Job creation isn’t always a good thing.

Hobart’s new stadium can only make Tasmania’s housing crisis worse

That’s the headline for my latest piece in The Conversation

The Albanese government’s announcement it will provide $240 million for a new stadium in Hobart has not had the favourable reception it might have hoped.

Those concerned with the proper operation of the federal system can point out that this kind of funding is the concern of state and local governments.

Anthony Albanese's Twitter account spruiks the federal funding for Tasmania.

Twitter, CC BY

Concerns about process are reinforced by the sorry history of “sports rorts”. Both Labor and Liberal federal governments have funded sports facilities to curry political favour.

To be fair, it is hard to see this project as targeted at a particular seat, but presumably the aim was to win support in Tasmania as a whole. Even compared with the dubious economics of sporting events such as the Formula 1 Grand Prix and the Olympic Games, stadium developments stand out as boondoggles.

Extensive research in the US is summarised by the conclusion that over the past 30 years, building sports stadiums has been a profitable undertaking for large sports teams, at the expense of the general public.

While there are some short-term benefits, the inescapable truth is the economic benefit of these projects for local communities is minimal. Indeed, they can be an obstacle to real development.

Read more: Devils in the detail: an economist argues the case for a Tasmanian AFL team – and new stadium

Making the business case

The economic case for the Hobart Stadium is startlingly thin. The only clear-cut benefit attributable to the project is that the new Tasmanian AFL team will play its home games there, replacing the small number of AFL rounds played at Hobart’s existing stadium, Bellerive Oval.

In 2022, eight AFL men’s games were played in Tasmania – four at Bellerive, four at UTAS Stadium in Launceston. A local AFL team will play 11 home games.

The North Melbourne Kangaroos warm up before their Round 15 match against the Adelaide Crows at Blundstone Arena, also known as Bellerive Oval. Linda Higginson/AAP

The state government’s business case estimates that 5,000 interstate visitors will attend seven matches a year. It seems safe to assume some will fly in and out on the same day, and that few will stay more than two nights.

If we allow an average of one night per visitor, that’s 35,000 bed nights, or an increase of about 0.3% in current visitor nights for Tasmania (about 11 million a year in 2022).

Against that must be offset the Tasmanians who will travel to Melbourne and elsewhere for away games.

What about housing?

All of this is par for the course for projects of this kind. The big problem for both state and federal governments is that it comes at a time of a housing crisis.

The federal government’s press release contains some vague references to housing developments associated with the project. But this is little more than the sort of PR spin we’d expect from, for example, the proponents of a new coal mine.

The numbers here are quite startling. The centrepiece of federal Labor’s election platform was a $10 billion fund for housing, providing $500 million year to support social housing. (Labor’s bill is currently held up in the Senate, with the Coalition opposed, and the Greens demanding stronger action.)

Read more: Labor’s proposed $10 billion social housing fund isn’t big as it seems, but it could work

If this $500 million were allocated proportionally by population, Tasmania would get about $10 million a year. The Commonwealth’s $240 million contribution to the stadium would cover this expenditure until nearly 2050. The total public outlay on the Hobart stadium (with $375 million from the Tasmanian government) would cover most of this century.

At a time of extreme fiscal stringency, such a massive outlay on a luxury project is very hard to justify.

What about job creation?

No serious benefit-cost analysis of this project has been made. Instead, supporters have relied on announcing the number of jobs it will create – 4,200 jobs during construction and 950 jobs when operational.

Such numbers are questionable. To make them bigger, governments typically count on the “multiplier effect” of work created for suppliers of various kinds. This is a long-standing tradition taken to new heights by the Albanese government. The announcement of the AUKUS submarine project, for example, was all about the jobs it would create.

Read more: $18 million a job? The AUKUS subs plan will cost Australia way more than that

But wait a moment. At the same time as trumpeting the creation of jobs for construction workers, the government is seeking to solve Australia’s “skills shortage” arising from historically low unemployment.

Tasmania’s unemployment rate is 3.8%, marginally above the average for Australia, but lower than at any time since the economic crisis of the 1970s. This low rate represents a situation of full employment, where numbers of unemployed workers and job vacancies are roughly equal.

In such circumstances, creating a job means luring a worker away from another. If the new job is on a major construction project, that means one less worker available to build housing.

As I argue in my book, Economics in Two Lessons (Princeton University Press, 2019), the true costs of wasteful public expenditure are opportunity costs – the alternatives that are foregone.

