In summary, a select few areas in Australia generate most of our wealth.
These are often a very long commute from where many Australians live.
If the current trends continue, more people will want to live closer to these economic generators; hence the rising attraction for more compact living.
But most cannot fit or afford to live in a downtown apartment.
More infill development is needed, coupled with better transport infrastructure, plus an active government programme to decentralise some of our knowledge-intensive work activities to our more suburban settings.
This Missive, for mine, also shows that investing outside of a major “economic” centre is increasingly fraught with risk. There are exceptions, but the trends appear to be stacked against them.
A brief history
Just over 100 years ago, we were actually living our reputation – dependent on the bush.
About four million Australians lived on rural properties or in small towns of fewer than 3,000 people.
Most were market towns, serving the agricultural economy.
Only a third of Australians lived in a city the current size of Toowoomba (i.e. over 100,000 people). Primary production, including mining, was almost all we did.
Post WWII, manufacturing took over from growing & digging things, accounting for a quarter of the workforce & a third of our GDP.
This led to a rapid rise in household wealth & a big shift to urban living, especially suburban homes.
By the time I was born – the mid-1960s – three out of five Australians lived in a major city.
Manufacturing has greatly influenced how our cities are laid out. Industry needed cheap land.
The rise in car use & ownership helped make manufacturing & suburbia go hand in hand.
By the time I started high school, four out of every five trips were made by car.
Fast forward to toady and Australia is no longer driven by what we make, but rather what we know & do.
Yes, mining has been pivotal to our economic growth over the past decade, but it employs just 2% of the workforce, and has never accounted for more than 10% of our GDP.
At last count, it made up 5.6% of our economy.
Our economy is increasingly becoming knowledge-intensive, more specialised & much more interconnected.
Did you know that our five largest urban areas – Sydney (plus Wollongong & Newcastle); Melbourne; Brisbane (really, south-east Queensland); Perth & Adelaide – account for almost two thirds of our economy? That’s 66%…and that isn’t a typo.
Our graphic, this Missive, maps out the Australian economy.
Australia’s largest cities are critical to their respective state’s economic performance, with Melbourne, for example, accounting for 79% of the economic activity in Victoria, whilst Brisbane (in the most decentralised state), makes up 46% (SEQ 59%) of Queensland’s economy.
Brisbane’s economy alone is estimated to be in the order of $136 billion.
Even regional economic activity & its growth are tied to our larger cities.
Regions within an acceptable commuting distance are typically growing much faster than more distant regions.
Of course, in each city, economic activity is more concentrated in some parts and less so in others.
In fact, many parts of Australia’s cities produce relatively low levels of economic activity, despite a lot of people living there.
Most live in these areas of low economic activity & commute to work in employment nodes.
Brisbane case study
The Brisbane CBD generates about 20% of the city’s economic growth. This is six times that of the next most productive area in the greater Brisbane area.
These secondary centres of economic activity include:
- Rocklea/Acacia Ridge ($3.7 billion)
- South Brisbane ($3.5 billion)
- Paddington ($3.4 billion)
- Fortitude Valley ($3.2 billion)
- Brisbane Airport ($3 billion)
As is the case with the other major capitals, most of Brisbane’s economic activity takes place in and around its CBD.
Because businesses are more productive when they interact with larger numbers of customers, suppliers & competitors – and when they are forced to do so with more frequency.
The same phenomenon applies when looking at why larger cities are more economically productive than smaller ones, or those in other parts of country.
Most Australians today are employed in the service industry; and whilst a lot of these are becoming more knowledge-intensive or at least involving greater use of technology, nine out of ten jobs still remain outside of our inner city areas.
It’s true that a large number of knowledge-based workers believe that the benefits of living close to the city outweigh the higher cost of housing; less dwelling space & generally greater expenditure needed to be an inner city resident.
But many of us cannot afford to live downtown.
Yet for the economy to function, we do need to live within an acceptable commute to work. Even more so, if we are to see more part-time jobs being created in the future.
This casualisation of the workforce is due, ironically, somewhat to our greater use of technology & increasing emphasis on becoming a more knowledge-based economy.
So either more infill housing needs to be built across our middle & outer city suburbs; or we need better transport systems between home & major places of work; or more knowledge-based work needs to be moved to where people currently can afford to live.
A combination of all three is what’s really required to help Australia’s economy grow.
It appears somewhat safe to assume that the service industry will remain our biggest source of employment & increasingly the muscle behind our economic growth.
Most service-related jobs are concentrated in small areas.
As a result, our economy is – as our graphic clearly shows – clustered into a handful of urban areas & within them in even tighter geographic confines.
This geographic trend looks set to continue – even accelerate – into the future.
That being true, then it looks to me that it would be best buying an investment property in one of the bigger red dots on our map, rather than in a more regional locale.
Of course, good exceptions do apply.
When it comes to buying within an area itself, it might be best to buy as close to one of the city’s economic “pulse points” as you (and your tenant profile) can afford.
FROM MICHAEL MATUSIK –
We write 100 ‘posts’ each year. It’s called the Matusik Missive; it has been going for years & took over from our hard copy regular called Snapshot. A Missive subscription costs just $150 per annum. Subscribers get discounts on our reports & ‘master class’ sessions too.
We are offering $50 off for Michael Yardney’s Property Update readers – bringing the purchase price down to $100+GST. Just go here to read more and sign up using the code – YardneyMissive