Tuesday, September 20, 2016

What really makes cities liveable?


So called city liveability rankings are proliferating like rabbits before Myxomatosis. And like rabbits, they can be pest. A couple of recent liveability surveys beggar belief, not just in their method but also their conclusions. Here’s what’s wrong with them, and some ideas for alternative measures of city liveability.

In August this year, that journal of inner city indulgence The Sydney Morning Herald published a front page story boldly declaring “Sydney’s ten most liveable suburbs revealed.” Attention grabbing headline? Tick. Rigorous methodology? Fail. In fairness the study wasn’t by the SMH but a research consultancy, whose approach to assessing what is liveable and what isn’t says a lot about how some in our community are becoming besotted with wealth and privilege at the expense of opportunity and equity.

If you think that’s harsh, first consider their top ten, and where they are:

Sydney's top 10 most liveable suburbs
Rank
Suburb
Region
1
Lavender Bay
Lower north shore
2
Milsons Point
Lower north shore
3
McMahons Point
Lower north shore
4
Kirribilli
Lower north shore
5
Waverton
Lower north shore
6
Wollstonecraft
Lower north shore
7
North Sydney
Lower north shore
8
Millers Point
City and east
9
Elizabeth Bay
City and east
10
Darling Point
City and east

Yes, it’s a list of Sydney’s most expensive suburbs, all of them inner city.

In a remarkably narrow methodology, the researchers assessed liveability on 16 qualities which are most commonly found in inner city areas where high real estate prices prevail and where wealthier members of the community tend to live. Talk about confirmation bias.

The criteria included: access to employment (the nearby CBD employs a lot of very highly paid people); being close to light rail and trains (most concentrated in the inner city and “essential” they claim for any functional modern city); bus stops (fair enough); ferry access (limited to being close to water which is also where the high priced real estate is); culture (being close to theatres, museums and art galleries – most of which are centralised in downtowns, meaning inner city locations are bound to win); main road congestion (the further from slow moving traffic the better, but inner city residents working in the CBD have less of this problem); education (agreed - the more primary and high schools the better, and the closer the better); shopping (fair enough to a point); open space (agreed); tree cover (nothing quite like those leafy inner city suburbs with the spreading old  deciduous trees imported from the UK); topographic variation (hills are great for expansive views and also high priced real estate); cafes and restaurants (I kid you not, this is word for word: “Access to a decent short black and a sushi train should be a no-brainer.” Yep, they’ve nailed Maslow’s hierarchy of needs with that one); crime (obviously best avoided); telecommunications (“We’ve come to expect five bars and speedy broadband at all times and this has never been truer than in today’s world of Pokemon Go and Netflix”- so they obviously have life’s priorities sorted); views (“The more water views – whether it’s of the harbour, a bay or the ocean – the better”); beach access (well of course, life’s a beach in a multi-million dollar home with harbour views and beach access).

Stunning isn’t it? According to this survey, liveability equates with the lifestyles of the Sydney rich and famous. The rest of you mug punters can only watch on in envy. The higher social order has, like some twist on The Hunger Games, spoken.

Another equally vapid survey is by the Economist Intelligence Unit. Their latest world survey concluded that Melbourne was the world’s most liveable city. Their league ladder was as follows:

Rank
Rating
Melbourne
1
97.5
Vienna
2
97.4
Vancouver
3
97.3
Toronto
4
97.2
Calgary
5
96.6
Adelaide
5
96.6
Perth
7
95.9

You can read about their criteria here but it will be obvious to many of you that, like the survey lauded in the Sydney Morning Herald, there’s a preference for cities where wealth and privilege rule (except Adelaide, whose presence on this list given its failed economy is anyone’s guess). Vancouver, for example, is among the world’s least affordable cities but that’s obviously not a liveability problem if you are in the minority for whom that isn’t an issue.  

