Stainless – video by Adam Magyar

I’ve argued before that some criticisms of McMansions are ill-informed and unwarranted, but I’m not very impressed with Chris Berg’s defence of them in the Fairfax press the other day.

Mr Berg, a Research Fellow with the Institute of Public Affairs, makes two points: The first is that “suburban living in general is more environmentally friendly than inner city living.” The second is that large homes aren’t a problem but a sign of our economic success as a nation.

I think it’s disingenuous, at the very least, to claim that “suburban living in general is more environmentally friendly than inner city living.” He cited the well-known Consumption Atlas prepared by the Australian Conservation Foundation (ACF) to support his case:

A study conducted by the Australian Conservation Foundation (no fans of consumer capitalism) concluded that, even taking into account car use, “inner-city households outstrip the rest of Australia in every other category of consumption”.

What he’s glossed over here, though, is the ACF doesn’t conclude “inner city living” is less sustainable than suburban living. Rather, it finds inner city households are less environmentally friendly than their suburban counterparts.

Of course the built environment of the inner city is more sustainable than the outer suburbs! On average, it has smaller dwellings, more mixed uses that support walking, shorter average trip distances, and vastly better access to public transport.

But on average it also has wealthier households. They consume more goods and resources than outer suburban households because they can afford to. That includes flying a lot more for business and leisure.

They are smaller on average too, with many comprising only one or two persons. The consequence is their per capita consumption of space nullifies the advantage of living in smaller dwellings.

These two factors overwhelm the sustainability benefit of living in denser neighbourhoods. However it doesn’t neutralise the benefits of “inner city living” – if these wealthy residents lived in the outer suburbs like their counterparts in most US cities do, their environmental footprint would be even larger.

I also think Mr Berg’s proposition that McMansions are an innocent mark of our success as a rich society – we buy big houses, he says, because we can – skates over the important issues.

That’s true as far as it goes but he should go further – there’s much more to the story. As a matter of public policy, we’re concerned about what cost that choice imposes on the rest of us in terms of emissions, pollution, energy consumption and cost, traffic congestion and infrastructure costs.

McMansions aren’t the only instance of “excessive” space consumption though. As the ACF’s analysis makes clear, we need to think in terms of space per occupant rather than the total size of the dwelling.

I don’t have access to any the figures right now, but I’d expect there are at least as many existing dwellings being extended and renovated across the established parts of our cities each year as there are new McMansions being built on the fringe.

On top of that, every year there are more and more empty nesters and elderly singles rattling around in large family houses and terraces. And then there are an increasing number of young buyers of studio and one bedroom apartments who only a generation ago lived in group houses where they shared facilities and consumed less space per person.

Households who consume a lot of residential space per capita, whatever the built form and location, need to pay the full social cost of that benefit. So do those who fly a lot. Fortunately, at least in the former case, we’ve started to deal with the issue in Australia by way of the price on carbon and mandatory energy ratings.

There are other areas we need to improve too. They include the under-pricing of transport (both private and public) which promotes long commutes from far-flung low density areas, as well as implicit subsidies for home ownership that encourage excessive investment in housing.

Fortunately, I’m not aware of anyone who seriously proposes an upper limit on the size of dwellings. That sounds as feasible as imposing size limits on ovens and fridges, or on the number of flights we’re permitted to make, or the amount of meat we can eat, or the number of children we can have.

If they have to pay their real social cost, households will have an incentive to reduce their use of resources and hence of space. Couple that with eliminating frictions like stamp duty and regulatory constraints on housing supply, and there should be a better match between household size and dwelling size.

Stamp duty scale for purchase of principal place of residence (Victoria)

At the same time as many Australian households live in dwellings larger than they need, others can’t find affordable homes big enough to cope with family life.

The average number of bedrooms in our homes has increased over the last 15 to 20 years, yet average household size has declined.  Older Australians in particular are spoiled for space – 84% live in homes with one or more spare bedrooms.

“a 2 percentage-point increase in stamp duty may reduce mobility of homeowners by around 40 percent.”

The problem with this mismatch is it makes it harder for some households to find affordable, appropriately-sized housing in locations they prefer. Some may travel longer distances to work than they otherwise would. Some, like “empty-nesters”, who already occupy dwellings larger than they want are deterred from down-sizing.

A key reason is the high level of stamp duty levied on home purchases by State Governments. In Victoria, for example, a dwelling that costs the median price (circa $530,000) incurs a stamp duty liability of $23,770 (see exhibit).

