The spatial changes under way exacerbated by Covid are changing suburbs and regions – and maybe even countries – but will the likely results include more inequity?
A good year into the pandemic and has much changed? Back in lockdown, and the gloss appears to have come off Sydney as the world’s best big city, safe haven.
Sydney was a successful city prior to the pandemic and up to the July 2021 lockdown it was looking like we had the best governance you could and were dodging the real health crisis. Not so much now. However, by global standards the current Delta outbreak is minor. The city stress test is still underway. This place is still lucky and well governed.
What fascinates me is how a crisis like this manifests itself spatially. Covid will fuel and bloat current city formation trends, not fundamentally change them.
And like the technology changes of the late 1990s and early 2000s, where it was predicted regions would boom as communication technology improved (that never happened), the rush to the regions is apparently on again. While the jobs may not be going there, the people with jobs apparently are or are at least buying the property there (more on that later).
Sydney was a second tier super star city before the pandemic. Places like Sydney and Australia in general are becoming the Switzerland of Asia.
Billionaires like to build their end-of-world bunkers in New Zealand and while Australia may not be first-in-line for these projects, it is a better than average place to bank your cash once you have it. The pandemic and the rise in authoritarianism that seems to come with it, has made safety and security more important. The value of some of the things that Sydney has (such as distance, safety, and good governance) have become more valuable. This might be Sydney’s chance for first tier status.
COVID, or rather its financial effects, is a turning point. These points of change happen infrequently and change places. Student of social sciences will remember that the late 1960s (1968 was always popular) as a turning point, from the modern to the postmodern. When the mobility of money shifted from a national to global focus, and to a certain extent from the real to the abstract.
Nixon took the US dollar off the gold standard in 1971. You could no longer show up at Fort Knox and cash in for gold. The price of a nation’s currency was linked to a perception of the value of its economy, the worth and competence of their government, and basically what people were willing to pay for it.
Cities become heavily influenced by this switch from national to global capital, some industrial cities declined, and some inner-city areas became gentrified. Cities, at least in the developed world, started to develop to consume location, not as a function of production, but as a preference of global capital.
The often-quoted prediction that the fall of the Soviet Union in 1990 was the end of ideology and heralded a new hegemony for liberal social democracy, now seems a bit silly. Perhaps Putin, Xi Jinping and the Taliban (who’s in charge there?) never got their translation of The End of History by Francis Fukuyama.
The 2001 war on terror and the 2008 global financial crisis were political and economic failures. I don’t see these events as fundamentally changing the world, as evidenced by the depressing return of the Taliban and continuation of asset price inflation (bubbles).
I tend to think 2020/21 is the new 1968 and the big monetary change is a further abstraction of money or rather capital and added to that an abstraction of labour.
This more abstract (and bloated) idea of money also preferences places on a national and perhaps in a less discriminate spatial level. The traditional centrifugal forces that concentrated value in the centre of our big cities may have slowed down, just like the north Atlantic current.
COVID seems to be about the nation state again. Has the super star city been replaced with super star countries?
Working remotely seems to be working and if it works for the boss and his flunkies that is what counts. This change in how we work will promote inequality and exacerbate existing inequalities. The losers are the young and those that can’t work from home. The winners are the mind-workers and asset owners. When this group say something works, it is code for working for everyone. Same, same but worse.
Political events are important, but it is the economic consequences of those events that shapes cities. So, what does the data tell us?
Money is still coming to us, in fact the M3 money supply, which is a broad definition for liquidity in our economy is booming.
Figure 1: Boost from foreign capital flowing into Australia as deposits data from the RBA, supplied by COREDATA RESEARCH, www.coredata.com.au
Just when COVID hit in March 2020 there was a jump in money supply and as people started losing jobs it continued to rise. Pre-COVID the inflows into the M3 money supply averaged around $2149 billion a month and jumped to around $2263 billion or, based on the pre-COVID average, has put on $114 billion to June 2020.
The marked growth in Australia’s money supply seems to suggest you don’t have to print money anymore, a well-run country just attracts money.
The spatial down-side is that the money may be sucked out of less fortunate places. Such as places like China, where fund managers have started to realise there might be a bit more sovereign risk than suspected (that’s different to growing a conscience).
This is the downside of Modern Monetary Theory that states good governments can print and spend as much money as they like, and it is not necessarily inflationary.