So what’s missing from these sybaritic surveys of liveability? And what should we be thinking more about? My suggestions are follows:

Affordability. The elephant in all the rooms is housing affordability. How can a city be liveable if that definition really only applies to a minority of the population on the highest incomes or with the greatest wealth? That housing affordability, and the cost of living generally, should so easily be overlooked in measures of city liveability is an indictment on much that passes for urban policy and the thinking that goes with it.

Housing choice. Cities that offer their citizens housing choice, by type and location, surely fair better as more liveable than ones that dictate the form and location of housing by decree? This applies as much to ensuring young people have access to types of housing that suit their needs, and equally for seniors, who are too often shunted out of the areas they grew up in because housing types are locked in stone to uses and a society whose era has long since passed.

Dispersed employment. Highly centralised city economies force more of their residents into longer commutes, which tend to be more costly for those on lesser incomes than the more generous incomes earned by inner city residents. Encouraging employment centres to disperse so that opportunities for work are closer to where more people live is a liveability angle that deserves recognition.

Full or close to full employment. Immunity from unemployment or the risk of it is more likely to be found amongst residents who already enjoy a degree of economic privilege by way of education or otherwise. Lesser skilled city residents are less likely to find quick transitions into new or different jobs so a city with full or near full employment ought to be regarded as more liveable than one where strong employment and ongoing certainty is confined to a minority.

Equal access to economic opportunity. Equality of opportunity is different to equality of outcomes. Cities that offer their residents broadly equivalent opportunities for education, employment, and advancement ought in my view to be considered more liveable than those where inherited wealth or opportunity are the norm. This is different to equality of outcomes – if residents have opportunities and they don’t pursue them or squander them, that is their responsibility at the end of the day.

Tolerant and rational. Free speech and a tolerant, rational approach to social issues is a precursor to liveability, surely? The antithesis of this is residents fearing to speak their mind or venture their opinions. There seems an increasing tendency for self-appointed and unelected urban cognoscenti to dismiss or talk down to others, which is disappointing. The next step on that path is censorship – something no liveable city should tolerate.

Clean and unpolluted. This should go without saying but a city that pollutes its own waterways, skies, or open space isn’t as liveable as one that doesn’t.

Shared benefits. Cities which spread the benefits of their urban infrastructure improvements throughout the metropolitan area are logically more equitable than those that focus all their energies on inner urban domains. If residents in outer metropolitan areas are denied access to transport improvements, open space, schools or other forms of infrastructure because the budget’s been spent downtown, that’s not what I call a formula for liveability.

Innovative and enterprising. Not sure how you could measure this, but I suspect the answer lies somewhere in the support for new ideas as opposed to old established formulas and traditions. Starts ups are the KPI of an innovative economy but how to encourage and facilitate more of this is something we are yet to learn. Unless the answer lies somewhere in the suggestions above?

There are many more suggestions I could add but none would promote the idea that liveability is best measured by some connection to high priced real estate in a limited number of areas enjoyed by a limited number of people. Cities are as much suburban as inner urban and measures of liveability need to recognise the broader measures of what makes life in cities most enjoyable, wherever you live and whatever your income or lifestyle.


Saturday, August 13, 2016

Peak CBD part II: more on where the urban jobs are going…

A number of readers have corrected me on the analysis provided in the original of this post. As they have rightly pointed out, the ABS labour force data surveys place of residence not place of work. My mistake. It’s also been suggested to me that what this means is that the growth in employment showing up in suburban areas really means that people live there but are commuting to work in the inner 5 klm ring of our cities. I’ll agree with the correction but not with that conclusion. Here’s why:

The chart that shows growth in the labour force by metro region was this one:



The statistical likelihood of people living in middle or outer areas commuting to the inner city for work is remote and isn’t supported by independent data. The Census is the most reliable source of information on where we work and I went into analysis of where we work, based on the 2011 Census, back in early 2013. You can find it here: "The demography of employment part one: a suburban economy" and also part 2 "Where we work.”

For outer urban regions in this chart like the Gold Coast, Brisbane south, Parramatta, Melbourne north east, Moreton Bay north and south and so on, this means that the proportion of residents commuting to jobs inside the 5 klm ring of the capital is low. Less than, in most cases, 10%.

