for Sydney Metro City and Southwest; $78.3 million for Parramatta Light Rail and $67.1 million for Capital Metro in Canberra.
In addition, we have work under way with state governments to develop urban rail plans for Australia’s five largest cities (including their surrounding regional areas.) We announced this in November 2016, in response to Infrastructure Australia’s 15 year Plan.
Our intention is for the plans to cover such matters as the standard of existing infrastructure; forecast network capacity constraints; and the integration of state government strategic urban land-use and transport plans.
Another part of our agenda is that we are funding significant planning and business case work on major urban rail projects at various stages of early development. There is a Joint Scoping Study with the NSW Government on the rail needs of Western Sydney and Western Sydney Airport.
In the recent Budget we committed $30 million for work to plan a rail link between the Melbourne CBD and Tullamarine Airport.
We allocated $20 million to support business case development on proposals for faster rail connections between our major capital cities and surrounding regional areas.
And we committed $26.8 million for planning work on new rail lines in Perth, as part of our $2.3 billion infrastructure package for Western Australia, agreed with the McGowan Government. Of course as well as planning money we have committed $700 million towards the substantive work on the Thornlie and Yanchep rail extensions in Perth.
Most significantly, the budget included a major commitment to long term investment in urban passenger rail: the Turnbull Government will invest $10 billion over a ten year period for the National Rail Program.
This Program will fund investments in major passenger rail projects in our big cities and investments to improve passenger rail connections between our big cities and their surrounding regional areas.
This focus on rail aligns with the trends I discussed earlier, of our biggest cities becoming larger and more densely populated. In densely populated areas, heavy rail has an advantage over other forms of transport because of its capacity to move large numbers of people quickly and reliably. A train line can move 50,000 people an hour. Compare this with a freeway lane which can move 2,500 people an hour.[11]
To implement our policy agenda, the Turnbull Government is spending a record $75 billion in infrastructure funding and financing from 2017-18 to 2026-27.[12] Here in Victoria the Prime Minister recently announced $1.42 billion towards a $1.6 billion package of rail works to better connect regional centres with Melbourne which will reduce congestion and create over 1,000 jobs. These upgrades will allow more frequent and reliable passengers to run on Victoria’s regional rail lines.
In November 2016, the Australian and Victorian Governments agreed to a $3 billion package of important upgrades to major metropolitan road corridors in Melbourne. The Australian Government’s contribution to the package includes:
$500 million to upgrade the Monash Freeway;
$350 million to upgrade the M80 Ring Road; and
$85 million for an Urban Congestion Package.
The next feature of our policy agenda is the use of City Deals as a policy framework to leverage federal government infrastructure investment. Through the City Deals concept, the Turnbull Government is seeking to bring together all levels of government, the private sector and the community in a coordinated fashion in select geographic areas.
City Deals have already been signed for Townsville and Launceston and Western Sydney Airport is at the centre of the Western Sydney City Deal that is currently being prepared.
Finally, let me touch on the use of value capture as part of infrastructure policy. This is an issue being examined closely by both Commonwealth and state governments.
Recently Infrastructure Victoria issued a policy paper, "Value Capture - Options, Challenges and Opportunities for Victoria."
The NSW Government has indicated its interest in value capture as a potential funding source for projects like Parramatta Light Rail and the proposed new Sydney Metro West between Sydney and Parramatta.
The WA Government has stated its interest in value capture as a funding source for the Metronet rail projects.
Gold Coast City Council has established the City Transport Improvement Charge, which has helped to fund Gold Coast Light Rail.
Let me be clear: value capture is only ever likely to contribute part of the total capital cost of rail projects. Crossrail is seen as an example of global best practice, with – as I mentioned – 30 per cent of the cost coming from value capture mechanisms. That is precisely why we have committed to significant long term grants through the National Rail Program.
But as the Turnbull Government works with state governments on funding packages for major transport infrastructure projects around the country, we expect value capture to be a component of the funding mix where there is market interest.
Conclusion
Let me conclude then by returning to the observation with which I began these remarks – that one of the most important factors bearing upon the success of our cities is the transport infrastructure which serves those cities.
This will only become more critical as our population continues to grow and our cities continue to receive the bulk of that growth.
The Turnbull Government recognises this, and through our unprecedented levels of investment in transport infrastructure, our focus on City Deals, and our approach to value capture we are working to shape the growth and success of our cities.
[1] M Turnbull 2015, ‘Media release: Changes to the Ministry’ https://www.pm.gov.au/media/2015-09-20/changes-ministry
[2] E. Glaeser 2011, ‘Triumph of the City : how our greatest invention makes us richer, smarter, greener, healthier and happier’, p. 12, published by The Penguin Press, New York.
[3] I Lawrie, I Woodcock 2017, ‘Airport Rail Link can open up new possibilities for the rest of Melbourne’, June 30 2017, theconversation.com.au
[4]H Ergas 2014, Submission to the Productivity Commission Inquiry into Infrastructure Costs, http://www.pc.gov.au/__data/assets/pdf_file/0005/132197/sub087-infrastructure.pdf,
[5] Infrastructure Australia 2016, Australian Infrastructure Plan, http://infrastructureaustralia.gov.au/policy-publications/publications/files/Australian_Infrastructure_Plan.pdf, p. 44
[6] Infrastructure Australia 2016, Australian Infrastructure Plan, http://infrastructureaustralia.gov.au/policy-publications/publications/files/Australian_Infrastructure_Plan.pdf, p. 35
[7] I Lawrie, I Woodcock 2017, ‘Airport Rail Link can open up new possibilities for the rest of Melbourne’, June 30 2017, theconversation.com.au
[8] Australian Bureau of Statistics, Community Profiles http://www.abs.gov.au/websitedbs/D3310114.nsf/Home/2016%20Census%20Community%20Profiles
[9] NSW Department of Planning and Environment 2017, ‘Media release: The big reveal: What the 2016 Census tells us about housing’, http://www.planning.nsw.gov.au/News/2017/What-the-2016-Census-tells-us-about-housing
[10] Infrastructure Victoria 2016, ‘Value Capture – Options, Challenges and Opportunities for Victoria’ http://www.infrastructurevictoria.com.au/sites/default/files/images/IV18%20Value%20Capture%20Options_Final%20web_v2.pdf, p 5
[11]Transport for NSW 2017, http://www.sydneytrains.info/about/environment/
[12] P Fletcher 2017,’Media release: Delivering Road and Rail Infrastructure Today and Planning for a Stronger and More Competitive Australia Tomorrow’,http://minister.infrastructure.gov.au/pf/releases/2017/may/budget-infra_02-2017.aspx