That’s equivalent to 4.5% of the purchase price! For households who have the option of staying put, that’s a very large disincentive to moving to a dwelling that’s a better fit. It limits the ability of property markets to sort households into appropriately sized and located dwellings.

A new study undertaken by the Spatial Economics Research Centre at LSE throws light on just how large that impediment can be. The researchers, Christian Hilber and Teemu Lyytikäinen, find that higher stamp duty on dwelling purchase negatively affects a household’s propensity to move.

The scale of the effect is astonishing. Their headline finding is a “2 percentage-point increase in the stamp duty may reduce mobility of homeowners by around 40 percent.”

Hilber and Lyytikäinen exploit a “discontinuity” in the UK tax schedule where the duty payable jumps particularly sharply, from 1% to 3%.

This discontinuity allows us to isolate the impact of the stamp duty from other determinants of mobility. Specifically, we compare households with self-assessed house values on either side of the cut-off, while controlling for flexible but smooth functions of house values.

They find stamp duty in the UK has “very substantial detrimental effects on the functioning of the housing market.” However its impact is largely confined to short distance moves (less than 10 km).

They interpret this as meaning stamp duty discourages households from moving to their preferred form and size of housing. It has only a limited effect, though, on longer distance moves made by households for job-related reasons and hence, they say, doesn’t significantly affect the efficiency of labour markets.

Hilber and Lyytikäinen also conclude that stamp duty is an inefficient tax compared with something like land tax. They cite research that finds a 2.5% stamp duty imposes a dead weight loss of 17-34% of the revenue collected.

Caution is in order in applying their findings directly to the Australian context. The sheer size of the estimated impact might be affected by the peculiarities of the UK tax system.

The duty on a £250,000 dwelling is £2,500 (1%), but on a £250,001 dwelling it’s £7,500 (3%). As the exhibit shows, the tax scales in Australia are relatively smooth.

Nevertheless, a scale like Victoria’s that takes 4.54% on a dwelling costing $550,000 and 5.11% at $551,000 is bound to have a large retarding effect on households changing to more suitable dwellings/locations as their circumstances change. Replacing stamp duty on principal place of residence transactions with a land tax levied annually on all properties would be a more efficient approach.

Manhattan "shoebox" apartment - 7.25 sq m

I think the effectiveness of his proposed regulation on maximum soft drink serving sizes is questionable, but New York Mayor Michael Bloomberg is on the right track with his pilot program for micro-apartments in Manhattan.

The Mayor is seeking proposals from developers for the construction of an apartment building on city owned land with 75% of units sized between 275 and 300 sq ft (that’s 25 – 28 sq m).

At the moment, the minimum size for an apartment in New York is 400 sq ft (37 sq m). However that’s for new apartments. Much smaller apartments in older buildings are common.

This woman, for example, pays $800 a month for a 105 sq ft apartment in the West Village. This man moved out of a 96 sq ft apartment in Hell’s Kitchen and now pays $800 per month for one in the same neighbourhood that’s just 78 sq ft (see exhibit).

Then there are much bigger apartments that offer even less space per person because they’re crammed to the sills with lower income – commonly immigrant – households.

Although definitely on the small side, new apartments smaller than New York’s current minimum are now common in the centres of Australian capital cities. For example, the average size of new studio apartments in Melbourne is around 34 sq m (365 sq ft).

I’ve heard these apartments described as “dog boxes” and “the new slums”. Like the US, we’ve a long history of paternalistic regulation in Australia. In the past, high minimum sizes for dwellings and lots have prevented some households from making their own decision about how they want to trade-off various housing attributes.

The wonderful thing about small apartments is they enable people who couldn’t otherwise afford it to live in locations of very high amenity. They don’t provide much in the way of space by suburban standards, but they do provide what many buyers and renters want – high levels of accessibility, typically to the many and varied attractions of the CBD.

They’re not aimed at low income buyers or tenants (two years ago the average selling price of those small Melbourne studios was over $300,000) but they nevertheless constitute affordable housing for one and two person households of modest means. Buyers and renters willingly choose to trade off ‘space for place’.

Residents are also typically transitory and hence more tolerant of the limitations of space. They might be students or they might be young singles or couples who expect to increase their income over time. It’s temporary – they expect to have the option of moving to larger dwellings at a later stage of their life.

