The document summarizes a presentation about challenges facing Australian cities. It notes that Australia's economy is increasingly dominated by services produced in major cities. While jobs are concentrating in city centers, new housing is primarily on the outskirts, leading cities to near their limits. Planning and tax policies need reforms to address changing work patterns and falling home ownership rates, especially among younger, lower income individuals.

1. City Limits:
Urban economic development
and its policy implications
John Daley, CEO, Grattan Institute
Presentation to Auckland Conversations
1 September 2015

2. 2
City limits
Australia’s economy is increasingly dominated by services produced
in cities
Australian cities are nearing their limits
Planning policy needs to adjust to changing patterns of work
Tax policy should encourage rather than discourage home ownership

3. 3
City limits
Australia’s economy is increasingly dominated by services produced
in cities
• Services are growing much faster than other sectors
• Big cities now dominate the economy
• More jobs are concentrated in the centre of big cities, while new housing
is primarily at the edge
Australian cities are nearing their limits
Planning policy needs to adjust to changing patterns of work
Tax policy should encourage rather than discourage home ownership

4. 4
0
20
40
60
80
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Goods
Services
Source: ABS5206 table 8
Notes: Excludes “rents and dwelling costs” and “other goods and services”. Based on seasonally adjusted current prices data
People are consuming more services
Share of total nominal household expenditure

5. 5
0
10
20
30
40
50
60
70
80
90
1890 1921 1934 1947 1960 1973 1986 1999 2012
Mining
Construction
Manufacturing
Services
Agriculture
Sources:
1. 1890-1980 Australian Historical Statistics: Labour Statistics, by G.Withers, T.Endes, L.Perry
2. 1984-2012: ABS6291.0.44.003, table 4
Note: 1981-1983 are interpolated using 1980 and 1984 data
Consequently, more people are working in
services
Per cent of workforce, Australia

6. 6
0
5
10
15
20
25
30
35
40
45
50
1970 1980 1990 2000 2010
0
5
10
15
20
25
30
35
40
45
50
1970 1980 1990 2000 2010 1970 1980 1990 2000 20101970 1980 1990 2000 2010
Manufacturing has steadily declined in
Australia, “leading” international trends
Per cent GDP
Median
90th percentile
Australia
10th
percentile
Median
90th percentile
Australia
10th percentile
Export volumeValue-added (current prices)
Grattan Institute, The mining boom

7. 7
0
10
20
30
40
50
60
70
80
90
100
$bn
Australia’s economy is dominated by its big
cities
Australian economic activity, 2011-12
Per cent of State total
NSW Vic Qld WA SA Other
Sydney Melbourne Brisbane Perth
Adelaide
0 100 200 300 400 500 600 700 800 900 1000 1100 1200
SE Qld
Grattan Institute, Mapping Australia’s economy

8. 8
Some context: Auckland is a mid-size
“Australasian city
Population, millions
Infrastructure Australia, Australian Infrastructure Audit, Auckland City Council, Unitary Plan
0
1
2
3
4
5
6
7
Sydney Melbourne Brisbane Perth Adelaide Auckland
2015
2031 (estimate)

9. 9
Economic activity is most intense
in inner cities
Economic activity by location, 2011-12, Melbourne
CBD:
$39.1b
Southbank:
$6.5b
Docklands:
$8.2b
Dandenong:
$5.9b
kilometres
0 10
Height of bar
indicates total
economic activity
Bar not shown for
economic activity
less than $1 billion
Grattan Institute, Mapping Australia’s Economy
Height of bar
indicates total
economic
activity
Bar not shown
for economic
activity less
than $1 billion

10. 10
Parramatta:
$68
Macquarie Park: $81
North Sydney:
$91
CBD: $100
Airport: $65
kilometres
0 10
>$90
$80-90
$70-80
$60-70
$50-60
$40-50
<$40
Insufficient data
Economic output per hour is highest
towards the centre
Economic activity per working hour, 2011-12, Sydney
Grattan Institute, Mapping Australia’s Economy

11. 11
City limits
Australia’s economy is increasingly dominated by services produced
in cities
Australian cities are nearing their limits
• Big cities are dividing geographically
– Inner cities have much better education levels, access to jobs, high
incomes
– The divide is increasing, particularly disadvantaging women
• Many people want to make different housing choices
• Home ownership is falling for all ages under 55, particularly those on low
incomes
Planning policy needs to adjust to changing patterns of work
Tax policy should encourage rather than discourage home ownership

