NB: Revised on 26 March 2012 to correct an error in the original release. Rather than average house values at time of sale, the data relates to average house values at time of building approval. The dates (2006 to 2010) remain the same and the data is from the same source the Australian Bureau of Statistics. ABS does not have data available on house sale prices across the Basin, making building approval values a measure of confidence in the housing market and a proxy for the house sale values across the region. Healthy rivers support a stronger housing market in the Murray-Darling Basin Analysis by the Australian Conservation Foundation March 2012 Continuing a series of economic analysis by the ACF over the past two years, this latest analysis highlights again the critical role a healthy river system plays in underpinning a strong Murray-Darling Basin economy. 1 The following analysis of the value of houses, based on building approvals, 2 from 90 shires and councils across the Basin over five years (from 2006 to 2010) shows that in this period of drought and substantial Basin water reform, home owners are increasing the amount spent on house building works, a solid proxy for house values. This indicates there is little to link the value of houses to Basin water reform. 25% 20% 15% 10% 5% 0% Figure 1: Average growth in Basin Region House Values 2006 to 2010: 'Poor River Health' versus 'Good River Health' Poor Health Good Health 1 See previous ACF studies including: Wetlands: underpinning a robust rural economy, 1 June 2010; Socioeconomics and the Murray- Darling Basin: water allocation and economic viability, 20 October 2010; What s a healthy Murray-Darling Basin worth to Australians?, 2 Feb 2011; and Separating the Wheat from the Chaff: as assessment of the socioeconomics of the draft Murray-Darling Basin Plan, 8 December 2011. 2 ABS data refers to Building Approvals average value of private sector houses. ACF has used this as a proxy for value of houses, as ABS does not report house price sales data for this time period and this region.
But while there does not appear to be a negative link between house values and water reform, the analysis does find average value of house approvals are growing faster in regions where the river system is in good health than in areas where the river system is in poor health. Contrary to reports that have hypothesised on a negative relationship between house values in the Basin and the water reform process 3, 4 this data indicates a strong link between healthy rivers and a strong housing market, again demonstrating that a healthy environment goes hand in hand with a healthy economy. Upon a closer investigation of the data, in fact average house prices (as opposed to average value of new house approvals) in the Basin in 2011 have been performing better than Australia s capital city house prices with any negative impact being more likely related to the current poor national housing market than Basin reforms. The data shows: Over a five year period from 2006 to 2010, while governments have been planning and implementing the Basin reform, and during the worst of the drought period, average value of new house approvals in the Basin rose quite remarkably across 90 councils and shires, growing by almost 19 per cent. Average value of new house approvals in Basin river valleys that have been rated in good ecological health grew at stronger rates over that same five year period than both the total Basin average and house values where rivers were in poor health 21 per cent growth in regions of good ecological health against only 11.5 per cent in regions of poor ecological health. In 2011, average house prices have been dropping across Australia. However, contrary to some media reports, average house prices in regional Australia have been holding up stronger than capital cities, dropping by only 2.9 per cent compared with average drops in capital cities of 3.6 per cent. Even though media reports have average house prices dropping by 4.2 per cent in 14 Basin towns highly exposed to water reforms, this price drop compares favourably to many other areas of the Australian housing market, such as Brisbane, where house prices dropped by 6.8 per cent over the same period. These findings indicate little to link average house values and Basin water reforms, as the former has clearly bucked the trend at the same time as many important stages of the Basin reforms have progressed. Rather, this analysis leads us to conclude that there is a strong correlation between healthy rivers and a healthy housing market, showing that far from trading off the economy for the environment, a healthy environment underpins a healthy economy. 3 The Age, House prices slump in basin towns, David Wroe, 12 Jan 2012 4 The Australian, Murray-Darling Water Plan hits house prices, David Uren, 27 Jan 2011 2
