QELA Regional Intensive conference - 14 October, 2017

Economic Drivers and Population Projections

for Regional Queensland

By

Jon Norling

Norling Consulting Pty Ltd

Abstract

Whilst population growth in South East Queensland is relatively stable and predictable, Regional Queensland suffers from having narrower economic bases, which are more subject to boom/bust scenarios.  This poses unique challenges in planning for future growth scenarios.

The Whitsunday Region is regarded as being an exemplar of Regional Queensland, being reliant upon mining, tourism, agriculture and potentially industry in the future.  This Council’s new Planning Scheme (following Council amalgamations in 2008) became operational on 30 June 2017 and the author prepared the supporting Whitsunday Region Economic Analysis: Economic and Population Study in November 2013.

This Paper reviews the particular population and economic issues facing Regional Queensland and references the Whitsunday Region as a case study.

Historic Population Growth

This section reviews the historical pattern of population growth and how it has been impacted upon by various economic drivers.

South East Queensland has consistently derived a higher annual population growth rate in comparison to both Queensland (averaging 0.4 percentage points per annum higher) and Regional Queensland (averaging 1.1 percentage points per annum higher) over the past 25 years (Figure 1).  South East Queensland has also obtained a lower variation of its annual population growth rate over this period (a spread of 1.2 percentage points) in comparison to Regional Queensland (a spread of 2.3 percentage points, almost double) (Figure 1).

Source: ABS

Given the larger population base of South East Queensland, this more populated part of the state has attracted more than three-quarters of the state’s population growth over the past 25 years (Figure 2).  This helps to explain the strong developer interest in South East Queensland over this period.  Again, Figure 2 shows a much greater variation in the annual population growth of Regional Queensland (16,300 persons + or - 94%) in comparison to South East Queensland (59,200 persons + or - 34%).

Source: ABS

In order to explore further the variation in historic population growth within Regional Queensland, Regional Queensland has been divided into five broad areas: Coastal (14 local government areas extending from Cairns in the north to the Fraser Coast, less the Bowen part of Whitsunday Region); Bowen Basin (Banana, Isaac and Central Highlands local authority areas plus the Bowen part of Whitsunday Region); Surat Basin (Maranoa and Western Downs local authority areas); Indigenous (17 indigenous local government areas); and Rural (the remaining 31 local government areas).

Figure 3 demonstrates that the Coastal area commanded the largest proportion of population growth (84%), followed by the Rural area (13%).  The Indigenous (2%), Surat Basin (1%) and Bowen Basin (less than 1%) generated the smallest population growth numbers.

Source: ABS

Figure 3 also shows that not one of these areas exhibited a stable growth pattern.  All showed a significant variance over time, with all bar the Coastal area incurring a negative population growth at least once over this 25 year period.

The economy of the Coastal communities is based upon tourism (particularly Cairns and Whitsunday), lifestyle living, sugar and administrative services (directly servicing 65% of Regional Queensland’s population).  Mackay and, to a lesser extent, Rockhampton are also major service centres for the coal sector.  The major influences on population growth in this area appears to be lifestyle living and tourism.  Significant slowdowns in population growth occurred in the late 1990s, the commencement of the GST and in 2015 and 2016.

“The Kennett Factor” played a major role in the reduced population growth in the 1997 to 2001 period.  Jeff Kennett was Premier of Victoria from 1992 to 1999.  Upon being elected Premier, he immediately made major cuts to spending, sacking tens of thousands of public servants, pushing many into leaving Victoria, some of which were attracted to Queensland.  However, towards the end of his Premiership, those hard decisions began to bear fruit and the mass exodus from the state turned into a net gain of interstate migration for Victoria from 1998 to 2002, with the consequential effect of slashing Queensland’s positive net migration during that period.

The Rural communities derived a growth rate that was about one-third that obtained by the Coastal area.  This area performed particularly well during the 2005 to 2013 period, coinciding with the strong coal and gas sectors.  It is relevant to note that Toowoomba generated 79% of the Rural area’s population growth over the 25-year period, resulting in growth in the smaller Rural local authorities being relatively minor (averaging only 0.2% per annum).

The Indigenous communities have obtained modest growth over the past 25 years, with population being drawn to employment in larger centres when the economy has been strong, such as the period leading up to the GFC.

The Surat Basin community enjoyed relatively strong growth during the 2006 to 2013 period, coinciding with a ramp-up in the establishment of gas wells and associated pipeline infrastructure in the Basin.  Population declines have mostly been recorded at other times, reflective of reducing levels of employment in the agricultural sector in this Basin.

The Bowen Basin community enjoyed relatively strong growth during the 2002 to 2011 period, coinciding with a ramp-up in the expansion of coal mines in the Basin, in response to an increasing coal price.  Population declines have mostly been recorded outside this period, reflective of reducing levels of employment in the agricultural sector in this Basin and the replacement of the historic permanent workforces with transient workers.