12. 12
0
10
20
30
40
50
60
70
0-10 km from
CBDs
10-20 km
from CBDs
20+ km from
CBDs
Most new jobs are towards the centre, while
most new homes are on the edge
Jobs per resident, 5 largest Australian
cities, 2011
0.0
0.2
0.4
0.6
0.8
1.0
0-10km 10-20km 20+km
Employment and population growth,
5 largest Australian cities, 2006-11
Distance from CBD
Net employment growth
Net population growth
Distance from CBD
%
Grattan Institute, City Limits

13. 13
Inner suburbs have much high levels of
tertiary education
Tertiary education levels by suburb, Brisbane 2011
Grattan Institute, Productive Cities

14. 14
Most Brisbane residents have good access
to jobs by car …
Percentage of Brisbane jobs that can be reached in 45 minutes by car
Grattan Institute, Mapping Australia’s Economy

15. 15
… but Sydney shows how there can be real
problems
Percentage of jobs that can be reached in 45 minutes by car
Grattan Institute, Mapping Australia’s Economy

16. 16
… and public transport leaves many of
Melbourne’s outer suburbs under-served
Percentage of Melbourne jobs that can be reached in 60 minutes by
public transport
>50
40-50
30-40
20-30
10-20
<10
Airport
CBD
Dandenong
kilometres
0 10
Grattan Institute, Mapping Australia’s Economy
Residents living in
the darkest shaded
suburbs can reach
more than half the
jobs within a 60
minute public
transport trip. In
the lightest shaded
areas, residents
can access fewer
than one in ten of
those jobs
>50
40-50
30-40
20-30
10-20
<10
Airport
CBD
Dandenong
kilometres
0 10

17. 17
Differences in male and female workforce participation by suburb,
Sydney 2011
Grattan Institute, Productive Cities
Women in poorly-connected areas
face more difficult compromises

18. 18
Grattan Institute, Productive Cities
Poor access to job leads to poor
social outcomes
Percentage of disaffected youth, Perth, 2011

19. 19
The divide between people and jobs has big
consequences
In outer suburbs people earn lower incomes on average, and are more likely to
be employed on casual basis.
Harder for women caring for children in outer areas to participate in the
workforce.
Longer commutes result in:
• Higher living costs of thousands of dollars a year
• Pressure on family life
• Lower well-being

20. 20
1
2
3
4
Many people want to trade off location
against price and dwelling type
Inner
Inner-Middle
Outer-Middle
Outer
TOTAL
Detached
9%
9%
12%
10%
41%
Semi-
detached
4%
7%
7%
6%
25%
Up to 3
storeys
2%
4%
4%
5%
15%
4
storeys
& above
5%
5%
6%
4%
20%
TOTA
L
20%
26%
30%
25%
100%
Desired trade-offs between location and house type - Sydney
Grattan Institute, The housing we’d choose

21. 21
1
2
3
4
4 – ‘Outer’ Zone
Shortages of:
• c.60k semi-detached dwellings
• c.60k apartments in buildings up to 3 storeys
• c.60k apartments in 4 storey + buildings
2 – ‘Inner-Middle’ Zone
Shortages of:
• c.80k semi-detached dwellings
• c.80k apartments in 4 storey + buildings
3 – ‘Outer-Middle’ Zone
Shortages of:
• c.80k semi-detached dwellings
• c.80k apartments in 4 storey + buildings
The market is supplying less medium
density than people want
Comparison between preferences and availability - Sydney
Grattan Institute, The housing we’d choose

22. 22
Composition of household
wealth, 2010
40
50
60
70
80
90
Home ownership rate by age
Per cent
Home
Wealth is dominated by home ownership,
but home ownership rates are falling
Super-
annuation
Other
financial
Bank
deposit
Business Shares
Other
property
25-34
35-44
45-54
65+
55-64
Grattan Institute, The wealth of generations

23. 23
-40%
-30%
-20%
-10%
0%
10%
Income quintile
Lowest
2nd
3rd
4th
Highest
25-34 35-44 45-54 55-64
Percentage point change in home ownership rates, 1981 to 2011
Home ownership rates have fallen fastest
for young people on low incomes
Grattan Institute, The wealth of generations

