Callam Pickering at Business Spectator has swallowed the Grattan Institute’s Kool Aid and wholeheartedly accepted the findings of their latest report (debunked here) that the CBDs are the centre of Australia’s economic universe:
Australia’s economic activity is highly concentrated within our cities but poor town planning and public transport services mean many Australians are unable to take advantage of the choices that offered by city-living. A shift towards higher-density, inner-city living could provide a boost to productivity and activity in the years ahead…
Few will be surprised that our cities are at the centre of Australia’s economic engine…
The CBD is also much more productive on average than other areas…
Unfortunately, Australian cities do a poor job of providing access to employment opportunities and matching employers with potential employees. Suburban sprawl is rife in Sydney and Melbourne, and is no less harmful among our smaller capital cities…
Australia will continue to shift towards a more services-based economy, which suggests that activity will become increasingly concentrated within our major cities. As that happens, I expect that higher-density living will grow more popular as Australians put a premium on living where the action is.
Reading between the lines, Callam seems to be endorsing stricter planning policies that “force” urban consolidation. Yet, as argued in detail this morning, it is precisely restrictions on urban land supply, combined with various tax distortions (e.g. negative gearing and capital gains tax concessions), that have facilitated the rapid growth of the financial services industry, in turn increasing the CBD’s dominance (see next chart). This is inconsistent with Callam’s oft-expressed other views about the problem’s associated with expensive Australian housing.
In effect, Australia’s housing policies and compulsory super system have transferred economic rents to the CBD from elsewhere. And diverting yet more of the nation’s capital into the CBD – whether via further forced urban consolidation or massive public transport spending – will only exacerbate this outcome. The financial sector (and other services industries) would obviously be key beneficiaries (e.g. via higher land/house prices and mortgage debt), but this would come at the expense of the broader economy.
Again, I pose the question from this morning’s article:
Would Australia really be worse-off if the median house price was instead $300,000 rather than $500,000, mortgage debt was 70% of disposable incomes instead of 135%, and the banking sector was smaller and less profitable? In a similar vein, would the nation be worse-off if superannuation concessions had been much smaller and didn’t favour high income earners, and the funds management industry was smaller and less profitable?
The answer is obviously no – we would be better off. And yet in both instances, CBD economic activity would be substantially less.
It also raises the question of why we all need to be located so closely together, as advocated by Grattan and Pickering? Surely in the digital age, more of us can work effectively remotely, and don’t need to be located physically close to work?
MB is a case in point. I work from home in Melbourne’s eastern suburbs and Houses & Holes works from home in Melbourne’s west. We rarely see each other, yet work very effectively. Put simply, the digital age argues for decentralisation, not greater centralisation.
Finally, Callam seems to have forgotten that it is regional and rural areas that provide Australia with not only its food, but also the lion’s share of its export revenue, which is effectively what pays for Australia’s imports (consumed mostly by city dwellers):
Bigger CBDs, other things equal, means a less competitive economy and a wider current account – hardly a desirable situation.
The last thing Australia needs is an economy increasingly based on ticket-clipping and rent-seeking, whereby the spoils flow to a small group of CBD elites at the expense of everyone else. We cannot prosper by being city-centric and selling each other houses, financial advice and cappuccinos. Rather, we need a well-diversified, balanced, economy with a wide range of industries – both urban and rural.
