Why Australia needs to drop the obsession with our capital cities

In last week’s blog Tim highlighted that the Sustainable Australia – Sustainable Communities, A Sustainable Population Strategy for Australia Report released by the Department Sustainability, Environment, Water, Population and Communities failed to meet its objective.

Tim specifically noted, ‘The objective of the report is to provide strategic guidance for population growth across Australia.  While the principals and themes expressed in the report are very sound (less urban sprawl, maximization of infill targets, higher densities around key transport nodes and higher levels of population growth in the key regional areas where labour demands are the highest) however the report is a complete failure in the sense that it provides absolutely no guidance or measurement about population growth targets or objectives. Without the hard and fast numerical backing for a population strategy, the paper is nothing more than a fuzzy view of how population growth should be managed without any hard and fast guidelines about how the strategy is to be executed, how fast or slow it should occur and what are the measurements of success.’

Below is a column which I wrote before the release of the report which was published in The Australian this week.  In light of the release of the Sustainable Australia – Sustainable Communities, A Sustainable Population Strategy for Australia Report last week I think it is quite topical, enjoy!

As Australian’s we are so obsessed with our capital cities, in particular Sydney and Melbourne but why? Yes they are the most populous regions and yes parts of the cities are very nice but there are also many parts of the city which do not hold the same appeal.

The reason I believe people are so obsessed with our capital cities is due to the fact that generally the employment opportunities are most plentiful in either Sydney or Melbourne or to a lesser degree Brisbane or Perth.  Alternatively, you can move to a regional area and work in the resources sector and get paid extremely well.

The issue is that the cost of living in most of these cities is significant: housing is expensive (particularly in the most desirable areas), public transport infrastructure is largely insufficient and relatively expensive and typically the road networks are also not up to scratch.  Yet the lure of the dollar keep Australian’s flooding to these centres.

Australia’s capital cities account for approximately half a percent of all of the country’s land mass yet almost 65 per cent of the population live in these areas.  A good comparison is the USA, the eight largest Metropolitan Statistical Areas:

  • New York – Northern New Jersey – Long Island
  • Los Angeles – Long Beach – Santa Ana
  • Chicago – Naperville – Joliet
  • Dallas – Fort Worth – Arlington
  • Philadelphia – Camden – Wilmington
  • Houston – Sugar Land – Baytown
  • Miami – Fort Lauderdale – Pompano Beach
  • Washington – Arlington – Alexandria

These eight regions had a combined estimated population of 70,831,808 persons as at 1 July 2009.  Despite such a large combined population they accounted for just 23% of the country’s overall population.

It’s little wonder housing is expensive in desirable areas of capital cities of Australia given there are so many people competing to live in such a small area of the country.  Of course there are wide expanses of Australian land which isn’t suitable to live within but there are plenty of areas outside of the major capital cities which are more than suitable in which to live.  The thing holding many of these regions back is jobs, decent wages and appropriate infrastructure.

Looking once again at the USA, did you know that only one of the top 10 Fortune 500 companies in the USA is actually headquartered in Manhattan?

The trouble in Australia is that so many of our largest companies insist on being headquartered in capital city areas and you can understand why.  The capital cities are where the population is so as a result, that’s where the employees are.  On the other side of this argument the occupancy costs are significantly higher in Sydney than they would be in say Adelaide or Townsville.  I suspect that there are some significant cost savings to be made if some of these businesses were set up in regions outside of the capital cities and not just on occupancy costs.

In the USA, Omaha Nebraska which is home to an estimated population of 849,517 persons, just 0.3% of the country’s population, is home to five of the top 500 companies in the country (including Warrant Buffet’s Berkshire Hathaway).  Surely these businesses being headquartered in these less populous regions is a massive shot in the arm for local businesses and the economy.

I believe that like the USA we need to spread out a little and Government can start by incentivizing businesses to set up outside of the major capital cities.  In fact, Government should be taking the lead and setting up larger regional operations and administration centres located outside of the capitals.

From a private sector perspective, I doubt it would be possible to lure too many existing businesses from their CBD headquarters however, what we can start doing is incentivising new businesses to set up their headquarters outside of the capital cities.  Not only would this encourage additional investment and employment drivers in regional areas, it would also lessen the stress on capital cities.

These regional areas don’t need to be far from the major capital cities however, the cost of living in these areas would be much lower than capital cities.  Look at the below examples of the median house prices in capital cities as opposed to nearby regions for the December 2010 quarter:

Sydney Statistical Division – $600,000

  • Newcastle – $390,000
  • Wollongong – $445,000
  • Cessnock – $235,000
  • Wingecarribee – $365,000

Melbourne Statistical Division – $515,000

  • Greater Geelong – $350,000
  • Greater Bendigo – $260,000
  • Ballarat – $269,000
  • Latrobe – $210,000

Brisbane Statistical Division – $460,000

  • Lockyer Valley – $336,250
  • Toowoomba – $320,000
  • Somerset – $320,000
  • Gympie – $305,000

Perth Statistical Division – $480,000

  • Murray – $295,000
  • Waroona – $297,500
  • Harvey – $367,500

Canberra Statistical Division – $550,250

  • Queanbeyan – $441,250

There are also plenty of other viable regions such as: Cairns, Coffs Harbor, Albury-Wodonga, Mount Gambier and Broome to name a few.

