The Canal Zone – Transforming the Precinct between Green Square and Mascot

There is unquestionably a continuing housing shortage in Sydney, leading to some of the most expensive real estate in Australia and the world.

It is a law of modern cities that no urban water feature should stay underdeveloped. The Alexandria Canal was built around 1900, widening Shea’s Creek, a tributary of the Cook’s River, to serve industrial activities like tanneries that lined its shore. Proposals have been floated to transform it to into a Little Venice, but these were spiked for environmental reasons, disturbing the canal would let loose toxic sediments which would contaminate other waterways. So instead it was left fallow, to wallow in its chemical filth. While that may (or may not) have been a wise decision under one set of economic cost calculations, considering the current costs of remediation, the environmental costs of doing nothing and the value of the redevelopment, conditions have changed and the decision should be revisited.

Alexandria Canal, NSW looking north. Source wikipedia.
Alexandria Canal, NSW looking north. Source wikipedia.

The parallel Airport Rail Line opened a century later in 2000, just prior to the Sydney Olympics. It was financed under a poorly structured public-private partnership which initially levied exorbitant station access charges, that the NSW government eventually bought down for the non-airport stations. Nevertheless it has significant excess capacity which could be taken advantage of.  If we assume it eventually becomes a normal line, we can think about how it might be used to promote the kind of growth that is beneficial to the public.

Walking Route from Green Square to Mascot. Approximate half way point in orange oval. Alexandria Creek to the southwest. Map by Google.
Walking Route from Green Square to Mascot. Approximate half way point in orange oval. Alexandria Creek to the southwest. Map by Google.

 

I walked the corridor this weekend. This Airport Rail Line cries out in pain for an additional stop halfway between Mascot and Green Square. This lands just south of Huntley Street and Bourke Road, at the northern edge of the Alexandria Canal, home today to the redeveloped Mill at Bourke Road.

The distance between the rail stations at Green Square and Mascot is 2.6 km, 32 minutes walking, 3 minutes by train. Typical station spacing this close to the CBD is much shorter. Redfern to MacDonaldtown, e.g. is only 1.7 km. Given 800m is a useful threshold for walking distance to rail stations, 1.6 km (1 mile) is a natural spacing. 1.3km might be a bit close between stations, but it is still longer than the CBD stations (Town Hall to Central is 1.1 km). I don’t know the cost of designing and constructing a new station on this existing line, it is undoubtedly more expensive than it should be, but there is experience with infill, and it is less expensive than a new line on a per passenger basis. I would think the real estate development could cover it.

The historic Mill plus a train station  would make a great community centre for a new precinct, perhaps the Mill District, or the Canal Zone, which would feature more intense residential, office, and commercial development  complementing, and eventually replacing, single story warehouses, auto dealerships, big box retail stores, and light industrial between Mascot and Green Square, lining the area from the canal to O’Riordan Street.

Development in Mascot. Photo by author.
Development in Mascot. Photo by author.

The region is focusing on new Metro Lines while forgetting opportunities that lie immediately at hand, incremental investments in the Trains network which likely reveal benefits well in excess of costs. Mascot and Green Square will soon be built out, and new land will need to be engaged.

On the Sydney Housing Bubble: Evidence from Eastwood

Having spent Saturdays in Eastwood, it is impossible not to note the huge interest in property sales among the Australian Chinese community. Along the main pedestrian street, there are developer agents hawking property from Chinese developers in new condominiums across Sydney, the agents are Chinese, the ads are Chinese, the prospective customers are Chinese. At Eastwood station, there are three billboards for Chinese serving real estate agencies, including two from the same agency, featuring different photos of the same agents (strangely with different phone numbers). Looking at the guys on the right, we ask, whom do we trust and who is selling us a used car?

Realtors in Eastwood
Realtors in Eastwood

A rich market in speculative real estate is not proof of a bubble, but it is consistent with one. Sydney is building lots of housing, yet prices remain high, because there is a belief of insatiable demand from the Mainland, and prices are soaring there. So the wealthy in China are trying to secure money in a stable country in the same time zone (more or less) which respects property rights and rule of law. This used to be Hong Kong. It is now Australia, larger and more secure. If that asset rises in value at an above average rate (faster than stocks or other investments) all the better.

The demand from a fast-growing China is, over the long term, likely to continue, and can appear insatiable. But at what rate does demand grow? Sydney now has about 334 cranes, (compared with 165 in supposedly faster-growing Melbourne) (for comparison, Seattle had 58, the most in the US … I think Sydney has more than the cities in the US as a whole, it certainly comes close), will this satisfy supply? When does China impose capital controls? When do American or some other large country’s interest rates rise sharply, automatically increasing Australia’s official rates (which must rise in order to attract capital), which drives up mortgage rates in a country where everything is a variable rate, to the point where locals default? When does the confidence in the system fail?

These are questions for which there is no clear answer.

When I was in the US, before the global financial crisis I knew there was an issue in the real estate industry. Our still-in-high-school 18-year old tenants were issuing mortgage loans for some financial institution that they worked for after school and on weekends. I haven’t yet observed that here, but look around for signs that things are a bit overheated, and people who are too young to remember the last crisis, or too optimistic, think things can only go up. That this time will be different.

The ‘greater fool’ theory says invest, there will always be someone to buy you out later at a higher price. But if you are at a poker game and you don’t know who the mark is, it is you.