Source: ABS

Population growth across the seven major cities of the Coastal area have not been uniform across this 25-year time period.  Whilst population growth in terms of overall numbers has been highest in Cairns and Townsville, all major cities have suffered from significant variation in population growth.  The central cities, between Townsville and Bundaberg have suffered from negative or negligible growth over the past couple of years, due primarily in the cost-cutting measures being undertaken by the coal sector.

Source: ABS

Economic Drivers

This section explores the factors surrounding a number of key economic drivers affecting Regional Queensland.

Coal

Since the mid-1980s, Queensland has been the major producer of coal in Australia.  A high proportion of Queensland’s coal comprises the higher priced metallurgical coal used in the manufacture of steel.  The majority of the state’s coal mines are located in the Bowen Basin, which contains Australia’s largest coal reserves.  The state has tripled production over the past 25 years (Figure 6).  The dip in production levels during the 2011 and 2012 financial years was caused by flooding adversely affecting performance levels of the mines and the supporting infrastructure.

Source: DIIS, DNRM 

However, Figure 6 fails to show the boom/bust cycle exhibited by the coal sector over this period.  Major investment in new mines, mine expansions and large expenditures on maintenance contracts occur in times of high coal prices, whereas periods of low coal prices see mine closures, mine cutbacks, cutbacks to maintenance contracts and other cost-cutting measures taken.  Booms have historically occurred in the late 1960s and the early 1980s.

The latest coal mining boom occurred in the late 2000s and ending in 2012 following the collapse of the coal price.  Figure 7 shows this pattern, with prices peaking in 2009 and falling to low levels once again in 2016.  Prices have rebounded by late 2016 and are presently at around A$120/t for thermal coal and A$200/t for metallurgical coal.  However, this recent rally has not yet transferred into a new boom, with the recent bust being fresh in the memories of the miners.

Source: DIIS 

This boom/bust cycle is reflected in the population data for the Bowen Basin area, as shown on Figures 8 and 9.  Figure 8 shows that the population growth rate of the Bowen Basin area has consistently under-performed that of Regional Queensland (it has actually been negative for half of the period since 1992).  However, when the transient workers are added to the mix, very strong growth was recorded in the 2008 to 2012 period, followed by negative growth thereafter.  Whilst data for transient workers prior to 2005 is not available, Figure 9 clearly shows that the major beneficiary of the latest coal mining boom was transient workers rather than permanent workers.  This reflects a radical change in direction by the mining companies, which now consider that the most cost effective form of labour is a transient workforce rather than a permanent workforce.  This has placed considerable stress on mining towns and the people that live and have invested in them.

Source: ABS 

Source: ABS

The future of the coal sector in Queensland and how it translates into population growth is dependent upon the coal price, the rate of expansion of the Galilee Basin, the mix of permanent and transient workforces and, in the longer term, the role of coal in a world that is mitigating against and adapting to climate change.

Whilst the coal price is likely to continue to experience short-term volatility, the World Bank is projecting the thermal coal price to remain in the US$55/t to US$60/t band, which is well below present levels.  Based upon the current exchange rate, this equates to A$69/t to A$75/t.  If these projections hold, then any future boom periods are likely to be more measured than we experienced in the late 2000s, when the cost of expansion was not considered a major issue.

In August 2017, the Strong and Sustainable Resource Communities Act 2016 was passed by State Parliament, which has been designed to curb the recent growth of FIFO workforces, which had been to the detriment of permanent populations in local communities.  It is too early to predict how successful this Act will be.  However, transient workforces have become established as fixtures in this industry sector and are well suited to construction workforces and remote locations.

Adani’s Carmichael mine is the most advanced of the Galilee Basin prospective coal mines and there are another four mines in various stages of the planning and approval process.  All five prospective mines are very large and located remote from existing townships.  Workforces are likely to be transient, benefiting (in a population sense) the Coastal area of Queensland.

Coal’s long term future will be dependent upon the industry developing cost effective carbon capture and storage (CCS) techniques.  Economic modelling has shown that if CCS technologies can reduce carbon leakage to below 10%, coal usage for global electricity generation would increase significantly above current levels and then drop back to current levels by 2100.  Not surprisingly, it has been estimated that coal usage for global electricity will cease by about 2040 if CCS technologies fail to deliver a 90% reduction in emissions and the world proceeds along a path to avoid the worst of climate change impacts.  Overseas efforts on CCS technologies have looked promising, but there has been very little research and investment undertaken locally along this path.

It is projected that coal production will continue to expand at measured levels in Queensland, with expansions occurring in a way that maintains control over capital and production costs.  The transient workforce will continue to remain a major feature of the workforce and some areas within the Bowen Basin will actually continue to record population declines.  Coastal areas of Queensland will house the expected increase in the transient workforce.

Gas

Gas has become an increasingly important industry for the state, with the recent development of three LNG plants at Gladstone.  Gas has a lower carbon emission per energy unit than coal and is viewed as an important source of energy over several decades as the world transitions to a lower carbon footprint.