Most urban dwellers in the world actually live in very small dwellings compared to what Australians regard as an acceptable minimum size. Moreover, very small apartments can be designed with great efficiency, as architect Gary Chang’s famous 32 sq m apartment in Hong Kong amply demonstrates (video).

It’s not that many buyers and tenants of small studios wouldn’t prefer something a bit bigger, they just can’t afford it or they’re not willing to pay more. If the ability to construct additional housing in sought-after areas wasn’t so constrained by planning rules, it ought to be possible to build more units of somewhat larger size for the same cost.

Mayor Bloomberg’s micro-apartments will probably rent for around $2,000 per month. Sounds a lot, but this is Manhattan. That’s affordable compared to the options available to these two college graduates. They told the New York Times “It was really difficult to even find a decent convertible one-bedroom apartment for less than $4,000.”

Animation of changes in sectoral composition of the Australian economy, by Qtr from 1974 to 2012

According to a report in The Australian last week, the Queensland Housing Minister, Dr Bruce Flegg, is proposing to forcibly move public housing tenants with empty bedrooms into smaller dwellings.

Dr Flegg said a Government audit found there are 8,700 public housing units in the State with two or more unoccupied bedrooms.

Under-occupancy is the biggest single one of the many challenges we are facing with public housing. The finances are unsustainable. Rents are declining dramatically because of under-occupancy … so if you have got one person in a three-bedroom house, they can be paying $90 a week for a house that will rent in the market for $400 a week

There are 30,000 households on the public housing waiting list in Queensland. Dr Flegg says a third of them are “technically homeless … so they are staying with friends and relatives, couch surfing, moving from house to house as good people take them.”

This week the Courier Mail reported he may have upped the ante – he wants to force empty-nesters to either move to smaller properties, pay a higher rent, or share their dwelling with strangers on the waiting list.

Under-occupancy is not just a public housing problem. As I’ve discussed before, it’s also a major issue in the much bigger private housing sector.

This research shows more than 84% of older Australians live in homes that are under-occupied (one or more spare bedrooms) when measured against the Canadian National Occupancy Standard. Almost half have two or more spare bedrooms.

However getting a more efficient match between household size and dwelling size isn’t a straightforward matter. Many older households don’t want to move out of a dwelling they might’ve occupied for many years.

One study found more than 90% of them want to stay put. They value their proximity to friends and family and they value familiarity with their home and neighbourhood.

Empty-nesters also utilise space more fully than is often appreciated. More than 90% regard the size of their home as efficient and suitable to their needs.

People comment that following retirement they spend most of their time at home and they need space “to get away from each other and not to always be underfoot”, to follow hobbies and sometimes part-time paid work…… People state they need room for temporary residents – for frequent visits from children and grandchildren, other relatives and friends.

A related study of older private home owners found 23% had one or more temporary residents at the time of the survey. While almost a fifth of these were grandchildren, more than half were adult children and visitors.

In the case of Queensland public housing, the Courier Mail cited a couple, Phyllis and Michael Martin, 78 and 69 years old, who are “shocked and angry” they might be forced from their home of 35 years or have to share it with strangers. Mrs Martin is quoted as saying:

We just couldn’t believe it, we both suffer from medical conditions and we raised our family here, we can’t have strangers in the house and we certainly will not move, it’s all very upsetting. We only have a small three bedroom house. We use two of the bedrooms already, my husband has Crohnes Disease and uses a colostomy bag and I have a heart condition.

Under-occupancy in public housing is also an issue in other states. The Australian says there might be as many as 40,000 under-occupied public housing dwellings across Australia. Contacts the newspaper made with other states suggest the issue is not confined to Queensland.

There’s a good case for a more efficient matching of dwellings with household size, given there are as many as 10,000 technically homeless households on the waiting list. However forcing current tenants to share with others they don’t know is unacceptable.

I’m not sure if Dr Flegg is really contemplating that option or if it’s a beat-up by the Courier Mail. Either way it’s unconscionable and he should formally and firmly reject it publicly.

Addressing the existing mis-match demands a high degree of sensitivity. Many tenants will have lived in their current houses and neighbourhoods for long periods. Some might be ill or have compelling reasons for staying put.

A better approach would be to facilitate voluntary transfers as South Australia reportedly does. Dr Flegg should consider offering a financial incentive to encourage households to move of their own accord to smaller dwellings. But first he needs to have a housing supply strategy in place so there’s appropriately-sized alternative accommodation available in locations that will attract the empty-nesters.