It’s also been suggested to me that the last census (being the 2011 one, which went off without a hitch unlike our latest attempt) is quite dated and that it is probable that this balance of place of residence and place of work has somehow changed dramatically.

So what’s available evidence since the last Census say about any suggested drift of jobs to the CBD and fringe? In the case of Brisbane, based on analysis of Property Council office market data, it’s not looking good:




Occupied CBD floorspace rose since the 2011 Census, but from 2013 onward took a dive. The latest data for mid 2016 shows we are now back to where we were in mid 2011. Given the state of the office market now, it is also probable that some of what is technically occupied now is in fact underutilised and not worth trying to lease. Lots of empty workstations. So at least as far as this indicator is concerned, no evidence of jobs growth well over and above the 2011 picture.

The city fringe market (above) has been more resilient over the same period, possibly picking up some relocations from the CBD but this market is still basically where it was in 2011. So no evidence here either of rising employment in the city fringe office markets.


What about business count information as an indicator? The map below is from Macroplan and shows the change (growth and declines) of business with more than 20 employees in the 2011 to 2015 period. The orange dots are declines and the green dots growth. The bigger the circle, the larger the change.



That big orange dot in the middle is the Brisbane CBD, which also aligns with the PCA data. There is evidence of drift from the CBD to city fringe (see the same map zoomed in below) but the general picture here seems to be one of more growth in middle and outer areas than declines. If anything, it suggests inner city business have suffered more losses than gains in this period, while the middle and outer suburbs have seen the opposite.


Another set of numbers, this time for the 2013 to 2015 period, again showing business data from the ABS and taking in only the growth side of the equation (ie it doesn’t map the losses) for all ‘knowledge worker’ industry classifications of more than 5 employees. First the Sydney picture to hammer home the incredible recent performance of this economy, and for the tendency in this city at least to be driven by a concentration of high end professional service businesses, many in the inner city:


Sydney, I maintain, is atypical. It is becoming ‘HQ Australia’ and our primary international dealing desk. There is a lot of suburban business growth but equally there is a hot bed of action in the CBD, particularly of large firms (green or red in these maps).

The Brisbane story by contrast is different:



The conclusion is that I’m still unconvinced by the supremacy theory of the 5 klm ring which holds that in the new economy, all the action’s in the inner city. This, we are assured, is where all the high end jobs are going and “where everyone want to live.’’  The suburbs are viewed with a tinge of disdain as places of lesser economic opportunity and lower quality living.

To me, the evidence is pointing to a suburbanisation of employment, aided by advances in technology and also because the nature of work in the economy is changing. The biggest driver of jobs growth is health care and related jobs. This does not just mean surgeons practising in inner city hospitals but also includes the many more professionals, semi-professional and even low skilled workers occupied in everything from aged care to medical centres to skin clinics or podiatrists. These new jobs are not centralised and gain little to no benefit from large scale clustering. They will look for places to work from in suburban locations – near to where their clients are.

The evidence continues to point to changes in the patterns of employment in our cities. We can either choose to consider all the available evidence and ask “what is this telling us’’ or we can rely on confirmation bias and refer to  evidence that supports our pre-existing theories while largely  discounting the rest.

What is surprising about this discussion are the sensitivities that surround it. I suppose it’s because this evidence challenges many of the presumptions about inner urban supremacy which are the foundation of much of our planning and urban management and infrastructure allocation.

The debate won’t be settled until the 2016 Census data is released but my bet is that the ratios of inner city employment to metropolitan wide employment will not have grown strongly in favour of the inner city. They may even have contracted. We only have nine or ten months to wait and find out. Anyone up for a $5 scratchie on the outcome?

Tuesday, August 9, 2016

Peak CBD? Where the urban jobs are going.


The changing economy is an irresistible force, the impacts of which are being played out on many fronts. As jobs and the nature of work change under the relentless advance of technology, so too are decisions about where workplaces should be located. Central business districts – long the glamourous headquarter preference for leading professional service firms – are under increasing pressure from competing centres. Contrary to popular belief - and no doubt to the disappointment of inner urban boosters utterly fixated on the virtues of a downtown live/work/play lifestyle to the exclusion of all else - the non-central parts of our major metropolitan regions are the ones that are growing jobs at the fastest rate.