Figure 10 shows annual gas production in Queensland over the past 25 years.  It clearly demonstrates that reliance has shifted from conventional gas to coal seam gas during the 2000s.  It also shows the rapid ramp-up in production during 2015/6 in order to feed the opening of the new LNG plants.  Queensland production is estimated to reach 1500 PJ during 2018.

Source: DIIS

However, Figure 10 fails to show the massive investment in exploration, drilling, pipeline construction and construction of the LNG plants in the period leading up to the successful operation of the plants.  It also fails to show the recent decline in that investment over the past two years as a result of a falling oil, rather than gas, price.  This is due to the major gas companies also being involved in the oil sector.  When oil prices plummeted at the end of 2014, gas companies were forced to reduce capital expenditure, which included investment in new gas wells.  As a consequence, the planned activity in the Surat Basin was significantly curtailed from about 2015.

Figures 11 and 12 clearly demonstrate these impacts upon the population of the Surat Basin, with once again, the transient workforce being the major beneficiary of the 2011 to 2014 boom.

Unlike coal production, once the gas wells and associated infrastructure have been constructed, the operational workforce is quite small.  Consequently, whilst expansion of the gas fields is expected to continue in the Surat Basin, the boom conditions experienced in the 2011 to 2014 period are not likely to be replicated.  Modest population growth is expected in this area.

Source: ABS 

Source: ABS 

Mention should also be made of the well-publicised projected shortfall of gas supplies in the country.  The ACCC’s Interim Report (September 2017) clearly shows that the shortfall will occur in the southern states, with Queensland producing sufficient to satisfy Queensland’s domestic and export  market.  However, the Federal Government is expected to limit export volumes of gas to favour the domestic market at lower prices.  This may adversely affect economic performance of this sector, although employment levels should remain unaffected.

Agriculture

Agriculture has formed the major economic base of much of Regional Queensland.  In the financial year ended 2016, the value of agricultural production increased to $13b.  Cattle is the mainstay of this sector, accounting for almost half of total production.  Significant variability in production volumes are shown by sugar (due to price fluctuations) and cotton (rainfall).

Source: Queensland Treasury

The majority of agricultural production involves dry land farming, which relies upon rainfall.  Even cotton and some of the irrigated crops requires the capture of the water from rainfall.  Accordingly, the state is very much dependent upon rainfall to underpin production volumes and quality.  By way of example, Figure 14 provides the rainfall experience at Longreach, a central location in the state and a major centre for cattle production.  This figure shows the extreme variability of rainfall, with drought being experienced in the early 1990s, early 2000s and mid-2010s.

Source: Bureau of Meteorology

Too much rainfall can also adversely affect production, with cereal crops being lost in the 2010/11 floods, for example.  World demand for food continues to increase through both population growth and changing diets.  Queensland has the capacity to increase food production exponentially through capital investment, implementation of new technologies and improved irrigation systems.  Whilst these changes appear to be happening too slowly and employment is being lost to the mining sector, a major piece of the puzzle has yet to be solved – identifying new markets and sourcing cost effective means of transporting fresh produce to those markets.

Consequently, it is expected that agricultural production in Queensland would continue to expand at modest levels, but that technological improvements will result in only minor increases in consequent employment and supporting population.

Tourism

Queensland’s tourism industry has effectively stalled over the past two decades.  Following a major transformation during the 1980s and again in the late-1990s, capital investment has subsequently generally languished.  Whilst strong interest in Australia remains with overseas visitors, Queensland’s tourism industry has suffered from a series of factors to arrest prospective growth trajectories before they were able to achieve any momentum.  These factors included the 9/11 attacks (2001), Ansett Collapse (2001), SARS outbreak (2003), the GFC (2008) and the soaring Australian dollar (2011).

Figure 15 demonstrates that it took seven years for Queensland’s tourism numbers to match the pre-GFC levels.  Significant growth above previous benchmarks has finally been recorded in the 2015 and 2016 financial years, following a decline in the Australian dollar and a gradually improving global economic outlook.

Source: Queensland Treasury

Figure 16 documents the fluctuations of the Australian dollar in comparison to the US dollar since 1991.  During this period the Australian dollar peaked in 2008 and again in 2011 and 2012.  At levels approaching or exceeding parity, Australia becomes a more expensive destination for overseas travellers (depressing international visitors to our country) and overseas destinations become less expensive for Australian travellers (depressing domestic visitors within our country).

A general ‘rule of thumb’ can be surmised along the lines that when the Australian dollar is less than USD0.80, Australia is a competitive destination, whereas when the Australian dollar is above that level, Australia is less competitive and the tourism sector in Queensland is adversely affected.