Multiplier effects make opportunity costs even larger. The project diverts the workers employed directly, and takes all kinds of resources that could otherwise be used for socially useful purposes. This diversion of necessary resources is the truly pernicious aspect of publicly subsidising projects like the AFL stadium.

Tasmania, like the rest of Australia, does not need government action to create any more jobs, particularly in construction. It needs to ensure skilled workers are employed where they can be most valuable.

9 thoughts on “Job creation isn’t always a good thing.

  1. I agree 100%. The jobs creation arguments are almost always fallacious. Even with less than full employment skilled labour resources are dragged from one part of the economy to another. Another version of this fallacious case supporting such projects is the “inject $100m into the economy” arguments used routinely (by both labor and Liberal governments) to justify the most foolish public investments. The $100 million generated would generally have been spent elsewhere in the economy so gains match losses elsewhere. The Grand Prix, in particular, has been justified by such wrong arguments. The amount spent attending the Grand Prix would have generally been spent on other forms of recreation. The exception might be international visitors but these are few and, anyway, expenditure isn’t value-added when the provision of services is costly.

    It is just a glib way of justifying pork barrelling to buy votes. In the case of the Tassie footie field the local Labor Party opposed the move – it was supported by the Liberal Party. So dumb pork barrelling as well.

  2. “Almost always” does not mean the same thing as “isn’t always”. I don’t think H.C. is on the same page as J.Q. I am against *all* stadium boondoggles. I would rather see hospitals being built and medical staffing increased. We need it. Plus build social housing and switch the tax benefit on mortgages to owners purchasing and living in the property. Stop subsidizing the rich.

  3. Agree diversion of resources from socially useful activities is the main problem with subsidising stadiums.

    I note that the opportunity cost is probably understated as large projects such as stadiums tend to have bigger admitted cost blowouts (and lots of hidden cost shifting) than smaller projects such as housing.

    To a degree government expenditure on the stadium diverts resources not only away from socially beneficial activities such as housing but also towards the socially harmful activity of sport gambling.

  4. I tend to agree. If people are going to be asked to spend that kind of money, I think there should be a direct vote on these projects.

    I also think there can be significant psychological benefits to having a sports team. In the US, we don’t have a monarchy/morale officer – we don’t have many unifying institutions. Let’s not overlook the benefit of such. (Every time we inaugurate someone, something like half the country is wistful or maybe somewhat miffed. Or worse!)

    Having said this, I haven’t successfully bonded with any pro sports teams. Also, our team owners treat the public in an infamous manner! It is hard to feel good about any of them, except maybe the Packers (publicly owned).

  5. Who’s overlooking the benefits? The guys were talking about its opportunity cost.

    Speaking of socially useful activities and nationally ‘unifying institutions’, both of which you desperately need in the U.S. right now… national healthcare?

  6. In my experience, there is a surprising large number of people who do support building stadiums at predictable millions of annual loss or subsidizing every sold theater card with 300 Euro. Things where no matter how you turn around the numbers, there is just no way any positive externality could justify the expense. Only a minority of them do watch the football games or go to the theater themself. There is some degree of not wanting to understand economics and always defending the status quo involved. Its always been like this, so it must be good etc… . For the most part, i think those scary many supporters tend to threat them as collective level SUV. We want one, to show off we got the bigger one.

  7. Jimeny Cricket: it would be lovely to have Medicare for everyone. I don’t know if I’ll live to see it.

    How though would one measure the psychological benefits without doing polling or at least a survey? Wouldn’t you need to do that first before you could put the number into a CBA? (Just guessing at it isn’t the same.) My point is that it should be up to the voters – which is sort of the same thing, roughly.

    Anyhow, I’d be one of those who’d probably vote against these projects. I admit though that that might change if the teams were publicly owned or maybe even just less disrespectful of the public. That won’t happen anytime soon either!

    In fact, my attitude towards pretty much all of sports has changed. Even the Olympics seem so commercial to me now, plus splitting up the summer and winter made it less of an “event.” So few are real amateurs now, so, do I even care?

  8. Wait a minute – I just noticed – youse guyses soccer uniforms are much shorter and tighter – maybe I *do* care about sports. (kidding!)

    And I’m a hypocrite too, bc I always complain the other way about women’s sports outfits. Beach volleyball, skating, tennis … you name it. The women are half naked.

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