Jobs and population growth
I read an article this week about how the suburbs are creating the great weight of the jobs in Australia at the expense of the Central Business Districts (CBDs) and inner city areas.
Ahh…an interesting thesis, but fundamentally flawed.
Unfortunately, the cited source of this claim – the Australian Bureau of Statistics (ABS) – produces its labour force reports collating survey data based upon a person’s usual place of residence, not where they actually work.
Therefore, while employment growth may seemingly be reported as ‘strongest’ in areas where the population is growing fastest, such as huge growth to the west of Melbourne, the basis of this analysis is incorrect.
Where people usually reside does not tell us anything very useful about where the actual jobs are being created, or the type of jobs that are being created.
The Census data will in due course reveal more about actual places of employment, as and when the information is eventually collated.
The ABS itself clears up this common misunderstanding thus:
To take Sydney as an example, while the population headcount may be growing fastest in the areas where most apartments are being constructed, it by no means follows that these are also the key employment hubs.
Western Sydney has strong population growth, but it also has a huge and growing jobs deficit, to the extent that hundreds of thousands of residents presently commute daily towards the east of Sydney each day, and home again each evening.
The trend is being reinforced as manufacturing industries – traditionally located in the suburbs – are in a long, sweeping, and structural decline.
And with Australia’s mining construction boom now well and truly in reverse gear, regional resources construction employment can also be expected to decline substantially.
Meanwhile knowledge-intensive professional and services jobs are instead now driving the economy forward.
This is not to say that infrastructure shouldn’t be delivered to the locations where people live.
Obviously it should.
But planning does need to recognise that where people live does not necessarily correlate to where they work, and indeed some argue that the infrastructure should be intended to transport residents to the inner city more efficiently.
Productivity – highest in the city
Quite apart from where employment and the number of residents is growing fastest, it is also important to understand where economic productivity is highest.
The Grattan Institute carried out some outstanding research into this in its paper Cities as Engines of our Prosperity and found that productivity is by far the highest in the Central Business Districts (CBDs), to the extent that the inner cities overwhelmingly generate the most economic activity.
In fact, Grattan found that an extraordinary 80 per cent of Australia’s economic activity is generated on just 0.2 per cent of its land mass, with a hugely disproportionate share generated by the CBDs of the largest cities and their immediate surrounds.
In Sydney, the CBD ($64.1 billion), North Sydney ($10.2 billion), and Pyrmont ($5.8 billion) generate an overwhelmingly dominant share of economic activity, with productivity per hour far higher in the Sydney CBD than anywhere else.
Interestingly there are some secondary business hubs such as Parramatta, around Homebush, and Macquarie Park, but the suburbs don’t really feature – the suburbs are places where people live, yes, but in terms of economic activity and actual employment growth, not so much.
Indeed, fully half of Sydney’s economic activity is generated on a mere 1 per cent of its land mass.
The same is by and large true in other large cities – half of economic activity is generated in a very small metropolitan area, mainly concentrated around the CBD.
A similar dynamic exists in Melbourne, where the CBD ($39.2 billion), Docklands ($8.2 billion) and Southbank ($6.5 billion), account for the great bulk of activity.
The Brisbane CBD ($23.7 billion) produced more than six times are much economic activity as the next most productive areas, and so on.
It’s wrong to say that Australia’s suburbs are the most important drivers of employment and economic growth based on the monthly ABS labour force survey.
They aren’t, and the truth is that the ABS figures tell us more about where more houses and units are being constructed than they do about the location of new jobs.
Australia’s economic activity and a high share of employment is being driven by primary and secondary business districts.
But since often relatively few people live in these employment hubs, the labour force survey seemingly recognises the ‘growth’ in employment as being in the suburbs with the greatest dwelling construction and therefore population growth.
To drill down accurately and understand where jobs and economic growth are really being created, you will need to look at the results of the 2016 Census.
Of course, over the longer term, these findings have critical implications in relation to dwelling prices, which tend to grow fastest where:
- Household wealth is growing;
- a large and growing number of wealthy or high-income earning people want to live;
- land is scarce;
- the type of dwelling in demand is not easily supplied; and
- property investors believe or speculate that prices will continue to rise in the future.
This is particularly relevant in a country without punitive death duties or inheritance taxes, where household wealth has every potential to become increasingly concentrated.
The Reserve Bank of Australia has released similar research which revealed the Central Business Districts as “jobs magnets”, resulting in dwelling prices rising consistently faster over time in the inner ring locations:
“Absolute increases in both job density and population density are greater in the already dense inner areas. In fact, many of the inner areas have become even greater job magnets in recent years; some middle and outer areas added people, but not so many jobs, so their job-to-worker ratios actually declined.”
The RBA couldn’t have been clearer on this point.
Curiously the CBDs of Sydney and Melbourne actually added more people than jobs to see their respective job-to-worker ratios decline, however this was found to be due to a huge influx in the number of international students.
According to Grattan the intensity of economic activity is comfortably highest in the central business areas, partly because these are the main employment hubs, and partly because of the way businesses, customers, and suppliers in close proximity to each other interact so effectively.
Unfortunately, Grattan found that too many workers live too far away from their jobs, observing that in each of the four largest capital cities there is a distinct advantage to employees in proximity to the city centre in terms of employment that can be accessed.
“The vast majority of economic activity takes place in Australia’s large cities. And within these cities, economic activity is heavily concentrated. Australia’s cities are the backbone of our economy, with CBDs and inner city areas critically important to the nation’s prosperity.
Their predominance reflects the economy’s evolution from one based on primary industry, then manufacturing, then increasingly knowledge-intensive services.”
Bang on. Find their detailed report here.
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.