The future of Queensland’s tourism industry is uncertain.  Our future exchange rate is difficult to project and the nature and timing of future shocks to this sector are also outside the realms of forecasting.  Notwithstanding these difficulties, Queensland faces another hurdle.  Its tourism accommodation (in particular) and supporting infrastructure is aged and tired.  Significant new capital investment is required to stimulate the market and act as a catalyst for the refurbishment of existing assets.  Recent interest by Chinese investors is a positive sign and the Queen’s Wharf project is the type of ‘game-changing’ required to stimulate the market.  Whilst located in South East Queensland, it should also generate spin-off benefits for the regions.  The USA is also expected to increase its interest rates towards the end of this year, which should result in a lowering of the Australian dollar.

Source: Reserve Bank of Australia

Lifestyle Living

Queensland has been a major recipient of interstate migration for several decades.  It has been a major driving factor in population growth in both the South East corner and in the Coastal parts of Regional Queensland.  This Coastal area fits the ‘sea change’ criteria, with Sydney-siders able to relocate and cash in on the significant house price differential between the two locations.

Figure 17 identifies the net interstate migration experience here in Queensland.  It shows strong rates of growth in the mid-1990s and again from 2002 until the onset of the GFC.  As previously explained, the downturn in the late 1990s was caused by the ‘Kennett Factor’ and since the onset of the GFC, Queensland’s economy has generally been performing below that experienced in NSW and Victoria.  The lack of available jobs during this period has clearly undermined the level of interstate migration this state had previously enjoyed.

Source: ABS and Queensland Treasury

The significant house price differential between Queensland and the southern states has recently widened, suggesting that an improved net interstate migration outcome could return swiftly.  However, the Queensland economy remains in a weakened state and would need to significantly improve before an improved interstate migration scenario is achieved.  In particular, there remains a large infrastructure spending gap between this state and the southern states.  The proposed Cross River Rail may remedy this situation.  From a Regional Queensland perspective, North Queensland Stadium, the Toowoomba Second Range Crossing and the Inland Rail may help redress this gap in the future.

Queensland’s economic foundation fundamentally changed with the onset of the GFC.  Prior to the GFC, Queensland was able to achieve a Gross State Product (GSP) in the order of 1.6 percentage points over Australia’s Gross Domestic Product (GDP).  Subsequently, Queensland’s GSP has average slightly below Australia’s GDP.  Whilst high coal prices propped up our economy in 2011 and 2012, the other parts of our economy have lagged, with the lack of interstate migration dampening the previously strong development and construction sectors (Figure 18).

Source: ABS and Queensland Treasury 

The future of interstate migration into Queensland is uncertain.  Whilst the significant house price differential and the cessation of the car manufacturing industry in the states of Victoria and South Australia were expected to benefit Queensland, our state has been unable to offer a sufficient number of job vacancies to encourage southerners to make the change.  Since the GFC, the annual net migration out of NSW has reduced substantially and Victoria’s net interstate migration has again returned to positive.

Until we can match infrastructure spending of the southern states and/or invest in new business opportunities that employ large workforces, Queensland is unlikely to return to the position of welcoming an additional 30,000+ net interstate migrants each year.

Projected Population Growth

Figure 19 provides a comparison of the Queensland Government Statistician’s Office (QGSO) medium series population projections with history in the same format as Figure 3.  That is, it shows the annual population growth of Regional Queensland, dissected into the Coastal, Rural, Indigenous, Bowen Basin and Surat Basin for the period from 1992 to 2036, with actual data presented up to 2016 and projections for subsequent years.  The figure clearly shows that projected annual growth is close to the peak historic growth recorded over the past 25 years and that future projections have not taken into account the recent downturn (including negative growth) recorded by parts of Regional Queensland.

Given the foregoing analysis of economic drivers in Regional Queensland, it is unlikely that a major upturn in population growth is imminent.  The linear projections also fail to show the cyclical pattern of population growth experienced by Regional Queensland over the past 25 years.  The QGSO projections are clearly optimistic.

Source: ABS and QGSO

To be fair to the QGSO, its latest projections were prepared in late 2015, about two years ago, and released in early 2016.  The projections do not have the benefit of more recent population or economic data.

It is therefore not considered appropriate to blindly adopt the latest QGSO medium series projections.  They are considered a useful starting point only.  For planning purposes careful scrutiny should be undertaken of all recently released population and economic data, consultation should be undertaken to determine the extent of business and development activity on the ground, assumptions should be made about the economic base and scenarios developed in order to postulate likely future scenarios.

Whitsunday Region Case Study

The Whitsunday Region is a unique case study of Queensland’s regional areas by featuring a number of different key economic drivers: coal; tourism; sugar; horticulture; lifestyle growth; and potential major industry.  At the time of becoming involved, we were presented with an unusual set of population data.

In late 2013, Norling Consulting completed the Whitsunday Region Economic Analysis: Economic and Population Study for the Whitsunday Regional Council.  Its purpose was to inform the preparation of the new planning scheme by analysing the economic drivers for the Region, projecting future population growth, projecting future employment growth and reviewing the capacity of the current zoning maps to accommodate the projected future growth.  This Analysis is a public document, set out on the Council’s website as one of the studies that underpinned its new planning scheme, the Whitsunday Regional Council Planning Scheme, which commenced on 30 June 2017.

