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.