The Melbourne 2006 Commonwealth Games: implications for the local property market Richard Reed* and Hao Wu (*contact author) Faculty of Architecture, Building and Planning University of Melbourne Melbourne 3010 Victoria Australia Tel: +61 3 8344 8966 Fax: +61 3 8344 5532 Email: [email protected] Abstract for the 11th Annual Pacific Rim Real Estate Conference 23 - 27 January 2005 - Melbourne, Australia Keywords: Commonwealth games, major sporting event, infrastructure, property market, host city. Abstract: In 2006 Melbourne will host the 18th Commonwealth Games with Brisbane being the last Australian city to host this event over two decades ago in 1982. Melbourne has not held a major global sporting event since the 1956 Olympic Games, although the 2006 Commonwealth Games follows on from the successful 2000 Sydney Olympics. These sporting events have continued to grow from strength to strength, and have been assisted by Australia's close affiliation with sport and the widespread global media coverage. In a similar manner to other sporting events that Melbourne hosts, including the Australian Tennis Open, Formula One Grand Prix, Motorcycle Grand Prix, Melbourne Cup and Australian Football League, the city and its inhabitants are consumed by these events. The 2006 Commonwealth Games is certain to follow this trend. The task of hosting the Commonwealth Games is enormous, although actively pursued in a fierce bidding process by competing cities. The benefits are undisputed and include an influx of visitors to the host city, an opportunity to enhance or rebuild infrastructure such as transport, plus the worldwide focus on the host city before and during the event. A high level of planning is undertaken for years well in advance of the event, and this may have an effect on the surrounding property market. Through the media both buyers and sellers are constantly reminded of the upcoming Games, the venues and the increased demand that will occur. Accordingly, this research investigates the task of hosting a major global sporting event such as the Commonwealth Games, and importantly how affects infrastructure in a host city. Attention is placed on the 2006 Commonwealth Games and the Melbourne property market. Whilst every host city differs in characteristics such as size, location and timing of the event, the findings of this study will assist a future host city to plan for the highly irregular circumstances that accompany a high profile one-off major sporting event. Introduction Although two years apart, the Commonwealth Games and the Olympic Games are held every four years by constantly changing host cities. Whilst the Olympics are commonly acknowledged as the 'world's largest peacetime event' (Cashman and Hughes, 1999), the Commonwealth Games also facilitate a friendly sporting atmosphere that captures global attention. Unique characteristics of the Commonwealth Games include being the only Games which share a common language - all athletes and officials can converse with each other in English, creating an atmosphere that has led to the Commonwealth Games being long known as the "Friendly Games" (Melbourne 2006 Commonwealth Games Corporation, 2004). Although often overshadowed by the Olympic Games even though there are many similarities, the Commonwealth Games have achieved a stand-alone status of a major global sporting event. Each individual sporting event provides an opportunity for countries to compete in a variety of sporting events over two weeks, with the 2004 Olympic Games in Athens continuing this tradition and considered an outstanding success. Once again the triumphant athletes were rewarded with medals reflecting their success, which were then collectively compared between countries as a measure of national pride. For example, Australian athletes won more gold medals in Athens than at any other Olympics and this was widely perceived as a loose measure of global success. The well- attended street parades in most Australian capital cities held after the return of the Olympians also support this perception. Hence, there is a lot of evidence to support the popularity of a major sporting event. According to Mr Bob Carr, the premier of NSW, the Sydney 2000 Olympic Games created more than A$1.1 billion in new trade and investment for NSW business; A$1.4 billion in projects under negotiation; more than A$300 million in Olympic related contracts in regional NSW and close to A$600 million in Olympic contracts for small business in metropolitan areas; bookings for A$630 million worth of international business conferences and meetings; and more than 2,500 new jobs (SCCNSW, 2001, pp18). Other Olympic impacts on the local economy include the increase in export of goods and services, the temporary employment during the Games, the Olympic promotion, and the possible increase in the number of firms that has been set up in Australia. Indirect benefits from a major sporting event such as the Commonwealth Games are extremely difficult to measure, commencing with the goodwill built between