How Much Is A $1 Billion?

A billion – in Australia – is $1,000,000,000.  You see this amount written everywhere these days.  You cannot escape it.

It was brought home to me a few weeks back, whilst driving through New South Wales.  Road work signs proudly announced $2.3 billion worth of construction here, another $1.7 billion there.

Governments love to announce new projects.  The bigger the dollar signs, the better.  High Speed Rail, no problems, that’s just $114 billion (based on latest estimates); oh, and the NBN…well, that is just another $50 billion, give or take $5 billion. What’s a few billion dollars between us Aussies?  Everything will be okay, mate!

All new government projects involve debt.  On average, studies suggest that over 90% of such funds needed are borrowed.  You, I, our children, our grandchildren and very likely great grandchildren will be paying off this debt.

So what does a billion dollars really look like?

If you were paid $1 for every step you took, to earn a billion Australian dollars, you have to walk around the centre of the earth some 31 times.

Now, if you were a really fit bugger and walked eight hours non-stop, every weekday, it would take you some 60-odd years to walk that distance.

But that is somewhat silly, so let’s look at something more reasonable.

The most quoted walking target is 10,000 steps per day.  So, that’s 70,000 steps per week, or 3.64 million steps per annum.  If you keep this up every week, it would take about 274 years or – if you were lucky enough to live to the average age of an Aussie (currently 82 years) – almost three and a half lifetimes to walk far enough to earn $1A billion.

Which ever way you cut it, a billion is a bloody massive amount.

Some may say that borrowing money to pay for things used over a millennium is worthwhile.  Others will chirp in and talk about the ‘multiplier effect’; you know – stuff like economic stimulus, job creation, investment confidence, debt to GDP ratios and similar economic weasel words.

In the decades immediately after the Second World War, a dollar of debt produced a dollar of economic output; so, worthwhile one might think. But these days, it takes more than $4 of debt to produce $1 of economic output.

Like any Ponzi scheme, this driver of artificial growth must have its limits.

Not convinced?  Then go here and watch it for a while.  Even Usain Bolt couldn’t keep up!

7 Must Know Urban Trends

Here are my seven most important urban trends:

  1. Increasing in household size.  More people are living in blended households.  The now defunct baby bonus was taken up with gusto, so lots more kids in our population mix and migrants to Australia are generally young adults, with an average age of around 30 years, so they have or want kids, too.  Plus, the mix from overseas has changed, with more migrants now coming from those countries with large family units.
  1. Polarisation of demographics.  An increase in those living alone or as a couple, plus an increase in blended households as noted above – coupled with a drop in what many still think is the standard Aussie household, mum and dad and 2.5 kids.  The proportion of those living alone or as a couple over 60 years of age will have increased too, especially women over 60 years; sadly, most with limited financial means.
  1. Casualisation of the workforce.  Many more will be working a range of casual or part-time jobs than the regular ABS labour force data series suggests.  As part of this trend, more oldies will be working than in previous generations.  Most are doing so, because they have to, financially, rather than because they want something to do.  The promoted image of Australian retirement is a happy couple walking along a beach at dawn or dusk, whilst the real picture is weathered hands counting coins.
  1. Limited wage growth.  Very little real change in household income over the past ten years, with falls in real average household income in recent years.  Increasing share of material stuff for the top 10% of wealthy households; a contraction in the size of the ‘middle class’ and a large increase in the number of Australians in struggle street.   Nearly all households will have taken on more debt.
  1. Fewer moves.  Blame stamp duties; lack of new full-time work; oldies needing to work to help fund retirement or low housing affordability, but our current count is likely to see a very low number of moves in coming years.  Tenants are also staying put longer.
  1. Maximising available space. Tenants are not only staying longer but they are subleasing space in order to afford the rent.  Owner residents are also now turning to the likes of Airbnb to help cover the mortgage.  Others are now renting out homes that were once locked up or used occasionally.  This trend towards utilising our spare bedrooms or even homes – despite the recent rise in off-plan overseas buying (and the penchant of Chinese towards locking up assets) – we believe, is on the increase.
  1. Lower home ownership.  Less home ownership for those in the typical first home buyer age group; even falls in home ownership rates for those in their 40s and even 50s.  About two out of five households now rent, up from 30% only ten years ago.  In the coming decade, one out of two Australian households could opt to rent, not buy.