Perhaps there’s also scope to offer households a financial incentive to share their dwellings with others, but it sounds very fraught to me. Which of the two parties leases the dwelling? Who has priority if there’s a dispute? The potential for disagreement between the parties is high and likely to result in high management costs for the housing authority. This particular idea is best forgotten.

Rates of home ownership in selected countries (source: Wiki)

As the exhibit shows, there’s evidently much more to a country’s level of home ownership than the wealth of its citizens. Germany is one of the richest countries on the list, yet its home ownership rate is 42% compared to 98% in considerably poorer Bulgaria.

I’ve taken this data from Wiki, but it’s similar to some numbers shown by Randal O’Toole at a policy forum, The death and life of affordable housing, run last week by US libertarian think tank, The Cato Institute.

The panel had some well known writers on how regulation affects cities, including the Institute’s Randal O’Toole (American nightmare), as well as Matt Yglesias (The rent is too damn high) and Ryan Avent (The gated city).

Early in the proceedings, O’Toole shows a PowerPoint slide of home ownership levels in various countries (at about 18:00). It’s essentially an aside to his main argument, but it illustrates the enormous variability in ownership rates across nations and, more particularly, that they’re not correlated strongly with income.

His slide includes some additional countries with higher home ownership rates than Australia (69%) i.e. Lithuania (96%), Mexico (83%), India (82%), Iran (81%) and Greece (80%). It also shows Switzerland, at 35%, has a lower proportion of owners than Germany.

Tyler Cowen at Marginal Revolution subsequently took up this topic and added a few more countries. Romania, Croatia and Slovakia all have home ownership rates which, at more than 90%, are well above Australia’s.

Matt Yglesias extended the discussion at his own site, Moneybox, adding some more countries. Iceland, Portugal, Chile, Israel, and Luxembourg also have higher rates than Australia, even though home ownership is as ingrained in the Aussie national mythos as kangaroos and cobbers.

Bear in mind there can be considerable differences in the dates at which the estimates are taken for each country, in some cases as high as ten years. Still, this is not the kind of variable that changes quickly, so the overall scale of differences shouldn’t be greatly affected.

Cowen and Yglesias make the point that, at least within Europe, the most economically challenged nations – generally former Communist countries – have the highest rates of home ownership, whereas the lowest rates are generally seen in the stronger economies.

Very high rates of home ownership are not necessarily incompatible with a strong economy though, as Singapore and Norway illustrate. Australia is another example of an economically robust country with a relatively high rate of ownership.

Yet contrary to the common assumption in Australia, home ownership is not a reliable measure of economic strength and it’s not a pre-condition. Nor of course is a low rate of ownership. Political factors are immensely important – for example, the high rates in former Communist countries are the result of a deliberate policy of privatisation.

From the point of view of someone seeking shelter, home ownership makes sense in Australia because it’s a subsidised way to significantly increase wealth with relatively low risk. It’s at least as much an investment decision as a shelter decision.

But like cars, high levels of home ownership are not a pre-condition for creating a country with a high material standard of living for its citizens.

The footpath on one side of this street has been taken over entirely by Triffids! (click to look around)

My wife and I were both working from home yesterday so we walked approx 1.5 km through suburban streets to our local strip shopping centre for lunch. We’re about 8 km from the Town Hall and live in a street that Walk Score classifies as Somewhat Walkable (65/100).

One thing I noticed for the umpteenth time is how hard it is to walk side-by-side on the footpath. Twenty five years of familiarity couldn’t stop us walking hand-in-hand, but a veritable profusion of hedges, low-hanging branches, and shrubs reaching Triffid-like over fences could!

It seemed every twenty metres or so we had to form a single file to get through the jungly bits. There’s even one place where the entire nature strip has been planted out – a small part of the footpath on one side of the road disappears altogether (see exhibit)!

These obstacles interrupted the steady flow of marital wit and banter of course, but they’re no big deal. I’d hate to think there’s a zealous planner somewhere in Council who thinks the walkability of the neighbourhood is impaired by encroaching vegetation.

There’s almost always enough room for pedestrians, prams, strollers and wheel chairs to pass though single-file in our neighbourhood. And where there isn’t….well, these are suburban streets after all, not major arterials. Residents already use them for skate-boarding and kicking the footy, so a quick detour via the bitumen is pretty easy and safe.