The issue currently is that there are not enough jobs in these regions to lure working age residents to move to one of any of these regions en masse.  Employment opportunities outside of capital cities are the key and the shift must be supported by Government.  Without jobs the lure of cheaper housing won’t be enough.  Major businesses being located in these areas would help attract people to the area (and subsequently increase revenue for the councils) as well as increasing the requirement for services and additional business to cater to an increasing population.

Even if this initiative was to be implemented it would not be a swift shift away from the capital cities and they would likely continue to account for the majority of the population however, de-centralising can ease costs and provide alternate options.  With the cost of living continuing to increase in the capital cities and all Government’s seemingly unable to plan appropriately for future population growth, alternatives outside of the capital cities must be considered.

What do you think, are we too capital city centric, should the Government be doing more to encourge investment and jobs outside of the capital cities?

 

About Cameron Kusher

Cameron Kusher is Head of Research at CoreLogic, specialising in primary and secondary data analysis, property market commentary and consultancy. Cameron has a thorough understanding of the fundamentals such as demographics, trends, economics and spacial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors. Follow Cameron on Twitter @cmkusher

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14 Responses to Why Australia needs to drop the obsession with our capital cities

  1. Daniel O'Connor May 26, 2011 at 2:47 pm #

    How much of the heavily centralisation in major cities is related to communication?

    Transport for the purposes of communication (meetings, face to face contact with work colleagues; easy communication between businesses at a face to face level) has influenced how we’ve built the CBD areas of our cities for the last century or more.
    It’s only recently we’ve got technology which can change some of those assumptions (email, web).

    Looking at what has happened with these technologies in the last decade, we’ve seen large strides forward in how these are used in all levels of our culture. However I don’t think we are at the point of a communication utopia.

    Thinking that; I believe it would be extremely hard to decentralise our current culture – you can’t justify building high cost communication infrastructure in non metro areas if no one will use it; and no one will go where communication is too difficult to sustain a working modern business.

    While communication is only one piece of the puzzle, I think it’s a huge challenge that we need to solve before we can decentralise easily.

    • Dick Howard June 17, 2011 at 7:40 pm #

      What amazes me is that none of you peoplecan ever look beyond the coastal fringe. I live near Warwick, 160 road km from Brisbane…glorious climate, cheap housing, every facility Brisbane has, parking is FREE, plenty of industrial, land, a huge Big W distribution warehouse employing over 500 people, no pollution, an export abattoir employing over 500 people, five highways intersect here, one of the oldest cities in Queensland, lots of history, many advantages, no disadvantages, yet you do not even Mention this city , YES CITY, with a population well over 12,000 and a district over .
      30000 population.
      Why is our Government not re-locating bureaucrats to places like Roma, Longreach, St George, Barcaldine, etc…..al nice places to live and work. All the Government offices do is paperwork, all can be transmitted by e-mail as it already is, costs are lower, and workers available if snooty bureaucrats dont want to move from the capital/coastal
      areas.
      The communication thing is garbage…I run a contracting, business, and trade the stock market, and grow fat lambs, entirely by computer from a country property with e-mail, electronic banking, telephone when I must talk to someone, and Skype if I really have to see them..
      Try to get into the 21st century, you lot
      .

  2. Ken May 26, 2011 at 6:32 pm #

    I totally agree that we should build up the regional areas. The cost of infrastructure is much lower in these areas, if the jobs are there people will come and it will provide employment for young people who are coninually having to leave to go to capital cities to find a job. I work at Charles Sturt Univiersity in Bathurst which is a fantastic city with lots of things going for it and only 3 hours by car from the centre of Sydney. People say the can’t find people to work in regional areas, but often there are people willing to work if the jobs are there, they have had to move to Sydney to find a decent one.

    • Cameron Kusher May 31, 2011 at 9:22 am #

      Hi Ken

      This is exactly the problem. We have plenty of fantastic areas which are in reality not far from the capital cities but people can’t earn a sufficient wage to keep them in these areas. Governments of all levels have an addicition to capital cities and the sooner we lose that addiction the better in my opinion.

      Better rail linkages with frequent services to the capital cities would also be a big help.

      Cameron

  3. Stanley Robins May 27, 2011 at 2:45 pm #

    We’re cramming more and more people into cities and as a result, city rents are certain to boom in my view. We’ve seen massive population rises during the past years and interest rates are still relatively low. Many cities saw rises of 20%+ since the GFC.

    Consequently renters face catastrophic rent rises or better choice of buying property before rents skyrocket (already unfolding). Some housing bears say we’re going to crash because of low demand, unaffordability etc – this makes them feel better. They say houses to fall 40%, severe recession, nonsense like banks to margin call investors.