So what does this mean when it comes to housing?

  • Less new houses will be needed than many think.
  • Dwellings need to accommodate sharing – either by tenants and/or blended families.
  • Fewer sales than in the past.  Biggest falls expected in investment selling.
  • Being close to work or being conveniently located near major transport routes will become paramount.
  • Many will be forced to compromise on their housing choice.
  • Limited price and rental growth, if not real falls in both.
  • More tenants per dwelling, but with increasingly limited money available for rent.
  • Fewer property investors – as the easy gains are now largely gone.  A drop in the number of households holding just one property and an increase in the number of investors with multiple holdings.
  • Residential returns based more on yield and manufactured growth, via redevelopment or maximising existing space.

Not being heard, yet

This new world is currently not being supported by the mainstream.

Our banks, building industry, valuation process – and especially governance (and in particular local government/town planning) – is holding back much needed housing reforms.

Mum and dad, without wanting to sound too derogatory, want these housing changes.  Whenever I give a public market outlook presentation and the time comes to outline what’s really happening out there, most of the ‘mum and dads’ in the audience nod in agreement.

When it comes to question time, the majority want to know how they can redevelop their home to assist with their retirement and age in place.  Few seem truly interested in moving into a new build.  They are too expensive and/or poorly designed/built.  More would move if the product did the right things.

Why Are Housing Prices So High?

The housing affordability debate is starting to leap all over the joint – from quips about breakfast options to now, a blame game.

So, I want to outline, in plain speak, why Australian housing prices are so high.

Five reasons why

Let’s keep this simple.  Here are the big five reasons why.

  1. Urban planning policies

Glacial release of land for housing development, urban growth boundaries, packing the population in major cities and especially the inner city versus decentralisation or multiple CBDs.

  1. Tax incentives and taxes

Capital gains discount on housing, negative gearing, government first home buyer grants, stamp duty, superannuation access/use.

  1. High immigration and baby bonus

Nothing wrong with population growth, but it works against you when half of it is taking place in Sydney and Melbourne.

  1. Cheap and accessible credit

Low interest rates, lax bank lending (yes, it is still lax!) and offshore wholesale borrowing by banks and developers.

  1. Foreign investment

Mostly out of China and most of this capital goes into property; much of it illegal under current FIRB guidelines.

Baby Boomer Buyer Wants

Fast facts about baby boomers – who they are; a brief description of typical baby boomer buyer wants; their housing considerations; preferences; and what most buy.

  • 50 to 74 years
  • 2.1 people per household
  • 92% no children at home
  • 71% couples or living alone
  • A projected 24% of total new housing demand over next decade (again, like yesterday’s Missive, for the Brisbane outer suburbs)

Brief description 

As their title suggests, many want to move into something smaller and, if possible, in their existing neighbourhood.

Housing considerations

  • Low maintenance
  • Convenience
  • Like-minded residents
  • Small scale projects and/or in the more…
  • Secluded areas within a housing estate/neighbourhood

Preferred housing options:

  • 10% to 20% – spacious apartments (inner city)
  • 30% to 40% – townhouses/duplexes and similar multi-housing products (middle-ring suburbs)
  • 30% to 40% – detached-based homes (mostly outer suburbs)

What most buy?

  • Quality build and finish
  • Well-priced – value for money – usual rule of thumb is that they need at least a 20% ‘jingle’ in their pocket between the sale of their existing home and the price of their downsized abode
  • Privacy and security
  • Parking and storage
  • Space for visitors and grandchildren 

Something to think about

Also, many downsizers are now looking for a home that is capable of taking in a tenant/s to help them live a more fruitful retirement – additional income and/or ability to travel and have someone ‘looking after’ their home whilst away.

Dual+ occupancy homes – two or more separated residences (yet, often under one roof) on one title – have increasing appeal.

This caters for not only tenants, but the extended family and in time, the potential need to have a carer live onsite.

Such a dwelling arrangement has increasing appeal to an investor on future resale – more rent/yield based decision –   as well as an owner-resident.


