Tag Archives: CPI

SA Water Prices and Regulatory Change

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One of the big announcements in the recent South Australian state election was that the (now re-elected) government would move to de-corporatise the state’s major water utility, SA Water, and establish a new SA Gas and Water Trust. This announcement did not get the attention it deserved, but it could be a significant step away from 30 years of neoliberalism in the governance and regulation of water supply – although whether or not that is a good thing may depend on what replaces this neoliberal corporation.

Background

For much of the last century, water and wastewater in SA was managed by a government department, the Engineering and Water Supply Department. In 1995, the EWS was replaced with a corporatised government business enterprise (SA Water) as neoliberalism swept the world and convinced everybody that government was bad and that a market was the most efficient and beneficial arrangement for the supply of everything, including water.

This corporatised government business was to act like a profit-making corporation in a regulated market where prices are set so the corporation can recover all the costs of service provision. This requires an analysis of the asset base of the corporation and the provision of a guaranteed return on that capital, plus enough revenue to cover operational and other costs. The state government originally set the valuation of the asset base and costs on advice from Treasury, but in 2013 this regulation was taken over by an independent regulator, the Essential Services Commission of SA (ESCOSA).

While neoliberalism sells this model as efficient and the imposition of market discipline, in reality there are inevitable controversies over the subjective pricing of assets and operation costs. As we will see below, these matter to water prices.

This system also puts consumer advocates in an invidious position. Any new consumer protections or environmental initiatives are automatically added to water prices as such operational costs need to be recovered, while consumer advocates need to have a level of technical expertise to assess whether any given capital investment or expenditure is essential or desirable. And if it is, then advocates are trapped into accepting price increases. Alternatively, if limiting price increases is the main goal, they end up having to oppose potentially important capital expenditure or other pro-consumer initiatives.

However, in the context of a proposal to radically change this system, it is worth tracking what happened to water supply and prices under SA Water. This is inevitably a complex and multi-dimensional question, but in this short post I will simply look at what happened to water prices for customers.

Water Prices

Unfortunately, the ABS data for water prices in Adelaide only goes back to 1998, so we don’t have a simple pre-and post- corporatisation comparison. However, as the graph below shows, we can track water and sewerage prices from the infancy of SA Water up to the present, and we can compare this to the general inflation rate. Clearly over the journey, water prices have increased above the general Adelaide CPI, with water price increases 1.3 times higher than the inflation rate.

Line graph comparing Adelaide Water Prices with CPI All groups. https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/sep-quarter-2025#data-downloads
Source: ABS, Consumer Price Index, Sept 2025, Table 11.

Of course, correlation is not causation and this the graph says nothing about changes in size of the water and sewerage network, the quality of water or what would have happened if a different regime was in place. More importantly, the graph shows that there were different price trends in different periods, so even the price picture is much more nuanced than the simple 1.3 times inflation rate headline.

In fact, as can be seen, water prices largely tracked with the general inflation rate for the first ten years, and then sharply increased from 2008. A significant part of this was due to major infrastructure investment, including the desalination plant which probably has fewer critics now after years of drought than it had at the time! There was also a major decrease in water prices in 2019, which resulted from a re-valuation of the asset base after a report found that the previous Labor government had over-valued the assets when it handed price control to ESCOSA in 2013. This was obviously a highly politicised process, which could bring in to question the whole “objective” basis of price setting, but either way, the graph shows that it had a significant impact on price trajectories.

Perhaps more interestingly, the graph shows that since 2013 when ESCOSA took over revenue and price regulation, water prices have increased much more slowly – and well under the inflation rate. The one-off adjustment in 2019 skews this data, but even removing that “anomaly” from the data set, water prices have increased by 28.3% since 2013, while the overall CPI has increased by 42.3%. This should be a significant argument for maintaining independent regulation in the new Trust if something like the full revenue-recovery model is to be maintained (i.e. prices set to cover the full cost of service provision).

National Water Price Increases

This conclusion may be reinforced by the national data which shows that since 2013, the rate of Adelaide water and sewerage price increase is one of the lowest of all the Australian capital cities (even without the 2020 revaluation). Indeed, the two cities with the highest rate of price increases (Brisbane and Perth) both have prices set by the state government rather than an independent regulator.

(Adelaide prices adjusted to remove impact of 2020 revaluation). Source ABS, CPI, Sept 2025.

Note though, these comparative figures are only tentative as more research is required on local factors impacting price increases and any changes in the regulatory regimes in what, for other jurisdictions, may be an arbitrary time period. However, the figures certainly make a prima facie case for independent regulation, although again, price in only metric in this issue.

Conclusion

Given all the caveats above, the data and conclusions in this post are not definitive, but the issues raised by the data should be important considerations in structuring water regulation under the proposed new SA Water and Gas Trust. We don’t yet know the details of what is proposed, and given the state government is wanting the Trust to open up development of new housing, we may see a departure from the corporate logic of full cost-recovery. We may also see a limiting of the role of the independent regulator if this regulation is seen as a block to development. However, the price data above suggests some caution would be needed if we have the second without the first, because it was the combination of full cost recovery without independent regulation that saw rapid price increases.

Personally, given my previous critique of neoliberal essential service models, I am open to alternative structures to deliver water. But in considering this, I would want a much better understanding of where the burden of infrastructure and service costs fall under the various alternatives (e.g. on taxpayers or water customers) and what the equity impacts of that would be. And I would expect that data on the track record of SA Water on price, water quality and network provision would also form part of the consideration.

