Capital cities need multiple CBDs to spread jobs, reduce congestion

Australia is in a unique group of countries whose fortunes depend heavily on a handful of cities. The latest Australian Bureau of Statistics population figures show that about two-thirds (15.8 million) of all 24.6 million Australians live in Sydney, Melbourne, Brisbane, Perth and Adelaide. The vastness of the Australian continent dictates just such a population distribution.

We built one big city with one big central business district in each state, gave each a few satellite cities (for example, Geelong and Wollongong) and also threw in some small towns to manage farming and mining … and, voila, that’s the Australian urban landscape.

How does Australia compare internationally on this measure and how does this “demography” shape our housing markets? Let’s look at the data from the world’s leading population gurus at the UN Population Division in New York. I added up the population of the five largest cities in each sizeable country (over 8 million residents and at least five cities with over 300,000 residents). Only a few countries come close to Australia, where 64 per cent live in the top five cities. Japan (60 per cent), the United Arab Emirates (59 per cent) and Chile (51 per cent) are similar in that only limited areas of the available land are suitable for large-scale cities. In these countries, much like in Australia, it made sense to limit the number of cities, and instead establish a small number of big cities.

Perhaps it isn’t surprising that Australia and Japan share a similar cultural affinity for living in just five cities. Japan’s largest cities are of course bigger than their Australian counterparts (Tokyo alone accommodates one-and-a-half times the Australian population) but they are, like the Australian cities, spread around a long coastline with barely anyone living far away from the coast. The similarity to the Australian city distribution becomes obvious when comparing Australia’s fertile east with the whole of Japan.

Australia wouldn’t have the global impact it has today if it wasn’t for the quality of life and economic prosperity in cities like Sydney, Melbourne and Brisbane. Had we spread the 16 million or so residents in our five largest cities over 10 Adelaide-sized cities, it would be more difficult to brand Sydney as a global tourist destination, to project, say, Melbourne as a global giant in sporting events, and to showcase all of our big cities as attractive destinations for international students.

On the other end of the chart we have countries where people live across a large number of cities of varying sizes. In these countries most of the land is suitable for urban settlement. In Germany, for example, the five largest cities accommodate a mere 10 per cent of the population. Much the same is the case in Poland (11 per cent) and in the US (16 per cent). When the entire country is suitable for city development, you don’t concentrate all people in one place. In an historical sense, more smaller cities minimises risks and the impacts of fast-spreading diseases, enemy attacks and the failure of power or traffic systems.

The higher up a country is on the accompanying chart, the more likely it is that regional towns get overlooked since all the political power rests in big-city-based electorates. Why bother with the needs of Wollongong, Warrnambool, Griffith, Albany or Townsville if they don’t make up a sizeable share of voters? In a country like Germany regional towns hold more power as they collectively represent a much larger share of voters. This ensures, for example, that more infrastructure spending is allocated to regional areas.

So far we’ve been talking about the high percentage of Australian residents in the five largest cities. The same logic is of course the case for jobs. In Australia 63 per cent of all jobs are located in the top five cities. The most attractive and highest-paying jobs are clustered in five CBDs. Australia’s best and brightest workers compete for these jobs. In one sense Sydney and Melbourne are victims of their own attractiveness as job locations. Each of these two cities host about one-fifth of all Australian jobs.

As Sydney attracts more businesses of national and international importance, the Sydney CBD accommodates more offices, which in turn pushes affordable housing further away from the CBD. In Melbourne, affordable housing has not been pushed out as far, largely because there is still plenty of room for growth in the west. This is probably the main reason why Melbourne grew by 125,000 people last year while Sydney “only” added 102,000 people.

The bigger the city and the more influential the single CBD, the further away workers must move in order to find affordable housing.

What can we do to address the housing affordability issue, which is in large part an outcome of the scale and configuration of our largest cities? The answer is, I think, we must restructure the layout of our big cities. Since the attractiveness of the CBDs largely drives house price growth, what would happen if we introduced one or two or three additional CBDs to the fabric of our big cities? In theory, if we were to spread the highest paying jobs more evenly across several employment centres, all linked with fast rail and road networks, we would soften pressure on the housing market.

This is, of course, not an original idea. It is the backbone of the current strategic planning documents for Sydney, Melbourne and southeast Queensland. Urban planners speak about the transition from monocentric cities to polycentric cities. The strategic plans look good, are backed by academic studies and white papers and promise to ease the housing affordability crisis … eventually. In practice the establishment of a second and third CBD is hard.

The ecosystem that makes the CBDs of our big five cities such attractive workplace destinations can’t simply be replicated by a bunch of freshly built office towers in the suburbs. Melbourne’s Docklands took years to be embraced by big business even though the area is basically a bolt-on to the existing CBD. Only if enough big players relocate their head offices (back offices don’t count) to the proposed secondary CBD locations can an ecosystem evolve that sustains enough attractive, high-paying jobs that have the power to alter the physical layout of our cities.

Establishing additional CBDs across Melbourne and Sydney will allow each city to maintain their global city branding while spreading the high-skilled jobs over a wider area, thereby ameliorating the housing affordability crisis and reducing the crush of current commuting patterns. The research has been done; the urban planning documents have been published; now the challenge is to convince big business to relocate flagship functions — the chief executive and direct reports — to the new CBDs in suburban locations. There are a few examples of this “suburban shift” by big business to places like Sydney’s Norwest Business Park and Parra­matta and Melbourne’s Too­ronga.

Who is best positioned to build our new CBDs? Government needs to ensure sufficient rail, roads and utilities are installed to service tens of thousands of new workers. Whoever governs during the next few decades will do their bit and sign off on the financing of these projects. Failure to do so would worsen congestion and affordability issues and no politician wants to be blamed for that.

Which private sector players will build the offices and additional residential buildings? Due to the scale of the task the large property developers appear the most suitable candidates.

However, these publicly held companies have to think quarterly to guarantee continuous returns to shareholders. The new CBDs will only kick into gear in the 2030s.

That poses a challenge for the big publicly held developers but presents a big opportunity for privately owned, family-run property firms. These businesses might be more willing to make investments with a long-term view in mind.

Ultimately Australia’s big cities have to spread the love of CBD jobs to a series of emerging CBDs across the urban fabric.


This article was first published in The Australian newspaper on 10 May 2018.