Productive cities: opportunity in a changing economy

Economics Housing Australia
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Most Australians live and work in cities. They are essential to generating growth and to creating and distributing opportunities. Cities are shaped by where people live, where they work, and how they get around. When these three things are in tune with the structure of the economy, cities operate efficiently and productively, and drive growth and innovation.

This report examines housing, income and travel data in Australia's four largest cities and reveals strains in the triangle of work, home and transport that could threaten national prosperity.

Addressing these issues will provide a significant boost to national productivity, because as the economy becomes more knowledge intensive, deep labour markets and good links between firms become more important.

Firms engaged in high-knowledge activities benefit from connections that enable them to collaborate and learn from one another. They locate in places with deep labour markets to ensure that they can attract the talent and skill they need.

This report reveals, however, that labour markets are shallow in significant parts of Australia‟s biggest cities. In many suburbs – particularly outer suburbs – residents can reach fewer than 10 per cent of all metropolitan jobs with a reasonable commuting time.

Increasingly, employees with high-level qualifications and high incomes live close to the heart of our cities. Meanwhile, workers with trade skills or low skills, and people on lower incomes, tend to live further from the centre. Rising house prices have exacerbated this divide. If this polarisation continues, then many people risk being locked out of the parts of the city that offer the richest access to jobs.

How can government's respond? Governments are frequently called upon to create jobs in outer suburban areas by offering incentives to business to relocate or by building new employment clusters from scratch. Yet there is little evidence that such policies work. A better option is to move people closer to jobs. This can be done in two ways. First, the supply and diversity of dwellings in existing suburbs can be increased. Previous Grattan research has shown that people want more housing choice. It can be created if the disincentives developers face are addressed, if suburbs are not locked down by restrictive zoning and planning rules and if residents are engaged up front in decisions affecting their neighbourhoods.

Second, the transport system‟s capacity to connect people and jobs can and must be improved. That means better road systems and better public transport. Facing up to the challenges of road use pricing would go a long way to ensuring that space on city roads goes to the most important and most productive uses, and could raise revenue to help increase public transport capacity.

The shape of our cities is above all an economic issue. Giving knowledge-intensive firms access to more workers would make them more productive. It would also give workers more opportunities to find rewarding jobs. Better functioning cities would unleash higher productivity, and provide everyone with more opportunities. In this case, what is good for the economy is also good for the fair go.

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