The reality of suburban dominance on housing and economic fronts is something I’ve been writing about for some years now and every time I consult fresh data, that reality is confirmed. In our major metropolitan areas, it is the suburban domain where more than 80% of jobs are and where nine out of ten people choose to live. This isn’t to deny the CBDs their premier role as the seats of government or as a central focus for community-wide cultural facilities, executive business offices and places for social interaction.  But it does point to a possible imbalance in infrastructure priorities or policy attention – the bulk of which seems now to favour privileged inner city domains to the exclusion of economically larger suburban locations.

The latest labour force data from the Australian Bureau of Statistics paints the evidentiary picture. Taking in our three largest metropolitan areas, employment growth in the inner city areas over the last five years is not the dominant story some might have you believe. 

The labour force data is by SA4 level, which broadly means for metro areas something much larger than a suburb but smaller than a city. It typically combines multiple suburbs into a population group of 300,000 to 400,000. 

The chart below shows jobs growth of non-central parts of our metro regions in blue, while the CBD and inner city regions are highlighted in red. (click on the image to expand)



What’s immediately apparent is how many blue non-central locations are outperforming the inner city regions. Cities may well be the engine rooms of the economy but it’s evident from this data that those engines, in job terms at least, are producing more output in the suburbs. 

In fact, of the total 468,300 new jobs created in these three large urban areas in this five year period, 91% of them were created in non-central locations. 

Keep in mind that this definition of inner city is much broader than just a CBD and fringe, as popular opinion and industry convention might define the inner city. For Brisbane, its boundary stretches from Toowong to Bardon, The Grange, Clayfield and south to Seven Hills and Norman Park. 




For Sydney, the ‘City and inner south’ stretches from the CBD south to the Airport, and as far west as Marrickville. 



And in Melbourne’s case, the “Melbourne inner” area follows the Maribyrnong River in the west, north to Essendon North, across to Coburg, Fairfield and south as far as Malvern and Ripponlea.



The point being that these are very generous boundaries for inner city areas. They are large enough to include dozens of inner city suburbs and some that are considered middle ring. And yet despite these large boundaries, it was the areas that lie beyond these inner city areas that have been powering the jobs growth performance of our major cities. This economic reality may not sit well with the true believers of inner urban supremacy, but it is statistically undeniable. 

The strongest performance of all was Melbourne West, which added over 60,000 jobs in the five year period. The Gold Coast, bouncing out of one its many cyclical downturns into an upswing, was second, followed by Brisbane Southside, followed by Parramatta. All are what we would generally define as middle to outer urban areas (the Gold Coast being either its own distinct city or part of the south east Queensland conurbation, depending on your point of view). 

If we look at the numbers in percentage terms, there are a significant number of SA4 regions that have grown by more than 10% in the period. 



Of the three inner city markets, only Sydney just crept into this league. Inner Melbourne’s 3.8% growth is anemic by comparison with the suburban performance of many of its metro areas, and Brisbane’s inner city growth of 7% over the five years looks weak compared to its Southside, or Moreton Bay regions which grew by double that in the same period. 

What’s driving this suburban growth? 

Looking at the four fastest growing regions of our largest metro areas, the answer is mostly ‘health care and social assistance.’ This type of industry, which is Australia’s fastest growing at present, has little need for centralised locations but requires access to the communities it serves, which are largely to be found in suburban locations. In the case of the Gold Coast, having a new major hospital open in this period obviously helps. Health and social assistance is broadly followed by education and training (another non-centralised type of industry) and then there’s also retail trade (non-centralised by nature) followed by various other more localised strengths.