competing nations and the respect earned on the world stage. The impact from a major sporting event on the surrounding property market is often overlooked, especially from a before, during and after perspective (Wu and Reed, 2 2004). At the same time advertisers seek the exposure available via the media saturation, such as the traditional opening and closing ceremonies, as well as many of the high profile events in-between including athletics and swimming. Nevertheless, there is another form of indirect benefit that is also actively pursued, namely the recognition as the host-city of a major global sporting event. This aspect forms the basis of this study with the focus placed on the 2006 Commonwealth Games that are to be held in Melbourne, Australia. Consideration is given as to why Melbourne bid for the games, and what the city realistically stands to gain before, during and after the event. Other aspects behind the scenes are also examined, including the increasingly high cost of security, as well as the impact on the broader property market. Using a major sporting event to develop infrastructure Prior to the Atlanta summer Olympics, the burden of hosting the Olympic Games put the host cities, except Los Angeles, into debt (Fensham, 1994). This was mainly due to a huge input of funds raised by the host cities and the difficulties in accommodating the huge temporary visitor flow that easily went beyond the host city’s capacity (Wilson, 1996). If a city may potentially lose money, then it is unclear why it would still compete sharply for the host rights although there are two possible reasons. Firstly, there may be a measurement difference, which means the host city government’s financial hardship does not reflect the indirect benefits it received. In reality, many cities or nations hosting the Olympic Games can receive huge benefits in various indirect forms (Preuss, 2000). Secondly, it is possible and preferable that the Olympics could be staged successfully through careful planning and innovative management approaches without causing financing constraints. The Olympic Games are a costly exercise and have generated their share of debate and controversy, which may not be clarified until long after the event (Cashman and Hughes, 1999). Thus, to measure the real success of hosting the Olympic Games then both short term and long term impacts should be taken into consideration. With a good understanding of the Olympics itself and the characteristics of the host city, it may be easier to achieve both public satisfaction and socio-economic gains. Certainly the direct revenue from hosting the Games should not be the only measure of the Games’ success (Plumb and McKay, 2001). In other words, the Olympics generate both direct and indirect, short term and long term benefits, which, when mixed with other social and economic variables, have become more sophisticated and harder to measure. To successfully host a major sporting event that attracts a large number of competitors, officials and visitors for a relatively short period of time, substantial infrastructure is needed to house and move large numbers of people around the city. At the same time, the host city must continue its daily 3 routine including rush hour traffic to and from workplaces, school children to and from school, and the normal operations that occur daily in a major city. And to further complicate this scenario, athletes are housed relatively close to the city's CBD, such as in Homebush (Sydney) or in Parkville (Melbourne). To overcome some of these problems and ensure the successful operation of the Games including the smooth transit between locations, new infrastructure must be constructed in most instances. Whilst the indirect costs are difficult to initially measure, the budget for the direct costs appears relatively straightforward with funds sourced from various levels of government. For Melbourne 2006 the overall budgeted cost is in the realm of $1.1 billion, with the Victorian government to contribute a maximum of $697 million (Gilchrist, 2004). As announced by the Beijing Municipal Government (2001), a spending plan estimated at RMB180 billion (about A$33 billion) on 127 urban infrastructure projects is in preparation for the Olympic Games in Beijing during 2008. In addition, some RMB 15 billion will be spent on the construction of sporting facilities. The State Bureau of Statistics has estimated that an economic growth of 0.3 – 0.4% is to be added to the nation’s GDP between 2002 and 2008. This is supported by a similar estimation of 0.3% in an Olympic impact study conducted by Goldman Sachs, an international financial advisor (Dick, 2001). Also, the Beijing Statistics Bureau has estimated that hosting the event will boost the city’s GDP by more than 2% over the next 10 years, keeping its annual growth rate above 10%. However, when considering China’s recent entry into the World Trade Organization (WTO) and its economic reform, the real contribution from the Olympic Games to the city’s economic growth is not clear.