Analysis 2011: Press reports have hypothesised on a negative relationship between house prices in the Murray-Darling Basin and the imminent Basin Plan. The Age reported that house prices in 14 key towns heavily reliant on irrigation in the Basin suffered a drop in value of 4.2 per cent in 2011. 5 The Australian reported that house prices in 20 regional towns had an average drop of 10.5 per cent in October and November 2011. 6 The figures used in the reports in The Age and The Australian are from RP Data Rismark. A closer look at that firm s Home Value Index data suggests there has certainly been a depreciation in house values in regional Australia in 2011. But this is far from restricted to regional Australia or only Basin communities. Year on year (December quarter 2010 to December quarter 2011), Australian capital city average house prices dropped by 3.6 per cent. 7 The same source shows house prices also dropped in Australian regions over the same period, but by only 2.9 per cent faring much better than capital cities. In fact, even the 4.2 per cent drop in house prices in 14 regional towns in 2011, as reported in The Age, looks like quite a good outcome when compared with Brisbane s 6.8 per cent drop in house values reported by RP Data-Rismark. These results are further supported by the recent ABS House Price Index showing the price index for established houses in Australia s eight capital cities dropped by 4.8 per cent in the year to December quarter 2011. 8 This indicates that there was little good news for sellers of houses anywhere in Australia in 2011, but the impact of macroeconomic factors on house prices were felt more strongly in capital cities than in the regions. Fact: Regional house prices have performed better than capital city averages over 2011 2006-2010: Is there any truth that in certain towns house values have dropped significantly since the government released its Guide to the Basin Plan in October 2010? To test a relationship between the water reform process and house values, we analysed a significant sample of the most recent Australian Bureau of Statistics (ABS) house value data, 5 The Age, House prices slump in basin towns, David Wroe, 12 Jan 2012 6 The Australian, Murray-Darling Water Plan hits house prices, David Uren, 27 Jan 2011 7 RP Data Rismark, Home Value Index Release, 31 January 2012, accessed at http://www.rpdata.com/images/stories/content/pressreleases/rpdatarismarkhomevalueindexjan31.pdf 8 ABS, 6416.0 - House Price Indexes: Eight Capital Cities, Dec 2011 accessed at www.abs.gov.au/ausstats/abs@.nsf/mf/6416.0 3
based on building approvals, over five years and for over 90 councils and shires across the Basin (as defined by the Murray-Darling Association). 9,10 As the ABS does not report on private house sale prices over this period, we have taken building approvals average value of private sector houses as a measure of confidence in the housing market and a proxy for the house sale values. This five year period (2006 2010 when latest data is available) was marked by a long drought and then emergency action by Federal and State governments to reform water use and purchase water to stop the decline of the river system. Several important national reports and programs initiated during this period all signalled clearly that reform of current water consumption patterns would be dramatically changed in the future, with likely implications for available water for irrigators: The emergency summit called by then Prime Minister John Howard with all Basin State Premiers in November 2006 The January 2007 release of Prime Minister Howard s 10-point plan for reform, which included a $10 billion commitment that was focused on water buy backs and investing in water savings from efficiency measures for the environment The release of the Water Act The Guide to the Basin Plan in October 2010 The most recently the Draft Plan in November 2011 If there was a link between house prices and water reform, there would be numerous occasions over this five year period where a trend would be noticeable. Our analysis indicates there is no such link. Home owners continued to increase the amount spent on house building works over this period. Figure 2 below shows this in clear terms. In the five years from 2006 to 2010 value of building approvals for new houses and renovations in 90 councils and shires across the Basin grew by 19 per cent, an average of just under 5 per cent per year. Interestingly, at the peak of the drought (2006 to 2007), as Prime Minister Howard was announcing plans to return massive amounts of water to the river, the value of new house approvals jumped by around 10 per cent across the Basin. 9 ABS, National Regional Profile - 2006 to 2010, Cataloge Number: 1379.0.55.001 (The Average Value of Private Sector Houses in the Murray-Darling Basin region), November 2011 10 Murray-Darling Association, accessed at www.mda.asn.au 4