Bernie Sanders in the US was a fan. I am not so sure current asset prices in Australia support that view. It’s not just the money you print that is held or attracted by good government, it’s also the loose stuff (before it ends up in an asset or debt).
This trend will bloat Australia and continue our “Switzerlandisation”.
Asset prices and housing
In terms of Sydney house prices from the March 2020 quarter onwards they boomed and for units there was growth but less. In the rest of the NSW, houses have also shown steady growth and unit sales growth too but less so. The regional housing prices are growing like the city during COVID. That is a shift to the regions.
The idea of the house in the city is still paramount. But prices and rents are now prefencing middle ring, suburban and regional locations over the inner city. This is most demonstrable in rental vacancy rates in Sydney.
Sydney’s Inner city traditionally tracks at a vacancy rate of around 3 per cent. The general housing vacancy rate in Sydney for the 2016 census was 11.2 per cent for all dwellings, so a 3 per cent or under vacancy rate is a tight market.
In the two months prior to the pandemic (January and February 2020), vacancy rates in the inner city were 2.95 per cent, the middle ring 3.75 per cent and outer ring 3.4 per cent. Over this period the regions all tacked under 3 per cent.
From March 2020 to June 2021, the inner and middle ring averaged a 4.6 per cent vacancy rate and peaked at 5.8 per cent in both markets. The vacancy rate data seems to say the inner and middle ring rental markets are merging.
In the regions, from March 2020, cruel rental vacancy rates of under 2 per cent became the norm.
In terms of rents, in the city house rents stayed strong and there was a decline in unit rents that was more acute in inner city areas.
In the regions there was steady growth in both unit and house rents. Anecdotal evidence also suggests some inner-city rents have fallen by 20 to 30 per cent. Good for tenants, bad for landlords, indifferent for property investors according to their behaviour.
This could all be a blip. Without tourists, intra migration (people are just not moving around as much) and with less overseas students, those inner-city markets have less people to compete for rents. Maybe we will go back to the Sydney norm after COVID. The market for houses seems to think so, as static, or declining rents have not dampened unit and house prices.
Anecdotal evidence suggests property prices are booming in regional areas since the July Sydney lockdown. Apparently, some properties are being bought sight-unseen off the internet listing to the delight of local agents. Is this the switch to the regions that the romantics have always hoped for?
The jobs shift is significant in equitable terms
The jobs going to the region are still largely linked back to metropolitan enterprises. When real jobs get there from these businesses, they are going to want their pound of flesh. Banks might set up work hubs in places like Gosford to give their mid-level workforce some relief from commuting and as working from home kind of worked out.
However, the trade-off for those employees will be reduced salaries and opportunities.
A colleague working in HR in a big technology company tells me the big corporates are already tracking employees working from home, grading them by where their IP address is and adjusting their wages at performance review time accordingly. Rose Bay gets more than Bateau Bay.
The big salaries are still going to the city and an adjustment to a remote regional workforce is only going to entrench inequality and access to opportunity.
The best you can be in the regions will be the manager of the work hub not the general manager.
In terms of how these trends manifest spatially, I would suggest that it will be an expanded version of the previous trends.
Just as the inner city grew post 2000 – Marrickville became the new Newtown and so on – the pandemic will further spread this gentrification trend but expand it to parts of the middle ring and near regions and the nice more remote regional areas (hello Byron). Inner and middle ring Sydney will become the new inner city.
This trend will also be hastened by large road and rail infrastructure projects like West and NorthConnex, and metro rail from the city to Parramatta and Bankstown opening over the next 10 years.
The spatial effect of these projects is to “inner-cityise” the middle ring. COVID is accelerating this trend, like a sci-fi movie where the morphing alien organism in the cargo hull that expands every 48 hours just made it to the lower deck and is making the captain on the bridge nervous.
The gentrification bubble will expand and it’s not an alien cancer (unless you’re in the National Party). The middle ring will become the inner city, but not as we know it.
Much of this change is based on migration returning to old levels or better. I tend to think migration will increase, if for no other reason than because climate change and its associated calamity will force people here. Even Peter Dutton and the xenophobes he represents can’t stop that. That is because Covid may be a broader switch from gentrified places to gentrified nations.
NOTE: With thanks to Andrew Inwood from COREDATA RESEARCH for supplying the M3 data.
Philip Bull is the principal of Civic Assessment a development consulting business, focused on development and social impact assessment. He has worked in the planning departments of Woollahra, Botany, South Sydney, Randwick, the City of Sydney and Waverley Councils.