The so called ‘knowledge workers’ are represented by the ‘professional, scientific and technical services’ category which also made significant contribution to the four fastest growing areas. This is an interesting feature of the changing economy because it was a long held article of faith that knowledge workers (white collar service industries from engineers to architects to bankers and lawyers) would always instinctively gravitate to CBDs. This remains mostly so for larger firms but increasingly we are seeing these functions also select suburban centres which offer lower cost structures and a more village scale amenity that rivals the large scale and anonymity of a large bustling CBD.

So what’s this telling us?

There is a growing orthodoxy which claims that it will be the professional services industry that drives our growth as a nation. No argument there. But the orthodoxy then seems to go on to suggest that workers in the professional services industry will all (mainly) be working in our CBDs and inner city areas, and that the sensible strategy for supporting that growth in the future is to funnel greater concentrations of infrastructure into servicing this demand, and to support further rapid escalations in inner urban density so that more people can live closer to their inner city jobs. This, we are told, is where all the action is and where it’s going to continue. 

The evidence, however, keeps resolutely pointing another way. Rapid changes in business and personal mobility thanks to digital technology are paving the way for businesses to be more flexible in their location choices. Plus, the fastest growing industries at present are not the types of industries that need the highly centralised and densified work and living arrangements found in our CBDs. 

Our CBDs will continue to maintain their headquarter function for many businesses, and will continue to the seats of government, but it may well be that their role as a central business district will begin to morph into more of a central amenity district – providing cultural, entertainment and recreational opportunities for the wider metropolitan community that cannot (due to cost or other factors) be replicated many times in suburban areas. 

If this is true and we are living through a period of fundamental economic change in business location decisions, the role and importance of suburban business districts will only continue to increase. This should mean that – along with identifying infrastructure priorities for inner urban areas – we need to turn our attention to the equally valid claims of growing suburban centres for improved economic and social infrastructure.  
The evidence is that some 90% of new jobs in our largest urban areas over the last five years were created outside the magical inner city ‘rings’. Recognising this statistical reality will be the first step toward a more balanced approach to urban growth and the setting of urban economic priorities.

Footnotes:

These SA4 statistical boundaries are very large areas, useful for general analysis like this but the larger the area, the more complexity hides behind the numbers. For example, within some of the inner city SA4 areas, it is entirely possible that within the SA4 boundary actual CBDs are shrinking while near city areas are growing, or the opposite. You need to drill down to a smaller area to answer that question. Let me know if you are interested to find out.

Nor can I explain the abnormally strong performance of West Melbourne in this data, nor the weak performance of Logan-Beaudesert (south of Brisbane). I am looking further into both. It could be due to a small boundary change (although the ABS makes no mention of it that I could find) or due to mixed industry areas jumping boundaries as brownfields close down in favour of newer development areas next door. 

The very strong performance of many Sydney regions, including those near the inner city, is also worth comment. Six out of the top ten fastest growing SA4s are in Sydney. The story of Sydney’s increasing national economic muscle is something I wrote about here. Sydney is at present dragging the rest of the Australian economy along behind it. Without this one city, the technical word for our national economic condition would be is ‘rooted.’

Tuesday, July 12, 2016

Mining jobs: not much of a boom and not much of a bust?

Sections of the media, plenty of politicians and much of the commentariat have fallen into a lazy habit of bemoaning “the end of the mining jobs boom” or the “the resources bust.” Sure, these are big, capital intensive, high dollar value export industries for Australia when they’re firing, but the employment contribution of mining wasn’t what you might have been led to believe.

These two graphs show the various industries and the numbers employed in them, back from the mid 1980s until the latest figures (May 2016).  First, the Australian story. Mining I’ve highlighted in the thick red line. It trundles along the bottom. For more than twenty years this was pretty much our smallest employer. You can see the increase related to the resources boom, peaking in around 2012, and the decline since then. Even at its all time peak, mining remained one of our smallest employers. (Click on the graph to enlarge).




What about the engineering and construction industries, which relied heavily on mining? In the graph above, the thick green line (for ‘professional, scientific and technical services) includes engineers, and the bright blue represents construction. No calamity there.  