24. 24
City limits
Australia’s economy is increasingly dominated by services produced
in cities
Australian cities are nearing their limits
Planning policy needs to adjust to changing patterns of work
• Planning policy results in developers failing to build people the housing
they want.
• Planning policy is economic policy: middle ring medium density
development is probably the largest single lever for both economic
growth and social equality
• Residential tenancy policy needs to adjust to lower rates of home
ownership
Tax policy should encourage rather than discourage home ownership

25. 25
Renting closer to jobs is a worse option
than owning in Australia
International comparison of rental conditions
Notice period for
landlords
Reasons lease
can be terminated
Typical lease term
Pet ownership
Minor alterations
(hanging pictures,
laying carpet, painting)
Indefinite 6-12 months2-3 years
Non-payment/misconduct only Any reason with noticeLandlord selling/moving in
Tenant entitlement Only with landlord’s
consent
Subject to restrictions
Permitted – considered normal use Only with landlord’s consent
3 months or more 30 days2 months
Grattan Institute, Renovating housing policy

26. 26
City limits
Australia’s economy is increasingly dominated by services produced
in cities
Australian cities are nearing their limits
Planning policy needs to adjust to changing patterns of work
Tax policy should encourage rather than discourage home ownership
• CGT discounts and negative gearing are encouraging investors rather
than occupiers
• Property taxes are a better means to raise revenue than the alternatives,
and would improve housing affordability

27. 27
-12
-10
-8
-6
-4
-2
0
2
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Total net rent $ 2013-14 ($bn)
Source: Grattan Institute analysis of ATO Taxation Statistics 2012-13.
CGT discount
introduced
Collective losses became large after the
CGT discount was introduced

28. 28
Financial year ending
Source: Grattan Institute analysis of ATO Taxation Statistics 2012-13.
Number of people Average net rental loss $2014
Number of people
negatively gearing
residential property
(LHS)
Average loss
(RHS)
More landlords are negatively gearing and
average losses are growing
0
2000
4000
6000
8000
10000
12000
14000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012

29. 29
Limiting negative gearing in the 1980s did
not appear to increase rents outside Sydney
-6
-4
-2
0
2
4
6
8
10
1983 1984 1985 1986 1987 1988 1989
Sydney
Melbourne
Brisbane
Adelaide
Perth
No negative gearing
Source: ABS, Consumer price index, cat. no. 6401.0, table 12; see also Greg Jericho, Negative gearing: a legal tax rort for rich
investors that reduces housing affordability, The Guardian, 19 March 2015.
Real change in rents, percentage change from year earlier

30. 30
0%
1%
2%
3%
4%
Source: OECD (2014), Revenue statistics, updating Grattan Institute, Property taxes
Property
taxes
Taxes on property and transactions, per cent of GDP
Transactio
n taxes
Australia has lower property tax revenues
than some comparable countries

31. 31
• Australia’s economy is more knowledge-intensive than ever
• City centres are vital for knowledge-intensive activity and economic
growth
• Our cities have not adjusted well to these changes in the economy
• This is bad for the economy and bad for opportunity
• Housing, transport, and tax policies can support or hinder access to
jobs, and choice for both employers and employees
Conclusions

32. 32
City limits
Australia’s economy is increasingly dominated by services produced in cities
• Services are growing much faster than other sectors
• Big cities now dominate the economy
• More jobs are concentrated in the centre of big cities, while new housing is
primarily at the edge
Australian cities are nearing their limits
• Big cities are dividing geographically
– Inner cities have much better education levels, access to jobs, high incomes
– The divide is increasing, particularly disadvantaging women
• Many people want to make different housing choices
• Home ownership is falling for all ages under 55, particularly those on low incomes
Planning policy needs to adjust to changing patterns of work
• Planning policy results in developers failing to give people the housing they want.
• Planning policy is economic policy: middle ring medium density development is
probably the largest single lever for both economic growth and social equality
Tax policy should encourage rather than discourage home ownership
• CGT discounts and negative gearing are encouraging investors rather than
occupiers
• Property taxes are a better means to raise revenue than the alternatives

33. 33