Why city centres are good places to invest

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Finding ways for more workers to live closer to city centres is crucial to Australia’s economic future, according to a new report from the Grattan Institute.

Mapping Australia’s Economy: Cities As Engines Of Prosperity found that 80% of the dollar value of all goods and services in Australia is produced on just 0.2% of the nation’s land mass, and nearly all of it is in cities.

The report also found that the combined CBDs of Sydney and Melbourne alone generate nearly 10% of the value of all goods and services produced in Australia – which is three times that produced by the agricultural sector.

Grattan Institute Cities researcher Paul Donegan said there has been a great reshaping of Australia’s economic geography.

“We have moved from prosperity coming from regional jobs in primary industry a century ago, to suburban jobs in manufacturing after World War Two, to city centre jobs in knowledge-intensive businesses today.”

The reason CBDs now contribute so strongly to economic activity is because:
  1. jobs are concentrated there and
  2. CBD businesses tend to be more productive than businesses in other areas
For example, in 2011-12 the Sydney CBD produced $100 in value for every hour worked there. By contrast, Parramatta produced only $68 for every hour worked there.

Donegan said that intense economic activity is concentrating in and around CBDs because knowledge-intensive firms need highly skilled workers – and locating in the city gives firms access to more of them.

However, while city centres are vital to the country’s prosperity, the concentration of highly productive activity in them presents big challenges for policymakers.

Donegan said this is because too many workers live too far from these centres to fulfil the cities’ economic potential.

“These small areas that generate most value are often a long commute from the fast-growing outer suburbs where many Australians live.”

Therefore, for the sake of the economy, it was essential to find ways to enable more workers to either live closer to these centres, or to reach them more quickly by road and public transport, he said.

The report also lists a number of areas close to CBDs that produce high levels of economic value. They include:
  • North Sydney ($10.2 billion)
  • Richmond in Melbourne ($4.4 billion)
  • Perth’s Subiaco ($4.2 billion)
  • Paddington in Brisbane ($3.4 billion)

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