    Ha! Those bears myths are blown apart on AustralianPropertyForum.com The property doomsayers have egg on their faces. Smart bears worked out whats coming and bought. Make no mistake, Sydney and Brisbane house prices will jump significantly in coming years. Some cities facing 30% rise over next few years according to BIS. Holiday towns up 10-15%. Can’t see anything to prevent the next massive boom unfolding because the RBA can’t really raise rates again given the weakness elsewhere in the (non-mining) economy. The recent slowdown is over, Australia’s home prices will continue rising to higher levels than most countries.

    After every slowdown is the inevitable boom and the boom we face may be biggest on record. By the time this finishes, it will leave the early noughties boom looking like a mild uplift – think 50% trough to peak increase in many suburbs over 5-6 years. Sydney faces the steepest rise in my view, main driver low rates, immigration, realisation the economy pulled through the GFC in great shape. House prices are on upward trajectory, rents and prices will remain high, building costs high, the economy may even soar on the back of a building boom in Sydney. Yay!

    Stanley Robins
    Australian Property Bubble is a Myth Forum

    • Cameron Kusher May 31, 2011 at 9:27 am #

      Hi Stanley

      While I agree that rents are likely to grow I don’t necessarily agree about there being rapid price growth over the next few years. Interest rates are at restrictive levels, credit growth is slowing and likely to be more subdued into the foreseeable future and affordability is stretched. No doubt that if rents continue to rise home ownership will become more attractive over time however, I believe that the rapid price appreciation of the last decade is unlikely to be repeated over the next decade. Investors should be focussing on rental returns and long term price growth rather than rapid short-term price growth.

      Cameron

  4. Alastair Woods May 27, 2011 at 4:01 pm #

    As a practicing Real Estate Agent on the Gold Coast, one thing that I personally believe the Gold Coast needs to do is to attract IT businesses.

    We have 2 of the best Universities within arms reach of each other, yet as soon as the students graduate they move off to the capital cities.

    We need the Gold Coast to transform from using tourism as it’s primary source of business into the next ‘Silicon Valley’. We have the land, we have the housing and we offer a very attractive lifestyle that many people enjoy. We don’t however have enough jobs. IT would be perfect as it pays very well and would boost the local economy significantly.

    We also need QLD to stop relying so heavily on the mining of natural resources and support the Gold Coast with the transition. Natural resources will always be limited in supply and therefore will only ever be a short-medium term solution. IT is an industry that is going to continue to grow for many, many years. There is no predetermined maximum supply, only what the market itself can hold (which is constantly inventing new products and expanding), and it is a very attractive industry for future generations to enter into.

    If the Gold Coast concentrates on building the infrastructure required & designates some land for development of the buildings required, then it won’t take much for the IT companies already here to grow big enough to attract more students and practicing IT professionals. Those professionals will of course purchase and consume products locally boosting the entire economy.

    But for this to happen, the Government and local council need to work together to make it happen.

  5. Mat Carpenter May 31, 2011 at 12:13 pm #

    I agree with Daniel’s comment regarding communications. I’ve often wondered whether in another 10 or 20 years, the whole idea of commuting to a desk job in a CBD office will become redundant. Super high speed networking, virtual/3D environments, video teleconferencing, etc will be able to give home-workers the same experience as actually being in the office, even down to the “white noise” of others “chatting” nearby. So why pay $600,000 for a house in Sydney, when I can do that job from my beach house on the north coast with a mortgage half the size.

  6. Mark June 17, 2011 at 4:25 pm #

    The problem with not living in cities is the relative cost. Its ten times cheaper to keep your population in cities. If you look at the costs of providing even lower standard infrastructure, education and health services to rural areas you understand why cities are so much more attractive. The obvious economies of scale are equally applicable to all retailers and service providers and is therefore so much more attractive to business and all tiers of government.
    Its even more interesting in older European countries where rural life has become a lifestyle choice. In the UK 80% of those who live outside cities commute to work in cities.

  7. Paddy McCann June 17, 2011 at 11:14 pm #

    We recently relocated to the Hastings Region and while we maintain our office in Sydney, we are naturally looking to create work opportunities here in our new home area. Where one or two large businesses can dominate a small town region, many small to medium sized businesses offer diversity and richness to the local economy. If you have an information based business, small manufacturing or similar and you like the idea of no traffic, friendly people, great cafes and incredible coastline, take a look at the Hastings – we are glad we did.

  8. Cairns Tours August 29, 2011 at 6:42 pm #

    Greetings from Brisbane, Australia. Thanks for the info. Very useful for my university assignment 🙂

  9. Renate West April 10, 2017 at 7:59 pm #

    In my opinion the obcessiin has caused over population,poor infrascture, increased crime.Frankfurt Germany ,3rd largest city in Germany has population of 750000.Australia nreds to spread populafion out to regional areaa.Build up regional areas with much better train links and create work in regional cities.

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