Lots of residents in my neighbourhood have planted the nature strip or have hedges they haven’t trimmed, at least on the public side, in years. I’d like to thank them for their wonderful and generous contribution to public life. They’ve greatly enhanced the streetscape and the experience of journeying slowly – whether on foot or cycle – through the local neighbourhood.

Unlike in the US where it’s common to have no footpath at all on both sides of the road, our suburbs are made for walking. Some are more attractive than others of course, but if you’ve got the desire to get out on your own two feet there’s usually nothing serious holding you back.

Of course some suburbanites don’t have that desire. Most get as much exercise as they want or need bringing up children, playing regular sport, gardening, tinkering in the shed, keeping house, working in jobs involving a fair degree of physical effort, and more. However some don’t and some aren’t as healthy as they should be. Encouraging them to use their neighourhood actively – especially as part of their everyday life – could be a big help (but that’s a separate story).

Proposed development by Parkrise Australia at 1091 Plenty Rd, Bundoora

The exhibit above shows the sort of development planning authorities in our capital cities want to encourage.

In this case, the developer, Parkrise Australia, proposes to construct 474 apartments and 11 food and drink establishments at 1091 Plenty Rd Bundoora, just 14 km from the centre of Melbourne. It will replace an existing drive-to restaurant, Smorgy’s.

As these sorts of projects go, this one should be a no-brainer. It fronts directly on to a main road with a tram line to the city down the middle. It’s within a one kilometre walk of La Trobe university. The units will on average only have around 1.1 car parking spaces each.

Moreover the site is very large (13,300 sq m) and surrounded on two sides by a major parkland system, Bundoora Park. There are only a handful of neighbouring dwellings directly abutting the site, which is currently used for a restaurant (more detail here).

The project should be straightforward. Yet some residents of the region are up in arms. They’ve established a Save Bundoora Facebook page to generate opposition to the proposal.

Much of the opposition relates to the size and height of the development – it consists of three ten-storey “towers” and two seven-storey “towers”. It’s therefore out of character with the low-density suburban nature of the area, opponents say.

Others argue it will impose too much additional traffic on Plenty Rd, which already experiences congestion in the peaks. Some also say it will destroy the adjacent parkland.

All developments have downsides as well as upsides of course. And there’s no getting away from the fact this is a big development compared to what’s in the immediate vicinity and the history of the neighbourhood. It could accommodate as many as 1,000 residents on 1.33 Ha.

The height is a vulnerable point (and to some degree might be an ambit claim by the developer). Melburnians seem to have a more pronounced aversion to high-rise than those who live in other parts of the country.

Whereas Sydneysiders and Brisbanites generally reserve the term high-rise for buildings higher than about ten storeys, Melburnians assign that status to any building above three or four floors. Just why that’s the case is an interesting question, but one for another day.

While this is a big project, it’s also a big site with few neighbours. Even Plenty Rd is a very wide boulevard – it has three traffic lanes in each direction plus two tram lines in a separated easement (see second exhibit).

The heights of the proposed buildings also step down to four storeys along the boundary with the park. The development could in addition provide a large population to “activate” a little-used part of the park.

While the report by the traffic experts retained by the developer isn’t at all forthcoming on the details, it concludes that “the traffic generated by the proposed development will be adequately accommodated by the surrounding road network.” To the extent the project substitutes for development in outer suburban Growth Areas like Mernda, it might well generate no more traffic and very possibly less.

Looking across Plenty Rd to site (click to look around in Google Maps)

Personally, I think it’s a pedestrian-looking development and in theory it’s likely there are other configurations of built form that would achieve much the same density with a lower height. But the developer is the one assuming the risk and presumably has much better intelligence about what buyers and financiers are prepared to go for than I do.

My main concern about this project is there’s little information available about the impact it might have on existing infrastructure, especially so-called “soft infrastructure”. It’s often assumed there’s plenty of spare capacity within established suburbs, but recent experience with schools in inner Melbourne has shown that is far from the case.

I think though that this proposal and the way residents are reacting highlights a much bigger concern about the outlook in general for urban consolidation. It’s this: existing residents rarely see how a development like this one will make them any better off.

They see some of the apparent downsides easily enough but they don’t see the benefits. So it’s not really surprising they simply take a risk avoidance approach and oppose any change. And the benefits are often diffuse, so they’re hard to see.