Some of the challenges identified for the Region in that Analysis included:

1. The recent (at that time) rebase of the population by the Australian Bureau of Statistics, that resulted in changes to historical population estimates;
2. The latest (at that time) Office of Economic & Statistical Research (OESR) projections (2011) were clearly out of date and too optimistic (Figure 20);
3. The Region would be affected by four key economic drivers: tourism; mining; agriculture; and industrial; each of which involved differing factors driving them; and
4. All four key economic drivers were at ‘low points’ at the time.

Source: Whitsunday Region Economic Analysis: Economic and Population Study

In response to these challenges, seven different population scenarios were developed in respect of ten different planning areas over the Region.  The assumptions and projections were workshopped with Council, after which two specific scenarios were adopted for planning purposes: Modest Growth Scenario; and All Potential Growth Scenario (Figure 21).  In comparison to the language adopted by the Queensland Government Statistician’s Office, these two scenarios would respectively be equivalent to a position slightly below the medium scenario and equal to the high growth projections.

The latest estimated resident population for the Whitsunday Region (June 2016) of 34,626 persons is approximately one-third of the way between the Modest Growth and All Potential Growth Scenarios, indicating that so far, the Analysis projections appear sound.

Source: Whitsunday Region Economic Analysis: Economic and Population Study

The Whitsunday Region Economic Analysis: Economic and Population Study for the Whitsunday Regional Council recommended that Council plan to accommodate the All Potential Growth Scenario in a manner that does not commit Council to over-spend on infrastructure and/or result in an over-taxing of its ratepayer base.

A paper to be presented by Kylie Drysdale, Manager Strategic Planning at Whitsunday Regional Council, at this 2017 Regional Intensive will outline how the Council’s planning team addressed these and other challenges in the development of its recently gazetted Whitsunday Regional Council Planning Scheme.

Conclusion

From an economic and planning perspective, Regional Queensland suffers from a number of challenges, in comparison to South East Queensland.  Population growth is smaller and far more variable.  A number of key economic sectors influence this growth pattern, with some regions influenced by only a single sector and a small number influenced by several sectors.

Queensland Treasury (OESR and QGSO) releases population projections at discrete points in time and, whilst based upon the latest information at the time they were prepared, they can become out-of-date quite quickly.  They should be used as a starting point for planning, but not blindly adopted without some further analysis.

As has been demonstrated in this paper, population and employment projections are fraught with difficulties and it is recommended that a number of different scenarios are developed to suit the unique set of circumstances facing each local authority or region.  The triggers for ‘boom’ or ‘bust’ conditions should be set out so that each local authority can recognise the subsequent consequences should those triggers be encountered.

From a planning perspective, the consequential challenge results in a delicate balance between the allocation of sufficient zoned and serviced land to accommodate the most optimistic growth scenario, whilst at the same time not allowing the local authority to expend scarce infrastructure expenditure that cannot be recouped in a timely fashion.  This directly affects how land is zoned to accommodate growth, including the use of ‘holding zones’ such as Emerging Community and Future Industry zones, and the assumptions underpinning Priority Infrastructure Plans.

QELA SEMINAR – 27 October 2016

ECONOMIC EXPERT – 101

By

Jon Norling

Abstract

Economics is one of many disciplines the Queensland Planning & Environment Court draws upon as experts.  This paper seeks to provide an overall summary of the role of the Economic Expert in this Court, a basic “101” class as it were.  It provides an overview of the economic discipline, reviews the history of how we became involved in the Court process and summarises the key principles and terms applied by Economic Experts.

Economic Consultants

Economics is a social science that studies the wealth of people, businesses and nations.  In particular, it is a study of the allocation of scarce resources to satisfy the wants and desires of these three entity types.  It is thus concerned about individual, firm and national behaviours and how wealth is created, distributed and consumed.

Economics is typically broken down into two main streams; macroeconomics and microeconomics.

Macroeconomics is the study of economies at the global and national level, typically utilising a top-down approach and involving such concepts as national income, national output, economic growth, unemployment rate, price inflation, interest rates, monetary policy and fiscal policy.  Many macroeconomists are employed by treasury departments contained within the federal and state governments.  Some remain within academia.  A very small number act as consultants to government agencies.

Microeconomics is the study of how individuals and businesses operate within market systems, typically utilising a bottom-up approach.  Microeconomics involves concepts such as supply, demand, market power, market failure, monopoly, market equilibrium, economic cost of production, economic efficiency, comparative advantage, utility, marginal cost, elasticity, factors of production, externalities and uncertainty.  Microeconomists are typically employed within government departments, large businesses and academia.  A small number act as consultants to businesses and government agencies.