Walk Score measures the number of typical consumer destinations within walking distance of a dwelling, with scores ranging from 0 (car dependant) to 100 (most walkable).

Recent overseas studies indicate that properties with above-average levels of walkability command a sale price, and weekly rent, over homes with average levels of walkability.

Brisbane case study

Our study of Brisbane also found a very strong correlation between a suburb’s Walk Score and a property’s investment performance.

Housing markets attach a positive value to living within easy walking distance of public transport, shopping, services, schools and quality open space.

Furthermore, an investment property value premium for walkability seems to be higher in more populous urban areas and in those locations with extensive public transit access, suggesting that the value gains associated with walkability are greatest when people have real alternatives to living without needing to use their car for most commutes.

The average Walk Score for the greater Brisbane area is currently 51 out of 100.  It was 49 a few years back.

Our study of some 89,500 private dwellings across 24 Brisbane suburbs, found that places with higher walkability achieved higher prices; grew faster in value; attracted higher rents; had fewer vacancies and less properties listed for resale.   Resale listings also sell faster in high Walk Score areas.

According to our work, one point in Walk Score is worth:

  • $9,350 more in dwelling value
  • 15% lift in annual capital gains
  • $5 more per week in rent
  • 2% lower vacancy rate
  • Five fewer properties up for resale
  • 5 less days on the market

You can work out your own Walk Score.  Visit

Everyone thinks their new development or property is better located than the next.   Well, check out Walk Score and make up your own mind.

Survival Bias

There is little doubt that the Australian housing market is losing momentum.  For a time, the pervasive optimism on property prices will be replaced by exaggerated gloom.

Some gloom is warranted – for mine, we need a value reset.

At such turning points, many property enthusiasts will cherry pick the good stuff and leave out the rest.  Some of us can make property statistics say almost anything.  It’s what you leave out that is the real skill behind property spruik.

And on that note, we should be asking about the stuff we don’t see – and not just accepting what we are shown or being told.

This is a somewhat counter-intuitive process and is often called the Survival Bias.

An image of a damaged military bomber is often used to describe this selection bias theory.

The story goes like this.  Most planes coming back from bombing raids in WW2 had a very similar pattern of bullet damage.  The military wanted to optimise the plane’s armour by reinforcing the most damaged areas.  But the real truth was that the planes that didn’t come back were hit in different areas – being around the engines and fuel system.  So the best solution was to reinforce the areas on the returning planes which didn’t see much damage.

A similar approach should be taken when it comes to investing.  I always ask myself what I am not being shown.  What happened to the bombers that didn’t come back?  What about the areas or housing product that aren’t being aggressively promoted?

It’s what you don’t see or hear that is often the most important.

Yes, we all love winners.  There is deep interest in successful property companies, investors and entrepreneurs.  But for mine, there is way too much about start-ups; nowhere near enough about stay-ups and way too little about those that didn’t survive.

By default, we spend most of our time paying attention to the holes in the bombers that survived.

But we should also look for the problems we don’t see that were fatal to the property companies, investors and investments that didn’t make it.

The stuff that we don’t see can be the most important to success.   

7 Rules of Better Compact Homes

I  believe there is a need for more compact housing.  I have been advocating such for close to a decade.  The mainstream is now starting to take notice.  There is a potential huge latent demand.

Most of us are approaching mid-age – we see it when we look in the mirror.   The Sandwich Generation.  How to make ends meet; stay in the area we like and accommodate adult children, possibly grandkids and/or aging parents?

Compact housing has strong investment appeal.

Regardless of buyer profile, new compact homes will also need to be affordable and increasingly cater for more occupants.

To that end, compact housing design must be clever in its use of space; finishes; building amenities and services.

My 7 Rules

So, what are some rules to building (and buying) a better compact dwelling?

  1. Space

There are basic human dimensions that can only be compromised so far.  For example, living areas must allow for residents and guests to move around.  One needs to be able to get easily into a bed.  You do need to perform certain functions in a bathroom.

Kitchens need workable bench space and storage options; good lighting and ventilation.

  1. Natural light and ventilation

On that note, natural light and ventilation are very important.  Often, the perception of space is more important than the actual size or dimensions.