The big growth in jobs (mostly part time or casual) has been the health care and social services sector (dashed blue line above). It’s gone from third to being our largest industry employer in the period since the mid 80s. In that same time, manufacturing (thick purple in the graph) has gone from being the largest employer to sixth largest. But it’s still our sixth largest, and streets ahead of the mining sector. Why are we so downbeat on manufacturing and so preoccupied with mining? 

The relativities don’t seem to justify the weight of attention that’s given to job losses in mining when at the same time we seem to have written off manufacturing, despite it remaining a very large employer, currently up there with education, professionals and tourism and well ahead of finance and insurance industries.

So what about the States that have been more dependent on the resources sector? The graph below shows the same story, over the same period, but for resource rich Queensland. The mining ‘boom’ and the mining ‘bust’, compared with other industries and the jobs they account for, seem unremarkable in the wider industry context.




As with the rest of the country, health care related industries are both fast growing and now our largest employer. Manufacturing (bright green in this graph) is close to a tie for fifth spot, but still well ahead of the mining sector. Construction (thick pale blue) may have been pulled down with mining but for the time being is showing a positive bounce. How long that lasts is another thing. 

The point being in both these graphs is that the evidence doesn’t appear to support excuses about lost mining jobs being the cause of poor economic performance (although some regions have felt the impact much more sharply). Nor do they seem to support the general air of policy abandonment which seems to greet mention of manufacturing. Both of which run counter to the general flavour of mainstream commentary. 

I am not for a minute suggesting that the mining downturn hasn't hurt people and hurt particular regions and some industries. But it's also important to keep things in perspective. Next time you read something about the extent of job losses attributed to the mining boom, look carefully for references to other industries, so that the facts are kept in perspective and be very wary of percentage changes if coming off small bases. 

Tuesday, June 28, 2016

Why urbanisation is mostly a suburban phenomenon.



The world is rapidly urbanizing. The United Nations estimates that sometime around 2008, half the world’s population was urban, for the first time in human history. They estimate that by 2050 nearly two thirds of the world’s developing nation populations will be urban, while for the developed world, the figure will be a massive 86%. Australia fits this picture perfectly: some 80% of our population already lives in our major cities and half live in the three largest. But what’s not widely understood is that on both the global level and the Australian scale, this urban growth has been a suburban phenomenon.

This reality may come as a surprise to many and the cause might be in semantics. The term ‘urban’ has fallen into common use to describe higher density, inner city areas, while ‘suburban’ has typically been used to describe outlying areas of predominantly low density development (primarily housing). But when global statistics about urbanization are quoted, the meaning covers both inner and outer urban areas. Suburban is, after all, a subset of ‘urban.’

According to the MIT Center forAdvanced Urbanism: “While statistics demonstrate that the amount of the world population in metropolitan areas is rapidly increasing, rarely is it understood that the bulk of this growth occurs in the suburbanized peripheries of cities. Domestically, over 69% of all U.S. residents live in suburban areas; internationally, many other developed countries are predominately suburban, while many developing countries are rapidly suburbanizing as well… Suburbanization is a contemporary global phenomenon.”

The same is true for Australian cities. In terms of where we urbanized Aussies call home, for the vast majority it is suburbia. In Sydney for example, the proportion of people living within the prized 5 kilometre ring of the CBD is just 8%. A further 16% live between 5 and 10 kilometres from the CBD, a third live between 10 and 20 kilometres from  the CBD and 43% of people live beyond 20 kilometres from the CBD. Those proportions are broadly the same for other major capitals.  Rates of growth are similarly skewed to suburbia: despite some high rates of intense growth in inner areas, the broader metropolitan framework of our major cities continues to carry the bulk of the population growth workload.

What comes as an even greater surprise to many is that the bulk of jobs in our large metro regions are also suburban by location. The CBDs of Brisbane, Sydney and Melbourne account for 13%, 13% and 10% respectively of all jobs in their metropolitan areas. Adding in city fringe areas lifts this proportion to 19%, 15% and 14% respectively. This is an economic reality borne out by the Census but it doesn’t sit easily with much of our thinking about cities. Our perceptions and prejudices are formed by a concentration of media and planning debate on inner city areas. Impressive CBD skylines dominate news bulletins and vision of crowded commuters boarding mass transit lead us to conclude that this must be the norm for a majority of people. It isn’t.