I describe myself and my competitors as applied microeconomists.  We apply microeconomic theory to problem-solve real world issues at the business level.  Most of our clients are businesses, although a portion of our work is relevant to government agencies.  Prior to the influence of the Planning & Environment Court (and its predecessors) our consulting projects typically involved the following:

1. Market assessments – assessing the market potential of a new product, project, property development, etc;
2. Feasibility studies – assessing the financial feasibility of a particular project, development or business unit;
3. Demographic reports – reporting on the population and demographic characteristics of a catchment within which a business was operating or intending to operate;
4. Highest and best use studies – assessing the various potential uses of a property and recommending the use that would deliver the greatest return to the owner;
5. Shopper surveys – surveys of shoppers to a shopping centre to understand their origin, characteristics, behaviour and attitudes.  This would assist the shopping centre owner with its marketing and development strategies; and
6. Branch location strategies – development of a strategy designed to maximise a business’ reach into a particular market sector.

A common theme to the above types of studies was the desire of our business client base to maximise its profits.  As discussed below, this is an aspect that is not relevant to the Planning & Environment Court, and hence the planning assessment process.

As a social science, we rely upon more than just the discipline of economics, borrowing heavily from geography, statistics, finance, market research and regional development.

Historic Involvement in Queensland Planning Assessment

To the best of my recollection and research, the role of the economic expert in Queensland’s planning system commenced, or at least increased exponentially in 1980 as a result of legislative amendments.  The Local Government Act and Another Act Amendment Act 1980 and the City of Brisbane Town Planning Act & Another Act Amendment Act 1980 required the preparation of an Economic Impact Assessment where a planning application applied to a Major Shopping Centre or part thereof (section 33(6A) of the Local Government Act 1936), with the relevant definitions being:

“Economic Impact Assessment – A study report including an assessment of the public need and demand for a major shopping development and a statement of the likely economic impact upon existing development of a similar nature or involving similar activities in the locality and in the estimated area of influence of the proposed development if such proposal were implemented” (section 33(1) of the Local Government Act 1936– emphasis added).

“Major Shopping Centre – A development that includes or comprises –

1. (a) the use of land exceeding 1.5 hectares in area or such other area as the Governor in Council prescribes from time to time by regulation; or
2. (b) the erection or use of any building or other structure or part thereof where the building or other structure or part thereof has a gross floor area exceeding 4,000 square metres or such other area as the Governor in Council prescribes from time to time by regulation,

where the use of land or the erection or use of the building or other structure or part thereof is primarily for the purpose of shops“ (section 33(1) of the Local Government Act 1936).

This Amendment was enacted by the then National Party government in response to lobbying efforts by Queensland shopkeepers who complained that the advent of new suburban shopping complexes during the mid- to late-1970s were forcing them out of business.

Economic consultants were then engaged by developers to prepare these Economic Impact Assessments and then by local authorities to interpret and peer review these Economic Impact Assessments.

The planning sections contained within the Local Government Act 1936 were then replaced by the Local Government (Planning and Environment) Act 1990, which included similar provisions.  However, the threshold for Major Shopping Centres was increased to in excess of 2.5ha or involving a floor space exceeding 6,000m² (s1.4(1)) and greater detail was set out for the requirements of the Economic Impact Assessment (s8.3(1)):

“For the purposes of this section the term “economic impact assessment” means a study report which is an assessment of the public need and demand for a proposed major shopping development and a statement of the likely economic impact upon existing development of a similar nature in the locality which is to include-

1. (a) a comprehensive statement of details of the proposed development incorporating the gross floor area of the proposed development, the types of major retailing envisaged (including pre-commitments, if any), vehicle parking provision proposed, major features (if any) and particulars of the site for the proposed development;
2. (b) the geographic identification of the primary, secondary and, where appropriate, the tertiary market catchments for the proposed development together with reasons to support that identification;
3. (c) assessment of the existing population in each of the catchment areas referred to in paragraph (b) together with the growth forecasts, demography and socio-economic profile for each population group identified;
4. (d) identification of existing and approved market competition for the proposed development in the catchment areas identified pursuant to paragraph (b) and the gross floor area and the nature of that competition;
5. (e) estimates of the value and distribution of retail sales within the total catchment area of the proposed development for the second year of trading of that proposed development;
6. (f) identification of the beneficial and adverse effects that are likely to result from implementation of the proposed development; and
7. (g) a summary of the findings of the study results.”

In 1992, the requirement to prepare Economic Impact Assessments for Major Shopping Developments had been removed from the Local Government (Planning and Environment) Act 1990 by the Labor government of the day through the Local Government (Planning and Environment) Amendment Act 1992.  But by then the role of economic experts had become entrenched in Queensland’s planning system.  Our involvement had been ongoing for 12 years and many local authorities had duplicated these provisions into their own planning schemes, ensuring that the requirement to produce Economic Impact Assessments endured well beyond 1992.

The increasing complexity of subsequent planning legislation ensured that the concepts of Economic Impact Assessments, public need and economic impact remained relevant, even after their requirements had been removed from the legislation in 1992.  The combination of strategies, planning policies, desired environmental outcomes and performance outcomes in planning schemes and the legislative requirements to demonstrate planning grounds and grounds perpetuated the involvement of economic experts from 1992 through to today.