Figure 2: The Average Total Value of Houses in the Murray-Darling Basin Region ($ '000) $230 $220 $210 $200 $190 $180 $170 $160 $150 $140 $216.61 $208.76 $202.96 $196.06 $179.29 2006 2007 2008 2009 2010 Linear (Total Average) Data Source: Australia Bureau of Statistics, National Regional Profile from 2006 to 2010, Cataloge Number: 1379.0.55.001 (The Average Value of Private Sector Houses Building Approvals in the Murray-darling Basin region) released in November 2011. Note: The Average Value of Houses is the sum of building approvals of private sector houses value in the region(s) divided by total number of houses. Note: The Murray-Darling Basin regions are a total of 93 Councils and Shires as defined by the Murray Darling Association across Victoria, NSW, Queensland and South Australia. Data is used for all councils/shires where available from ABS. Defining absolute causation from short term trends with limited sample sizes can lead to obscure results. Monthly or annual data that is focused on single towns where very few house sales have occurred, as was used in some media reports, is severely limited in helping us define overall trends. The propensity for small data series to come up with large variations is highlighted by the article in The Age that cites two years of data, the most recent year showing declines in house prices (although not stating that declines in property prices have been replicated around much of Australia) but the former year (2010) showing increases in prices. In the case of Berrigan in NSW for example (cited in The Age), the swing between increasing then decreasing average house prices is dramatic a 63 per cent increase in 2010, followed by a 23 per cent decrease in 2011. In a town of less than 1000 people, very few houses would be sold in any 12 month period. In fact, the real estate website Domain.com.au cites only 19 sales in the last 12 months. This is barely sufficient to describe any substantive trend and can easily result in large variations in data that don t tell us anything useful. Fact: Over a five year period from 2006-2010, when governments have been planning and implementing Basin reform, and during the peak drought period, the value of new house approvals in the Basin have risen by 19 per cent, an average of just under 5 per cent per year, across 90 councils and shires. Fact: Even at the peak of the drought, while the Howard government was working on an emergency plan to buy back water from irrigators for the river and invest in water recover through efficiency measures, new house approvals were appreciating strongly. 5
Fact: These findings over five years indicate that there is little to link house values and Basin water reforms, as the former has clearly bucked the trend while many important stages of the Basin reforms have progressed. House values and river health Using this much more detailed sample of 90 councils and shires in the Basin, ACF compared councils based on the health of their river valley to assess growth of new house approvals and see if any patterns emerged. The Sustainable Rivers Audit, released by the Murray- Darling Basin Authority in 2008 after a Basin-wide assessment of the ecological health of the Basin s 23 major river valleys, rated each on a scale of extremely poor to good health. 11 ACF looked at the 90+ council and shires within these 23 major river valleys, grouping them within the 12 regions identified by the Murray-Darling Association. In cases where regions were not identical to river valleys, they were allocated to that valley with the largest overlap. Where the regions covered multiple valleys, the health of the river valleys was averaged conservatively. In order to identify patterns, we examined house values in councils where river health was poorest and compared these to councils where river health was highest. Figures 3 and 4 below compares value of building approvals for new houses and renovations over five years for regions with the lowest ranking in the Sustainable Rivers Audit (Figure 3 very poor health Murrumbidgee region) with regions where rivers were reported to be in good or moderate health (Figure 4 largely Paroo, Border Rivers, Condamine river valleys). Figure 3: Average Value of Houses in river valleys of Very Poor health $260 $240 $233.87 $226.14 $220.64 $220 $212.23 ($'000) $200 $189.16 $180 $160 $140 $120 $100 2006 2007 2008 2009 2010 Linear (Total Average) Data Source: Australia Bureau of Statistics, National Regional Profile from 2006 to 2010, Cataloge Number: 1379.0.55.001 (The Average Value of Private Sector Houses Building Approvals in the regions) released in November 2011. Note: The Average Value of Houses is the sum of building approvals of private sector houses value in the region(s) divided by total number of houses. Note: The Health Indicators are taken from the Murray-Darling Basin Authority (MDBA) in The Sustainable River Audit: Murray Darling Basin River Health Check 2004-2007 11 MDBC (2008). Murray Darling Basin Rivers: Ecosystem Health Check, 2004 2007. A summary report based on the Independent Sustainable Rivers Audit Group s SRA Report 1: A Report on the Ecological Health of Rivers in the Murray- Darling Basin, 2004 2007, submitted to the Murray-Darling Basin Ministerial Council in May 2008 6