The same is true of the United States. A recent article by Demographia’s Wendell Cox, writing in Joel Kotkin’s New Geography showed that, based on US Census Data, the CBDs of 52 major metropolitan areas contained 9.1% of jobs, and the inner rings a further 9.8% of jobs. “Early suburbs” (meaning those developed first in the history of urban growth) contained 44% of jobs while “later suburbs” and “exurbs” contained a further 37% of jobs. And in terms of jobs growth for the same 52 US metro areas in the period 2010 to 2014, CBDs accounted for 12.6% of growth, the inner ring a further 6.8% while suburban and exurban areas combined to create 80.6% of jobs growth. 

If the reality of suburbia is that it is the dominant housing and employment location for the majority of urbanites, it is also a reality that the changing economic landscape, enabled by rapid advances in technology, is going to continue to reshape both the suburban and inner urban landscape. There will always be a role for central business districts as the seats of government or as headquarters of large professional corporates, as well as centres for civic cultural investment, but the growing service sector and growth in new industries might increasingly exploit more accessible, lower cost suburban locations. There’s merit in this, as it may allow more people to live closer to their work, in more affordable locations. It may also prove cheaper from an infrastructure point of view, especially if car sharing and ride sharing and driverless technology begins to liberate us from the twin burdens of congestion and exorbitantly costly mass transit solutions designed around centralised centres of work.

This “new suburbanism” presents all manner of opportunities for economic development, productivity growth and property development. Identifying what those opportunities are and how to best capture them will require a new framework for thinking about what it means to be ‘urban’ and that thinking, I suspect, will increasingly turn to the suburban solution.

Monday, June 20, 2016

And the winner is... Sidonee.

The scale, magnitude and speed of economic change is such that policy makers today struggle to keep up the pretense that they are on top of things. Technology, social and demographic change, globalization and the race for efficiency are reshaping the economic landscape, and with that there are winners and losers. The winner so far in Australia’s case seems clear: Sidonee.




You either believe the economy is changing fast or you think that it’s pretty much the same as it was some years ago, and will continue to be the same for the foreseeable future. There are, in my experience, very few of you in the latter category. The days of when a largely predictable order of economic ascendency could be expected to continue ad infinitum are gone. Economic fortunes are changing rapidly. Nations once proud of their economic ranking are now mendicant states, reliant on others for their welfare.  The same changes in fortune are affecting cities, and despite the best efforts to counter the relentless economic forces shaping the business landscape through proactive economic development initiatives, the sheer weight of market forces is often proving too much.

In Australia, the largest beneficiary of that change in economic fortunes in recent years is without question Sydney. The Sydney economy, benefitting from rising fortunes of the state of NSW, is powering ahead. Its real estate markets – housing there is now more expensive relative to incomes than New York or London – are apparently unstoppable, undeterred by warnings of ‘bubble’ conditions from the Reserve Bank Governor to the World Bank, IMF or any number of world economic authorities.

Sydney is awash with capital and talent. It is increasingly a global city, attracting attention from speculative global property investors to emerging enterprises looking for a foothold in the Asia Pacific. Global companies wanting a headquarters presence in Australia typically look either in Sydney or Melbourne. It’s a close race.

Even at a domestic level, where companies once had multiple state presences in capital city offices, many are seizing the opportunity afforded by fast expanding digital connectivity to reduce most of their state offices to small outposts, with that headquarters functions increasingly centred on Sydney.

The elegantly simple map by Macroplan at the start of this article illustrates this in stark terms. It maps white collar professional business counts by employee range across the major capitals. The standout for growth is Sydney, followed by Melbourne. Not only that, but it’s also a standout for the growth in larger sized companies – coloured red and green within the circle. There have been relatively few declines in businesses of this type in Sydney in recent past, whereas other centres have suffered equal or larger declines than there has been growth.