  1. Energy efficiency

Also increasingly important, is energy efficiency.  The best way to do that is via orientation, natural light and ventilation.

  1. Storage

Storage is king when it comes to compact living.  The better the storage space, the better your tenant and owner-resident resale appeal.

  1. & 6. Privacy/security and parking

Privacy and security are also important, as, too, is car parking.  Handling parking provisions successfully is paramount. 

  1. Multiple uses

Finally, in our ever increasingly busy and compromised world, our urban space already has multiple uses, and will need to have more in the future.

Multi-functional space will become the norm.  For example, do we really need a full-time dining room?  Yes, we might want a space to entertain four or even six quests occasionally, but not every day or even every week.

Similarly, this applies to the secondary bedrooms.  Why can’t the bed in these bedrooms pull out or fold down from a wall, especially if it is only used on the occasional weekend?

Future proofing

Current trends strongly suggest that we may not be able to continue to afford all the traditional spaces that once made up our homes.

So, we need more compact housing.  And this is especially the case given that most of our population growth is now taking place in just a handful of places.  And this trend is expected to accelerate over the next decade or two. 

Yet, despite this need, too many planning authorities are still stuck in the traditional-based ‘house versus apartment tower’ mindset.

What’s missing

What is missing are housing solutions in-between these two polarised options.  These need to be supplied across much of the Australian fabric and especially in our outer suburbs.

Our experience is that many residents want to ’age in place’.  Most don’t want to live in an impersonal high-rise apartment complex.  They would like to downsize; stay local and have some nexus to the ground.  But in the absence of affordable choice, they stay put, often as a couple or even a single person in large detached homes.

This ‘in-between’ housing would also suit many first home buyers; plus, of course, the rental market.

There is a real lack of new housing choice in the Australian market.  This is stopping many first home buyers.  It is preventing quite a lot empty-nesters from downsizing.  

1st Home Buyer Wants

Fast facts about 1st home buyers – who they are; a brief description of a typical 1st home buyer; what they think about when looking for a first home; preferences; and what most buy.

  • 25 to 44 years
  • 3 people per household
  • 36% no children at home
  • 30% couples or living alone
  • A projected 26% of total new housing demand over next decade (in this case for the Brisbane outer suburbs)

Brief description

  • HECS
  • Portfolio work not long-term work commitment
  • Partnering later
  • Parents as friend
  • Sex, less stigmas, very little tradition
  • Fewer children
  • In short, options galore – so it is not until their late 20/early 30s to early 40s that many buy their first home

Housing considerations

  • Room to grow
  • Affordability
  • Property improvement
  • Tenant/s

Preferred housing options:

  • 10% to 20% – apartments (inner city)
  • 20% to 30% – townhouses/duplexes and similar multi-housing products (middle-ring suburbs)
  • 50% to 70% – detached-based homes (mostly outer suburbs)

What most buy?

  • A property that can be improved – so they often buy an existing dwelling – in fact four out of five 1st home buyers buy an older established home
  • What also appeals is a property that is capable of taking in a tenant/s to help pay the mortgage

Something to think about

Given that first home buyers are looking for a home they can improve – and when it comes to a middle or outer suburban setting – our discussions with this market segment suggest that a new smaller, yet high quality house (being either a one or two-bedroom property) has considerable appeal.

The key is that this home is sold with an approved building extension/improvement plan and costing in place – so that they can expand the house, within a set time frame and budget.

This arrangement allows a young couple to afford a home now – maybe gain some additional rental income over the short to medium term – and expand (or improve) it as their needs change and/or finances improve.

3 Urban Myths

Urban planning in Australia appears to be lost in a dense fog of presumption and theory.   Myths perpetuate.

This Missive covers three such urban myths.

Myth 1 – Higher densities mean less traffic

The theory is that higher densities around existing public transport networks will see a lift in public transport use and fewer cars on the road.

Public transport accounts for about 10% of total trips in our major cities and most urban metropolitan strategies aim to increase this to 20%.

So, four-fifths of the trips will, at best, still be via private vehicle.  Why?  Because the car is much more convenient.