This legislation may well explain why many of the economic consultants operating in this area are viewed as being shopping centre experts.  We are perhaps not as well-known as being experts in other industry sectors.

This combination of legislative and planning scheme requirements gradually spilled over to uses beyond shopping centres.  I have now participated in the planning assessment process for the following range of non-shopping centre uses:

1. Abattoir;
2. Aged care facility;
3. Airport;
4. Bottle shop;
5. Caravan park;
6. Car park;
7. Cattle saleyard;
8. Childcare centre;
9. Cinema;
10. Club;
11. Crematorium;
12. Cruise terminal;
13. Golf course;
14. Hospital;
15. Industrial;
16. Landfill;
17. Marina;
18. Medical centre;
19. Motel;
20. Nightclub;
21. Office;
22. Residential;
23. Resort;
24. Restaurant;
25. Retirement village;
26. Service station;
27. Tavern;
28. Tourist attraction;
29. Quarry; and
30. Workers accommodation village.

Essentially, economic experts apply the same suite of research tools to planning assessments that have been developed and traditionally applied to feasibility analyses.  The main difference is the focus upon public need and economic impact, rather than profit or return.  These tools include:

1. Gravitational theory to develop catchment areas;
2. Population projections;
3. Demographic analyses;
4. Surveys of shoppers and other members of the public;
5. Competitive assessments;
6. Supply and demand analyses, including various forms of modelling;
7. Input/output modelling;
8. Impact assessments; and
9. Assessment of externalities.

Key Public Need/Economic Impact Principles

The development of public need and economic impact principles in Queensland’s planning sector has mainly developed through the Court system.

A relevant starting point on the concept of need was set out in Watts & Hughes Properties Pty Ltd v Brisbane City Council [1998] QPELR 278:

“Need in the town planning sense does not mean a pressing need or a critical need or even a widespread desire.  A thing is needed if its provision, taking all things into account, improves the physical wellbeing of a community.  Need does not connote a pressing urgency but relates to the wellbeing of the community.  A use would be needed if it would, on balance, improve the services and facilities available in a locality.”

The following is a summary of the key principles of relevance to economic experts, although is by no means a complete list.

1. Need must relate to the community and not to an individual or applicant.  “A thing is needed if its provision, taking all things into account improves the physical wellbeing of the community” (Cut Price Stores Retailers Ltd v Caboolture Shire Council [1984] QPLR 126).
2. Need should not be speculative.  “It should not, in my opinion, be thought that a rezoning can be justified by merely contriving a need which is essentially nothing more than an exercise in entrepreneurial skill, the effect of which is to give the applicant some commercial advantage” (Williams McEwans Pty Ltd v Brisbane City Council [1981] APA 165).
3. Public need is not the same as demand.  “What has been shown is that there will probably be a substantial demand for the new complex … However, demand is not the same thing as need” (Queensland Investment Corporation v Toowoomba City Council [2000] QPLR 362).  “I interpret the phrase ‘public need’ as involving a different concept from the word ‘demand.’  The latter suggests a subjective desire for the development … A responsible authority should not permit the establishment of a white elephant” (All-A-Wah Carapark v Noosa Shire Council [1989] QPLR 155).
4. Need is not the same as economic viability.  “It should also be said that such an approach really looks at the matter from the point of view of economic viability which is not necessarily determinative of need” (TMP Holdings Pty Ltd v Caloundra City Council [2002] QPELR 1).
5. Need requires the existence of a latent unsatisfied demand and/or the demonstration that there is some inadequacy about the current range of facilities.  “Given an addition to existing choices a number of consumers are likely to avail themselves of it as a matter of human experience.  While this indicates a consumer preference, to an extent which is, however, debateable, it does not demonstrate inadequacy in the existing arrangements and therefore falls short of showing a planning need for the development” (Intrafield Pty Ltd v Redland Shire Council [2000] QPLR 337).
6. Need involves a lower test than pressing necessity.  “Need in planning terms is a relative concept.  It does not connote pressing urgency but rather relates to the general wellbeing of the community.  A use would be needed if it would on balance, improve the services and facilities available in a locality” (Roosterland Pty Ltd v Brisbane City Council [1986] QPLR 515).
7. Need does not involve arguments about better sites or the best use for the subject site.  “It was long ago established that in the former consent application appeals it was not the function of this Court to consider whether a better site existed for the proposed use but to decide whether consent should be given for the particular use on the particular site” (Ugarin Pty Ltd v Logan City Council [2004] QPELR 392).
8. Commitments by retailers is some assistance in demonstrating need.  “Various prospective tenants of the proposed shopping centre gave evidence of their plans.  Together they will take 1,530 – 1,620 square metres.  I consider that this alone is some indication of the need and demand for the proposal” (Shillington Investments Pty Ltd v Brisbane City Council [1992] QPLR 94).
9. Planning policies and other designated land and approvals is relevant to need.  “Planning need extends beyond economic or retail need, which is related only to public demand.  Planning need embraces a consideration of planning policies and documents” (Elfband Pty Ltd v Maroochy Shire Council [1995] QPLR 290).  “When considering whether additional land should be included within a zone, it is relevant to consider the extent to which land currently so zoned is available or can be utilised for the proposed purposes for which a need has been established … Once public need has been demonstrated it is then relevant to consider whether that need could be met by land already zoned or whether there is a public requirement that additional land should be set aside out of the Town Planning Scheme in order to meet that need” (Anka Builders (Gold Coast) Pty Ltd v Maroochy Shire Council [1986] QPLR 436).
10. Prematurity can undermine need.  “It would seem appropriate in those circumstances, to refuse an application which is contrary to the current planning documents and is premature in terms of any public or community need” (Family Assets Pty Ltd v Gold Coast City Council [2008] QPEC 003).
11. The consideration of need involves the consideration of a wide range of community benefits, including convenience, accessibility, choice, range, depth, price, employment, shopper comforts and amenity, economic sustainability, passing trade and escape expenditure.
12. Economic impact in a planning sense relates to the facilities enjoyed by the community rather than the profitability of individual businesses.  “If the shopping facilities presently enjoyed by a community or planned for it in the future are put in jeopardy by some proposed development, whether that jeopardy be due to physical or financial causes, and if the resultant community detriment will not be made good by the proposed development itself, that appears to me to be a consideration proper to be taken into account as a matter of town planning.  It does not cease to be so because the profitability of individual existing businesses are at one and the same time also threatened by the new competition afforded by that new development.  However, the mere threat of competition to existing businesses, if not accompanied by a prospect of a resultant overall adverse effect upon the extent and adequacy of facilities available to the local community if the development be proceeded with, will not be a relevant town planning consideration” (Kentucky Fried Chicken Pty Ltd v Gantidis [1979] HCA 20).