In that context, this post is just a small, initial contribution to that consideration.

Silly Housing Statistics 3: The CPI – Official silliness, or just misunderstood and misused data?

In previous posts I have criticised housing statistics produced by industry and the NFP sector. In this post I want to question the official housing statistics in the Consumer Price Index (CPI), which it turns out are not particularly useful in tracking housing costs. This is true even though the CPI includes specific data on housing and rent and is widely used for indexing and updating less frequent housing data.

CPI and Home Owners

The first thing to note about the CPI housing data is that, while it includes an item for house purchase prices, the actual CPI item is “New dwelling purchase by owner-occupiers”. In any given period, relatively few people purchase a house, and those purchasing a new dwelling is an even smaller subset, so the CPI figure here may not reflect prices for many home owners. But more importantly, the CPI figure for new dwelling purchases does not include land prices. In that sense, it measures the increase in the cost of building a new dwelling – which may be very different from changes in the market price of housing (particularly where there is significant speculation-based inflation).

Further, while the CPI includes this (limited) house sale price measure, it does not include mortgage payments (as they are not prices). Yet mortgage payments impact far more on weekly household budgets than house sale prices, and it has been mortgage increases which have driven much of what we now (mistakenly) call a “cost of living crisis”.

The absence of mortgage payments in the CPI is not the fault of the ABS or a problem in the CPI itself. It is a problem in the way the data is sometimes used. The CPI is about measuring price changes experienced by households – a measure of price inflation, rather than the cost of living. The inflation measure is important as a tool of economic management because of the (theoretical) macro-economic relation between production, money, aggregate price levels and jobs. It is particular measure for a particular purpose. In that sense, the statistical silliness is not in the CPI, but in its misuse as a cost of living measure.

The ABS recognises this and produces (a week after each quarterly CPI data release) Selected Living Cost Indexes, which include mortgage payments and are a much better reflection of the impact of housing costs on households. However, these living cost indexes are mostly ignored by the media (presumably out of ignorance) and economists (because their focus is on models rather than real households). Further, the Living Cost Indexes are produced for different household types (based on income-source) and don’t give a single headline figure which can be used conveniently for indexation in the way that CPI is used.

The bottom line is that using the CPI data is not useful in tracking housing prices.

CPI and Rent Prices

And it turns out that that the CPI rent data is not much more use in relation to rent. Unlike the commercial “asking rent” data discussed in my earlier post, the CPI does at least cover increases in existing rents not just new tenancies. However, the CPI significantly underestimates the increases in the market price of rentals (and so is less than helpful for indexing changes to other rent data). There are several reasons for this.

The CPI rent category includes public and community housing rents, which are income rather than market based. In South Australia, this accounts for around one-in-five rentals, but if these (predominantly Centrelink) incomes go up by less than private rents – as is likely in a tight rental market – the smaller increases in public housing rents will lower the overall CPI for rent.

Further, for those in the private rental market the data, the CPI is adjusted for increases in Commonwealth Rent Assistance (because the CPI is designed to capture the price paid by the consumer not the price charged in the market). The rent increases recorded in the CPI for tenants receiving CRA are therefore less than the market price increases.

This CRA adjustment to CPI is even more important because in recent years there have been two significant “above indexation” increases in the CRA. These were welcome increases for those struggling to pay increasing rents, but given that more than half of all tenants receive CRA it means that the CPI rent data further underestimated the actual rent price increases in the market. According to the ABS, without the changes to CRA, rents would have increased by 7.8% over the 12 months to the December 2024 quarter – as opposed to the 6.4% recorded in the CPI.

This is particularly important because it means that it is problematic to use the CPI to update other intermittent rent data. The graph below shows the census data on median weekly rent for the Greater Adelaide area. The census is one of the few sources which captures all rents paid (rather than just new rental agreements), and if the CPI accurately reflected increases in rent prices, the line would be a smooth increase from one census to the next. However, the sharp increases at each census point show that the actual rents actually increased quicker than CPI for rent.

Line graph showing median rents in the census data from 2006, 2011, 2016 and 2021, updated in between by CPI.

Conclusion

The result of all of the above is that, if we want to focus on all rents – rather than just the prices in new tenancy agreements – then we would need three different index series: one for public housing, one for tenants getting CRA, and one for unassisted private renters. While the CPI provides a weighted average index of these, it does not accurately reflect what is happening for each particular group. It exaggerates increases in public housing rents (if market rents are going up faster than income), but underestimates rent increases in the market overall (as shown above).

However, this shortcoming does not legitimise or provide a reason to use the “asking rent” data or the bond data for new tenancies as surrogates for actual rents or for measuring rent increases. As the graph below shows, there is a big difference between the rent increases in those data sets and the CPI. I suspect the real average rent increase is somewhere between these lines .

Line graph showing the difference between increases in the CPI rent and in the SA government rental bond data for 2-bedroom units and 3-bedroom houses - a 40 point difference in less than four years.

This brings us back to where I started this series on silly housing statistics: there is actually no data that shows average rents in capital cities, and in this case, no way to unproblematically track or index rent increases. Yet we can’t just abandon the data, the housing crisis is too important. But we can try to understand and qualify the data to avoid using silly housing statistics.