They might come in the form of a larger rate base for Council, enabling it to build improved facilities and infrastructure, but not necessarily near those most directly affected by a development. Or they might manifest in a larger population that can support specialised services like a cinema or make the area more attractive to firms who expand the number and/or depth of local jobs.

Benefits might also come in the form of higher property values. Contrary to the received wisdom, this US study found residents living within one mile of newly opened Walmart stores enjoy on average a modest increase in the value of their property.

For consolidation to work, the message has to get out that allowing more residents through the barricades brings tangible benefits. We have to find ways to make existing residents understand that, at least on average, there’s something in it for them too.

Persisting with the fiction that there’s spare capacity in all forms of infrastructure within established suburbs doesn’t help the situation. Existing residents can clearly see that’s not always – or even usually – the case. There have to be direct expenditures that address capacity shortfalls when new developments are approved.

How those shortfalls are paid for is an important issue. If infrastructure charges levied on developers of urban renewal projects are increased, that affects the relative attractiveness of established locations compared to the fringe. On the other hand, the benefits to the wider community of limiting fringe growth might warrant some form of explicit financial support for urban renewal projects.

Incredibly beautiful images from the Holi Festival, India (H/T Adam Davies)

High-rise housing gets a pretty bad press in Australia. It’s frequently criticised for over-shadowing, generating high-speed winds, and destroying streetscapes and views. Skyscrapers have high life-cycle emissions compared to medium density housing and in some instances are associated with mental illness and socially dysfunctional behaviours.

But it gets worse – some observers reckon it’s an unnatural way to live. Danish architect and planner, Jan Gehl, insists people living above the fifth floor lose their connection with “mother earth” and society below.

I would say that anybody living over the fifth floor ought generally to be referring to the airspace authorities. You’re not part of the earth anymore, because you can’t see what’s going on on the ground and the people on the ground can’t see where you are.

RMIT academic Michael Buxton also opposes high-rise. He says:

What high-rise does is separate large numbers of people from the street, so we end up with a city that is detached from street life, we end up with a city that is based on enclaves and gated communities

This criticism smacks of over-reaching to me. With the possible exception of children, it’s of little consequence for the vitality of life on the street whether you walk down from the third floor, or take the lift from the fifth, tenth or twentieth floor. The level you live on has very little to do with whether you drive to work or walk; eat in rather than at a local restaurant; or watch tele in preference to going to the ballet.

High-rise developments are in any event likely to be built in locations where residents have good reason to go out and enjoy the street. On average, they’ll be in places with a high density of people and activities close to the front door. For example, architect Karl Fender who lives in Melbourne’s Eureka Tower (his firm designed it) says:

Even though I live on level 71, I’m actually 31 seconds divorced from ground level, and when I hit the ground I’m in Southbank. I have the theatres, I have the galleries, I have the river, I have the gardens, I have the retail, I have all of those facilities.

I’ve heard it argued (by architects, not evolutionary biologists) that humans haven’t evolved to live successfully any higher than a few storeys from the ground. If there’s any objective evidence for this theory I’d be interested to hear it. I know some races have a genetic vulnerability to high calories diets and/or alcohol, but I’m not aware of a biological aversion to dwelling height.

We haven’t explicitly “evolved” to do lots of things we now take for granted. For example, we didn’t live in cities of four million people or more up until very recently; or travel at 60 km/h on trains; or take antibiotic shots; or use solar energy directly to cook our food; or go to school every day; or…..well, most things we do now are “new”.

Yet we can do all sorts of things our distant ancestors couldn’t even conceive of. With some exceptions (e.g. we over-consume calories), we usually take steps – like providing water and sewage infrastructure so we can live in cities – to mitigate any clear risks.

It’s true that humans can’t easily make out visual detail at street level beyond a certain height (around the seventh floor for me) but it’s arguable if that’s significant for housing. Now that we don’t build new high-rise social housing for families, it’s surely a matter for residents to decide at what height they wish to live.

I very much doubt that many people who willingly choose to live in high-rise suffer ill effects due to their distance from the ground. Where adverse health consequences have been identified, I expect it’s largely associated with social housing, given the a history of forcibly placing households who are at-risk to begin with in buildings they don’t like or that don’t suit their circumstances e.g. families with young children.

However the sorts of people who live in new high-rise in Australian cities do so almost entirely by choice. They tend to be comfortable financially and can plausibly elect to live somewhere else closer to the ground if they wish.