The story is repeated in ABS data on unemployment. The graph below shows the trend. It’s perhaps unfair on Brisbane given the Brisbane local government area is a large metro wide area while Sydney and North Sydney are mere villages by geographic comparison. But in terms of economic muscle they are powerhouses of opportunity.



Commsec’s ‘State of the States’ annual assessment backs the story up further. On a range of criteria, NSW leads the pack of the various states. By implication, Sydney is the biggest beneficiary of the state’s economic performance. By comparison, according to Commsec, once proud Queensland has slipped down to the level of perennial wooden spooners like South Australia or (heaven forbid) Tasmania, dragging down its capital city economy with it.



Even growth industries like the much heralded tourism industry boom from China appear to be favouring NSW, and thus Sydney. Sydney is Australia’s iconic city and, according to the experts, Chinese travelers tend to favour urban attractions for shopping, entertainment and dining. Yes, they might visit the Great Barrier Reef but it’s where they will spend most of their money that really counts – and the winner on that score is fairly obvious, according to this graph on visitor expenditure from Tourism Research Australia.



This very significant change in economic fortunes also helps explain a massive shift in population movements. Queensland once attracted net interstate migration numbers of close to 1,000 people per week. Boosters will argue that interstate migrants were attracted by the climate and the housing arbitrage – with Brisbane region houses being so much more affordable than Sydney or Melbourne where most migrants were coming from.

Some are suggesting the same will happen again. I am not convinced. The sun in still shining, and the housing arbitrage is there again, but until the employment market and opportunities for economic growth and development once again become part of the Queensland zeitgeist, migrants know it is wise to stay where the jobs and the money are.  Queensland’s net interstate migration has slowed to a trickle – its lowest level since World War II – and there are predictions it could even turn negative for the first time ever.



So what are the forecasts saying? According to the Federal Department of Employment’s latest predictions, the economic trajectory of Sydney, followed by Melbourne, is expected to continue for at least a few years yet. This graph illustrates their predictions for a couple of key ‘knowledge worker’ employment categories for major centres around Australia to the year 2020. Combine the Sydney and North Sydney columns in your mind to see how this picture looks for the economic heartland of Sydney going forward.



Beyond these privileged inner city markets there are also wider forces at work. Many jobs in emerging industries have little need for costly inner city offices or the congestion and carparking hassles that go with them, and are instead settling in a range of suburban locations. Past articles have highlighted the fact that 80% to 90% of all jobs in our major metro centres are in suburban locations. But the inner city markets remain a useful indicator of how the high powered ‘top end of town’ is performing, and based on these predictions, Sydney will be where it’s at for some time yet.

How did this come about, and what will it take for fortunes to change again? Local Government in Sydney has been notoriously ineffective, divided and antagonistic to development - so you can hardly credit Sydney’s local political leadership with the region’s economic performance. It would seem that a progressive State Government is due the credit. Their latest state budget reveals a government with almost no debt, a surplus of $3.7 billion, a $20 billion infrastructure spend in the coming year which is part of a $73.3 billion spend over the next four years, much of it on a bevy of transformative ‘nation building’ projects.  Their Treasurer can boast about being the ‘engine room’ of the national economy, producing 63% of the nation’s new jobs off 31% of the nation’s population.  However you look at it, and whatever your political views, they are impressive figures.

Victoria’s second place status seems to pose no threat to the Sydney ascendency. Their decision to scrap Melbourne’s East West link road project – at a cost of $1 billion to taxpayers with nothing to show for it – is not a good sign. And Queensland’s – and therefore Brisbane’s – ambitions are constrained by limited state economic growth and a deteriorating budget position. Excluding the privately funded Queens Wharf Casino project, much of Queensland’s confirmed public sector infrastructure enthusiasm seems focussed on a new sports stadium for Townsville (population 180,000), or a cross river rail tunnel which is so far unfunded.


Will fortunes turn around? They inevitably do at some point but the economic winds of change are blowing harder every year, and right now they are blowing in Sydney’s direction.