Tuesday, May 6, 2008

Bob Birrell, wrong.

Reflecting on a seminar I went to, quite a while ago, I remembered Dr Bob Birrell from Monash University's Centre for Population and Urban Research (CPUR) saying something like "people want to live in the fringe suburbs---that's why they build them."

The inner economist in me wanted to question this. "Don't people show what they want by how much they're willing to pay to get it?" That's pretty fundamental to economics. If somebody wants one thing more than another, they will pay more for it. Consistent with this, when one person's income increases, their capacity to afford what they want increases, and so their consumption of desirable goods increases.

So do people really want to live in the fringe suburbs, as Dr Birrell would have us believe?

It would seem not. People live in the fringe suburbs because of budget constraints. As many times as you tap your toes together, the fact people pay more per square foot to live close to public amenities (and life) seems not to go away.

Shouldn't we be looking at why the outer suburbs are cheap, and assessing why they are so, determining it is because they are not inner suburbs, and designing future fringe developments like inner suburbs? I think so.

Bogan Tax

On the 250 bus, I bumped into an old friend, Genesis. We talked, as economics students do, of economics, and joked on that topic too. But there was a serious point made. (Actually, this resulted from a commonly had conversation on public transport---that public transport use increases as you increase the number of services, but service providers are often reluctant to run extra services because of the low initial patronage). The point was that people that live in the inner suburbs subsidise the lives of those in the outer suburbs. This goes a way to explaining the cost differences between inner an outer suburbs (there are many, but these are for future blogs).

Urban sprawl is expensive. The per-unit cost of attaching houses on quarter-acre blocks to public utilities---gas, water, roads, schools, etc.---is higher than in denser, more central suburbs. Under the universal service obligations of our utilities providers, however, somebody in Brunswick pays the same utilities rates as someone in Cragieburn, despite the fact it costs far less to provide that service to the Brunswickian. This means that necessarily inner suburbs subsidise the inefficient outer suburbs.

Normally, when we have negative externalities occurring from a type of consumption, we try to dissuade this type of behaviour. A common prescription is a tax: think cigarettes, alcohol, or gambling. Such taxes are generally easier to impose, as there is often already a cultural bias against those activities; anything which lessens that sort of behaviour is more acceptable. How, then, can governments dissuade people from living in outer suburbs, which have many negative externalities, and have not reflected in their housing costs their true costs imposed on society?

Any government which imposed a 'bogan tax' on the outer suburbs would have limited prospects, electorally. Such a sentiment may not be rational, but it would be. You simply could not say to outer suburbs resident: 'because you can't afford to live in the inner suburbs, you must pay an additional tax.' (which of course, is how it would look).

I would say that a far better way to impose such a tax, would be to slowly unravel universal service obligations, to reflect the marginal costs of providing services to specific areas, and properly assign the different marginal willingness to pay of different regions. Such a setup would allow utility companies to make their money from regions with the capacity to pay more (say, the Pilbara Coast, to which city residents effectively pay subsidies), and lower utility fees for suburbs without the means to afford them, or that cost less to provide services to.

Until we get the incentive mix right, town planning in this country will continue to favour the inefficient, ecologically unsustainable fringe developments of our major cities. Is that what our governments really want?