Some people simply like to live at elevation, perhaps because they want to be further away from street noise or because they like an expansive view. People who place a high value on connection with the ground can choose to live on lower floors if they prefer or they can elect to live in low-rise developments.

Many Australians seem to like high-rise housing even if some think it’s bad for them. Indeed, the Grattan Institute’s excellent study, The housing we’d choose, concludes there’s significant unmet demand for high-rise housing.

The study found 20% of Sydneysiders and 14% of Melburnians would prefer to live in a building of four storeys or more. These types of buildings however currently comprise only 10% and 3% respectively of each city’s existing dwelling stock. Tellingly, they make up 34% of the new stock being built in Sydney and 14% in Melbourne.

I’m not arguing the pros and cons of high-rise housing here (I’ll leave that debate for another time); I’m just saying let’s keep the terms of the debate sane, sensible and, please, let’s keep it secular.

Annual per capita energy consumption of an average greenfield house (from Fuller & Crawford)

The Fairfax press reported yesterday the Victorian Government is considering a proposal to abolish the mandatory 6 star energy rating for new houses and renovations, and replace it with a voluntary industry code. This morning however, The Age reports the Premier, Ted Baillieu, has done an about-face and ruled out any change.

If the Government really was seriously contemplating removing the mandatory rating, I think Mr Baillieu has made the right decision – it should stay. The improvement in the energy efficiency of new homes over the last ten years has been dramatic. A recent study shows the per capita operating energy required by the average new greenfield dwelling in 2008 was about a third lower than it was in 2000 (see exhibit).

In fact it was lower than it was in 1960, nearly 50 years earlier, notwithstanding the size of the average new greenfield dwelling more than doubled over this period, from 112 m2 to 238 m2. It seems quite plausible the mandatory rating system is a key driver of these improvements.

It’s nevertheless worth looking further at the idea of abolishing the mandatory six star rating because all regulations have costs that policy makers should understand. The idea is probably also indicative of the sorts of changes the new Liberal-National Governments in Qld, NSW and Victoria are likely to examine under their red tape reduction programs. In any event, organisations like the Master Builders Association aren’t likely to forget about this one any time soon.

A key argument in support of abolishing the mandatory rating is that the carbon tax will make the need for regulation redundant – the increase in price will provide the appropriate incentive for those who value energy efficiency. Another is that removing the rating would lower the threshold cost of building a home (The Age cites a figure of around $5,000), thereby improving affordability and enhancing choice.

Were the mandatory rating removed, a price on carbon set at a level that reflects its full social cost would still provide many households with sufficient incentive to invest voluntarily in building their new home to six star standard. After all, saving money on energy bills in the medium and long term is a very attractive proposition for households who can find the extra cash up-front and who can afford to think long term. Business is pretty good at up-selling buyers on optional extras so under this scenario I expect there’d be a fair take-up of ‘six star energy packages’ (although builders would apply an added margin).

Some households, though, would jump at the chance of a reduction of up to $5,000 if it were the difference between getting into home ownership or remaining in the rental sector. Some others might use a $5,000 reduction to get into a location closer to key services where they could save on transport costs and emit lower tailpipe emissions, perhaps achieving much the same financial and environmental outcome as under the mandatory code.

Still others – possibly quite a few – might simply apply the $5,000 to buying a bigger or better house. Thanks to the carbon tax, they’d at least be paying a price reflecting the extra cost they impose on society. Moreover, they’d still have a clear price incentive to manage their consumption with care and to retro-fit energy conserving measures down the track as their financial circumstances improved.

There’s a segment of the market – renters – whose options for responding to price incentives is much more limited. It’s harder for them to have a rental property upgraded for greater thermal efficiency.

But assuming the existence of a price on carbon seems academic. Tony Abbott has promised to roll back the carbon tax if, as seems almost certain, he wins the election due by 30 Nov 2013. Perhaps there’s some chance it will remain in place – removing the compensation package might be harder than Mr Abbott expects – but the odds must be pretty long.

If it’s assumed there’s no price on carbon, the mandatory six star rating can be seen as an alternative, ‘second best’ solution. It makes buyers pay some of the social costs of energy consumption. It’s not as economically efficient as a price on carbon, but it has a similar general effect of reducing consumption and hence emissions.