Without serious infrastructure commitments to repair and upgrade the public transport networks in our cities, cars will continue to dominate.

Under current conditions, and somewhat ironically, inner city and middle-ring residential development is resulting in more traffic congestion.

Myth 2 – Urban consolidation is better for the environment

This implicit assumption is now widespread.  Yet, the available evidence suggests the opposite.

  • Comparison between suburban houses and attached product often overlooks the number of persons per household, which is much higher in the traditional suburban detached house.
  • In traditional suburban detached homes, larger household numbers share various facilities – the refrigerator; television; washing machine; dishwasher etc., and even the lighting needed to light a room. The per capita energy, and even water consumption, is more efficient in suburbia than in more central urban locations.
  • The nature of high density apartments is, in itself, prejudicial to positive environmental outcomes, due to things like clothes driers (lack of outdoor drying areas), air conditioners, lifts and the need to service (lights and air-conditioning) common areas.
  • Also, suburban development allows for wider footpaths and private yards, which in turn provide space for trees to grow. There is less opportunity for greenery – a key producer of carbon offsets – in higher density urban development.
  • Moreover, the greatest correlation between energy and water use (and hence, environmental impact) is based on per capita income. Wealthy people consume more energy/water and thus have a bigger environmental impact.  Only the top 10% can afford a downtown apartment.
  • And research by the Australian Conservation Foundation found that in almost all Australian cities, inner city housing produced higher per capita greenhouse emissions and had larger eco footprints than outer suburbs, notwithstanding the greater access to public transport.

Myth 3 – Most jobs are downtown

There is a widespread presumption that central business districts and their immediate fringes contain the majority of jobs in a city’s economy.

Developing housing further from the downtown area, the argument goes, will only mean more congestion as commuters try to get in and out of the downtown area.

It is easy to understand how this myth developed – the CBD/fringe holds the tallest buildings; the seat of government is often located there; so, too, are many cultural facilities; they are the hub of train/tram networks and the focus of much of our angst about traffic congestion.

But the inner city suburbs are home to around 25% of all jobs in a city’s metropolitan area and just 10%, when looking at the CBD alone.

So, 75% of our jobs are actually outside of the downtown area.

The implications of this are profound.  Our elite friends often propose policy based on this myth: that urban dispersal of housing will mean longer commutes to work.

The facts are that most commutes within a city are across suburbs and not downtown.  Unfortunately, this type of travel (and the nature of the work involved) makes it impossible to service efficiently via public transport.

So in truth, more housing on the urban fringe will not, in itself, lead to more inner-city congestion, but will produce more suburb-to-suburb work trips.

End note

Perhaps, as a priority we should:

  • Add more vehicular river crossings in a city like Brisbane,
  • Create a better ring-road system, and
  • Decentralise more of the workforce to suburban and regional locations

…rather than advocating downtown infill redevelopment and heavy inner city-centric infrastructure spending as a cure-all.

Pulse Points

I apologise for the length – a rare thing for me to get to say, given my size, stature and makeup.   But seriously, some Missives are more important than others.

Please grind through this one.  It is driving my investment thinking.


A select few areas in Australia generate most of our wealth.

These are often a very long commute from where many Australians live.

If the current trends continue, more people will want to live closer to these economic generators; hence the rising attraction for more compact living.

But most cannot fit into or afford to live in a downtown apartment.

More infill development is needed, coupled with better transport infrastructure, plus an active government programme to decentralise some of our knowledge-intensive work activities to our more suburban settings.

This reissue – yes, we have published this as a PDF in the past and it is a summary of a great report from the Grattan Institute (go here to get the report) – for mine, also shows that investing outside of a major “economic” centre is increasingly fraught with risk.

There are exceptions, but the trends appear to be stacked against them.

A brief history

Just over 100 years ago, we were actually living our reputation – dependent on the bush.  About four million Australians lived on rural properties or in small towns of fewer than 3,000 people.  Most were market towns, serving the agricultural economy.

Only a third of Australians lived in a city the current size of Toowoomba (i.e. over 100,000 people).  Primary production, including mining, was almost all we did.

Post WWII, manufacturing took over from growing and digging things, accounting for a quarter of the workforce and a third of our GDP.