Note: The Region relates to the Murrumbidgee river valley, and includes City of Wagga Wagga, Leeton Shire Council, Lockhart Shire Council, Murrumbidgee Shire Council, Shire of Carrathool, Shire of Hay, Tumut Council, Gundagai and the City of Griffith Figure 4: Average Value of Houses in river valleys of Good and Moderate health ($'000) $260 $240 $220 $200 $180 $160 $140 $120 $198.96 $215.41 $215.73 $212.73 $245.77 $100 2006 2007 2008 2009 2010 Linear (Total Average) Data Source: Australia Bureau of Statistics, National Regional Profile from 2006 to 2010, Cataloge Number: 1379.0.55.001 (The Average Value of Private Sector Houses Building Approvals in the Murray-Darling Basin region 4 ) released in November 2011. Note: The Average Value of Houses is the sum of building approvals of private sector houses value in the region(s) divided by total number of houses. Note: The Health Indicators are taken from the Murray-Darling Basin Authority (MDBA) in The Sustainable River Audit: Murray Darling Basin River Health Check 2004-2007 Note: The Region relates to Goondwindi Regional Council, Moree Plains Shire Council, Tenterfield Shire Council, Walgett Shire Council, Balonne Shire Council, Southern Downs Regional Council, and Toowoomba Shire Council. Data was not available or incomplete, for Maranoa, Warroo, Western Downs, Paroo and Brewarrina Shire Councils. The figures above show the value of new house approvals in areas with the best river health and the poorest river health both grew consistently over the five year period. What is notable here is the difference in growth rates. The regions with the best ecological health grew at above average rates of 21 per cent in five years (average over 5 per cent per annum) above the Basin average of 19 per cent (4.73 per cent per annum). By contrast, those regions in the poorest ecological health showed a distinctly slower growth rate of 11.5 per cent in five years (averaging just below 3 per cent per annum), substantially below the Basin average. Table 1 below shows the difference in growth rates of house prices over that period. Table 1: Comparison between good and poor health regions and all Murray-Darling Basin regions Table of Comparison Health Indicator Very Poor Good All Regions Average Growth 2.88% 5.28% 4.73% Total % Change 11.51% 21.13% 18.91% 7
This data suggests building approvals values in areas of good ecological health have performed far more strongly than in regions of poor ecological health. Certainly, many economic valuations that have looked into the economic impact of environmental factors on property values (called hedonic pricing studies) - including some studies undertaken in the Basin - indicate a similar trend: house values near green space, or with better aesthetic values, generally attract higher prices. 12 The results above seem to indicate this is no different in the Basin when comparing across health of river valleys. Houses in all areas of the Basin increased in value over the five years, according to ABS data, however those in regions where the river system remains in good health appear to be growing in value at a higher rate than those in the parts of the Basin where the river system is struggling. This suggests that by improving the health of the Basin as a whole could in fact result in higher house values rather than having a negative impact as has been suggested elsewhere. Fact: average value of new house approvals in river valleys of good ecological health have grown at stronger rates (21 per cent) where rivers are in poor ecological health (11.5 per cent), as well as outperforming the Basin average growth rate (19 per cent). Contact: Simon O'Connor, Economic Adviser, 0488 386 307, S.OConnor@acfonline.org.au new eco nomics program This report was developed by ACF s new economics program that advances practical, achievable improvements in economic theory and practice to better promote human wellbeing in an ecologically sustainable way. The new economics program identifies cutting edge thinking on new economics globally, in collaboration with leading institutions in Australia and overseas. It then seeks to translate that thinking into effective results, by communicating new economic ideas, demonstrating how those ideas can work in practice, and advocating the concrete changes in government and business policy and practice that would put them into effect. The program is not a think tank; rather it harvests, amplifies and operationalises the best thinking of others globally in this field. www.acfonline.org.au/be-informed/new-economics Australian Conservation Foundation, 2012 Level 1, 60 Leicester Street, Carlton, Vic 3053 www.acfonline.org.au 12 see for example: Tapsuwan, S, Macdonald, DH, King, D, Poudyal N, A combined site proximity and recreation index approach to value natural amenities: an example from a natural resource management region of the Murray-Darling Basin., Journal of Environmental Management, 2012 Feb; 94(1):69-77. Epub 2011 Sep 15. 8