Households enjoy lower ongoing operating costs, eventually getting the $5,000 back, and more. Humans are rather poor at valuing future benefits so some will undervalue the future savings from a six star rating and, given the choice, would forego it. A mandatory system brings greater economic rationality to the decision – it “saves them from themselves”, albeit at the cost of limiting personal choice.

New home buyers and renovators could argue the mandatory six star system is inequitable. The owners of established houses, which are much more numerous, aren’t obligated to upgrade their houses to a similar standard, even on sale or purchase. However that’s not an argument against the mandatory rating – it’s an argument for extending it.

Given Tony Abbott’s undertaking to roll back the carbon tax, I think Ted Baillieu has made the right call.

Update: Today’s editorial in The Age also canvasses this issue.

"Unseemliness" - Annual compensation packages for CEOs of 500 largest US corporations (from Murray)

In his new book, Coming apart: the state of white America 1960-2010, American conservative Charles Murray argues that a new upper class and a new lower class have developed in the US since the early 1960s that are so far apart “they barely recognize their underlying American kinship”.

The top and bottom of white America increasingly live in different cultures with the powerful upper class living in enclaves surrounded by their own kind, ignorant about life in mainstream America, and the lower class suffering from erosions of family and community life that strike at the heart of the pursuit of happiness. That divergence puts the success of the American project at risk.

Murray is a controversial writer and I don’t agree with all he has to say, but my interest at the moment is the comparison he draws between living in the US suburbs in the 1960s and living there now. In particular, Murray contrasts what was considered acceptable housing for the middle and elite classes in 1963 with the sort of “unseemly” extravagances of conspicuous consumption that are common in American suburbia today.

He begins by noting that the distribution of income was far more compressed in 1963 than it is today. Back then, the median family income of professionals and managerial occupations was only about $62,000 p.a. in today’s dollars. Less than 1% of American families in 1963 had incomes higher than $200,000 p.a. and only 8% had household incomes higher than $100,000 p.a. (again, all figures in today’s dollars).

The housing of the time reflected the same degree of compression. Even the elite didn’t usually live in what we think of today as a mansion. He recommends viewing an episode of Mad Men to see the sort of house – remarkably modest by today’s standards – that the Drapers live in. That, he says, is “the kind of house that the creative director of a major New York advertising agency might well have lived in”.

In 1963, great mansions were something most Americans saw in the movies, not in person. Only the richest suburbs of New York, Chicago, and Los Angeles had entire neighborhoods consisting of mansions.

The nature of the change since then can be seen by driving around suburban neighborhoods where the affluent of the 1960s lived, such as Chevy Chase, Maryland; Belmont, Massachusetts; or Shaker Heights, Ohio.

Most of the housing stock remaining from that era looks nothing like the 15,000- and 20,000-square-foot homes built in affluent suburbs over the last few decades. No reproductions of French châteaux. No tennis courts. No three-story cathedral ceilings.

The average price in 1963 of a home in affluent Chevy Chase was $272,000 (today’s dollars). That, he points out, is not “astronomically higher” than the price at the time of a middle class home or the average $129,000 price of all new homes built in 1963.

To put it another way, you could live in a typical house in one of the most exclusive neighborhoods in the nation for about twice the average cost of all houses built that year nationwide.

There was a difference between the houses of the upper-middle class and of those who were merely in the middle class. An upper-middle-class home might have four bedrooms instead of two or three, two bathrooms and a powder room instead of one bathroom, and two floors instead of one. It might have a two-car garage, maybe a rec room for the kids and a study for Dad.

What was an upper middle class home in the US in 1963 sounds pretty much like a standard suburban two storey McMansion routinely constructed on the outskirts of Australian cities (although we seem to use the term ‘McMansion’ to describe houses that are considerably smaller than Americans apply it to. Note also that most homes constructed on the suburban fringe in Australian cities aren’t two storeys).

A McMansion on the outskirts of Brisbane, Perth or Adelaide is likely to be occupied by residents of considerably lower social status than the Drapers. Of course it’s not just McMansions – many of the modest homes built in the 1960s and earlier in the inner city and middle ring suburbs of our cities have been massively expanded outwards and upwards by new generations of owners.

Murray has a section in his book on “unseemliness”, of which huge houses is only one aspect (see exhibit).

Unseemliness is a symptom of the collapse of codes of behavior that depend not on laws and regulations, but upon shared understandings regarding the fitness of things, and upon an allegiance to behave in accordance with those shared understandings. Unseemliness is another symptom of hollowness at the core.