Check out this stunning set of charts from researchers at the Reserve Bank:
The data is now five years old and anecdotally has obviously worsened since then -- house prices closer to the CBD, especially in Sydney and Melbourne, have continued to rise faster than those further out, so the gap between them is almost certainly much wider now than it was in 2009-10.
Last week I spoke to one of the people who did the research, and he agrees.
The beautiful thing about this research is that it clarifies something we all know already -- it’s obviously true.
But it also stands as an indictment on Australian governments.
The reason inner-city prices have gone up much faster than the outer suburbs, and that capital city house prices generally have almost doubled in 10 years, with Sydney prices in particular surging 35 per cent in three years, is because a lack of infrastructure investment has made it unviable to live further out.
Here is another set of charts, this time from the Australian Railways Association. They show government expenditure on road and rail infrastructure (not including private toll road projects).
The failure of Australian governments to invest in public transport -- apart from in Victoria -- has become a national disaster by raising house prices and therefore all other costs.
Partly as a result, the cost of doing business in Australia is at least 50 per cent higher than almost anywhere else in the world.
As we showed last week with research from JP Morgan, wages are 70 per cent higher and the other basic business cost -- energy -- is roughly double.
The question is: why? And more importantly, what can be done about it.
The easy answer to the second question is to devalue the currency and thereby reduce export prices at the cost of increasing import prices, and therefore Australians’ real incomes.
That’s superficially easy, but note the lengths to which the new Greek government is going to avoid it, and instead to stay in the eurozone and reform its economy.
It’s far better to do what’s necessary to improve productivity and reduce costs.
So what’s the problem in Australia? Why are costs here so much higher than elsewhere?
The answer, in essence, appears to be under-investment in land and over-investment in gas and electricity transmission.
Gas and electricity prices in Australia are soaring even though oil and coal prices have crashed and the carbon tax has gone. Why? Because network operators overestimated demand and spent too much on upgrading the delivery system, and the cost of that has to be shared among fewer and fewer customers.
As Tristan Edis wrote recently in Climate Spectator, “declining energy demand thanks to the growth of solar PV and improved energy efficiency is hitting not just the power generation sector but also, importantly, the retail side of the power sector.”
The forecast increase in demand for both power and gas, due to the increasing size of homes and installation of air conditioning, simply didn’t happen because of energy efficiency and solar PV.
But the over-investment in transmission has had to be recovered through prices or else the operators would have gone bust, and the regulators have agreed.
The other factor in Australia’s high cost of doing business -- wages -- is caused less by the industrial relation system and unions, than by the high cost of housing in this country.
And the reason for this is not an actual lack of land, obviously, but a chronic failure by governments to spend money on infrastructure to make cheaper outer-suburban housing viable.
Australia is a big country; it should have a network of fast and efficient trains linking widespread suburbs, but instead we are crowding into the inner suburbs and paying exorbitant prices so we don’t have to commute more than hour to work each day.
In a sense it’s a hidden tax. Governments have been focused on reducing debt and cutting taxes at the expense of investment in public transport, which drives up property prices and costs generally.
Successive Prime Ministers and Premiers have talked about infrastructure, but that’s either empty words, or what they really mean is roads -- and usually toll roads so it doesn't result in an increase in public debt.
Last week the new Victorian government announced an $11 billion rail tunnel project. The response of the Opposition was: “where’s the money coming from?” It should have been: “Hooray”.
The chairman of Public Transport Victoria, Ian Dobbs, has welcomed the project, but said it will only buy some time. Within a few years the system will still virtually grind to a halt.
He says, it’s not just more rail lines that are needed in Victoria, but investment in high-capacity signalling.
This is the technology that allows trains to run much closer together by putting signalling inside the train, instead of alongside the tracks. The Public Transport Users Association says it could increase the capacity of a rail network by 50 per cent, for relatively little investment.
But while the technology is already in use in many countries around the world, it has yet to find its way to Australia.
At least Melbourne is a fairly extensive rail network to apply the technology to, when governments eventually get around to it: Sydney and Brisbane just need more trains.