Following a detailed review of the above (and many other) cases, I have found it convenient to split need into three quite discrete parts.  These are community need, economic need and planning need.  Some of my opposing experts are uncomfortable about the planning need component (preferring to leave this aspect to town planners), although I consider that there is little overlap with the planners, as explained below.

Community need is about identifying how the community may benefit from the proposed facility.  It involves identifying who in the community would benefit, how many might benefit and how they would benefit (eg convenience, range, accessibility, price, etc).  This community need really relates to the demand element mentioned by the Judge in All-A-Wah Carapark v Noosa Shire Council [1989] QPLR 155.  Whilst it is perhaps difficult to think of a proposal that would not benefit someone or some element of a community, its identification, description and quantification should allow a view to be taken as to how strong or weak the community need might be.

Economic need follows from community need and involves an assessment as to whether the quantum of the community likely to patronise the proposed facility would be of a sufficient size as to support the proposal in an economic sense.  Again referencing All-A-Wah Carapark v Noosa Shire Council [1989] QPLR 155, the Judge found that there was a local community that wanted a department store to locate at Noosaville, but there was an insufficient population living in its catchment to support it on an economic basis.  He ruled that the demand (community need) fell short of need (economic need).  It is not in the public’s interest to approve a facility that is doomed to fail.

Planning need is the third element to be examined and involves an examination of the extent to which the planning policies and documents can accommodate the identified community and economic need.  As set out above, it requires an examination of the extent to which relevant planning zones and other approvals can accommodate the need.  The differentiation of economic need and planning need was considered in Smalley v Whitsunday Regional Council [2011] QPEC 105.  In that case Judge Searles found that whilst there was a strong economic need for the proposed use in the area, there was no planning need for the proposal to be developed on the subject site due to the availability of other suitable appropriately zoned land.  In my view, planning need is restricted to the assessment of alternative sites that are appropriately zoned, designated and/or approved.  It does not involve the assessment of a wider range of issues normally dealt with by town planners, such as amenity impacts, conflicts, sufficiency tests and the like.

An important aspect of community, economic and planning need follows from the Court of Appeal decision of Weightman v Gold Coast City Council & Anor [2002] QCA 234.  This decision requires the Court to examine the nature of the conflict, determine whether there are any planning grounds (or grounds under current legislation) that may overcome the conflict and determine the extent to which those planning grounds (grounds) are, on balance, sufficient to overcome the conflict.  With need frequently being cited as a principal ground to overcome planning conflicts, I say that it is necessary for the economic expert to form a view as to the strength or otherwise of community, economic and planning need in order to assist the Court in its weighing up of conflict against need as one of the grounds.  Whilst the mathematician in me might prefer to award a score out of seven, I have gravitated towards using a range of adjectives and leaving it to the Court to interpret those and compare against the nature and strengths of conflicts.  I frequently use the following adjectives, listed from weakest to strongest: no (0); insignificant, inconsequential or negligible (1); minor (2); modest (3); considerable (4); strong, major, substantial (5); extremely large (6); and urgent, pressing or critical (7).