This led to a rapid rise in household wealth and a big shift to urban living, especially suburban homes.

By the time I was born – the mid-1960s – three out of five Australians lived in a major city.

Manufacturing has greatly influenced how our cities are laid out.  Industry needed cheap land.

The rise in car use and ownership helped make manufacturing and suburbia go hand in hand.

By the time I started high school, four out of every five trips were made by car.


Fast forward to today and Australia is no longer driven by what we make, but rather by what we know and do.

Yes, mining has been pivotal to our economic growth in the recent past, but it employs just 2% of the workforce, and has never accounted for more than 10% of our GDP.  At last count, it made up 5% of our economy.

Our economy is increasingly becoming knowledge-intensive, more specialised and much more interconnected.

Think – specialisation of labour – three very important words to really grasp.

Australian cities

Did you know that our five largest urban areas – Sydney (plus Wollongong and Newcastle); Melbourne; south-east Queensland; Perth and Adelaide – account for almost two thirds of our economy?  That’s 67%…and that isn’t a typo.

Our graphic, this update, maps out the Australian economy.

Australia’s largest cities are critical to their respective state’s economic performance, with Melbourne, for example, accounting for 79% of the economic activity in Victoria, whilst Brisbane (in the most decentralised state), makes up 46% (with SEQ 59%) of Queensland’s economy.

Brisbane’s economy alone is estimated to be in the order of $136 billion.

Even regional economic activity and its growth are tied to our larger cities.

Regions within an acceptable commuting distance are typically growing much faster than more distant regions.

Of course, in each city, economic activity is more concentrated in some parts and less so in others.

In fact, many parts of Australia’s cities produce relatively low levels of economic activity, despite a lot of people living there.

Most live in these areas of low economic activity and commute to work in employment nodes.

Brisbane case study

The Brisbane CBD generates about 20% of the city’s economic growth.  This is six times that of the next most productive area in the greater Brisbane area.

These secondary centres of economic activity include Rocklea/Acacia Ridge, South Brisbane, Paddington, Fortitude Valley and Brisbane Airport.  As is the case with the other major capitals, most of Brisbane’s economic activity takes place in and around its CBD.

Why? Because businesses are more productive when they interact with larger numbers of customers, suppliers and competitors – and when they are forced to do so with more frequency.

Again, think specialisation of labour.  This is the real force shaping whatever lies ahead – urban development, jobs, investment, wage growth etc.

The same phenomenon applies when looking at why larger cities are more economically productive than smaller ones, or those in other parts of country.

Today’s conundrum

Most Australians today are employed in the service industry; and whilst a lot of these are becoming more knowledge-intensive, or at least involving greater use of technology, seven out of ten jobs still remain outside of our inner city areas.

It’s true that a large number of knowledge-based workers believe that the benefits of living close to the city outweigh the higher cost of housing; less dwelling space and generally greater expenditure needed to be an inner city resident.   Yes, it does cost more.

But many of us cannot afford to live downtown.  Yet, for the economy to function, we do need to live within an acceptable commute to work.

Even more so, if we are to see more part-time jobs being created in the future.

This casualisation of the workforce is due, ironically, somewhat to our greater use of technology and increasing emphasis on becoming a more knowledge-based economy.

So, either more infill housing needs to be built across our middle and outer city suburbs; or we need better transport systems between home and major places of work; or more knowledge-based work needs to be moved to where people currently can afford to live.

A combination of all three is what’s really required to help Australia’s economy grow.

End note

It appears somewhat safe to assume that the service industry will remain our biggest source of employment and increasingly the muscle behind our economic growth.  Once more – labour specialisation.

Most service-related jobs are concentrated in small areas.  As a result, our economy is – as our map clearly shows – clustered into a handful of urban areas – and within them, in even tighter geographic confines.

This geographic trend looks set to continue – even accelerate – into the future.

That being true, then it looks to me that it would be best buying an investment property in one of the bigger red dots on our map, rather than in a more regional locale.  Of course, good exceptions do apply.

When it comes to buying within an area itself, it might be best to buy as close to one of the city’s economic “pulse points” as you (and your tenant profile) can afford.

Copy link
Powered by Social Snap