Economy thrives while CBDs dive: the argument that CBDs are the engine rooms of the Australian economy is being tested right now

Many Australian CBDs continue to languish, with major CBDs only at from one third to two thirds of their pre-pandemic occupancy levels, despite the end of lockdowns and the lifting of many restrictions. This is having collateral impacts across the spectrum of CBD businesses that rely on office workers being at their CBD offices. Retail centres, restaurants, coffee shops, newsagents – every occupation and every business that depends on CBD workers and their wallets is feeling the pinch as CBD workers continue to preference their suburban homes as workplaces.

Public transport networks are still running but only at fractions of their pre-Covid loads. A public transport network designed to ferry suburban workers to the scheduled start and stop times of centralised CBD offices is looking increasingly challenged by new work-from-home practices with flexible hours and no commute costs (or time) to central work locations. The private car is reportedly now so much more preferred as a mode of transport that used car prices have risen markedly.

The damage to CBD reliant businesses is indisputable. In an effort to revive flagging public support, some CBD interest groups have called for everything from publicly funded entertainment to free public transport and free parking to stimulate interest in luring workers back. But nothing is free – especially public transport which is an already heavily subsidised service (used mainly by CBD workers due to it CBD hub and suburban spoke structure). There needs to be a strong case for such measures.

The “save the CBD” argument relies on the notion that CBDs are central to the performance of the Australian economy. “Our CBDs have been the nation's productivity powerhouses for decades, but have been sorely challenged by COVID-19 shutdowns. It's important for everyone that CBDs are able to reclaim this economic mantle,' said The Property Council of Australia.

The negative impact of Covid on the central city economy is well illustrated by news bulletins that love nothing more than recycling footage of once busy but now near deserted CBD streets as symbols of economic distress. Therefore, the argument goes, it is responsible public policy for governments (and taxpayers) to support the revival of CBDs. “Thriving CBDs will be critical to Australia’s economic recovery,” said the PCA.

But is that true? Are they important “for everyone”? I could have written those words myself some 15 or 20 years ago, convinced as I was that cities were the “crucibles of creativity” and indispensable bastions of the new knowledge economy. But in Australia today, the evidence seems to suggest that the economy is doing just fine, despite the very real problems of the CBDs.

Employment growth is improving with unemployment falling. According to Marketwatch in March this year: “Employment has rebounded strongly in recent months, in line with a broad recovery in economic activity, the fastest in 70 years.” Unemployment has fallen to 5.6 per cent “just 0.4 of a percentage point above where it was before the mass job losses seen at the beginning of the COVID-19 pandemic.”

As recently as early April, the IMF forecast that Australian GDP would come ‘pole vaulting’ back to a very healthy 4.5% in 2021.  The Chief Economist of the Commonwealth Bank expects the economic boom to continue into 2022. They predict a higher 4.7% GDP growth rate.

Stock markets are also imbued with confidence. The All Ordinaries Australian sharemarket index hit an all time record of 7,331 in mid April.

Even the adverse impact of various politically inspired bans on Australian exports by the Chinese government has evidently failed to have the impact initially feared. This is cold comfort to our lobster, wine and beef industries who have suffered greatly but according to the Grattan Institute “Exports to China have predictably collapsed in the areas hit by sanctions, but most of this lost trade seems to have found other markets."

Meanwhile, the predicted partial collapse of the tertiary education sector – segments of which were heavily reliant on foreign student income – may not yet eventuate. A representative of one of the Universities claiming to be seriously adversely affected confided to me in late March that the adverse impact is in reality looking like being less than 10%, as full fee paying foreign students have enrolled on-line and domestic student enrolments have supported the on-campus strength.

Buoyed by all this, consumer confidence – a critical indicator of economic health – has also hit record levels. According to the latest Westpac-Melbourne Institute Index, “Consumer Sentiment lifted 6.2 per cent in April to 118.8 – the highest reading since August 2010.”  Since 2010 remember… that’s 10 years before Covid, making it a significant milestone.

Business confidence is also strong. A recent Financial Review article quoting a number of sources said: “The disruption to the vaccine rollout and the end of JobKeeper have left business confidence undented – two-thirds of employers say there are few barriers to keeping their doors open and one in four expects to increase staffing levels over the next six months.”

Reflecting much of the confidence in the economic conditions (along with access to cheap debt), house prices in Australia have surged. “Australian house prices are rising at the fastest pace in 32 years, as the Sydney and Melbourne property markets stage a full recovery from the short-lived COVID downturn” according to an ABC report in April quoting Corelogic data. “Prices in Sydney, Melbourne, Hobart, Canberra and Brisbane are all at record highs,” it said. House prices in suburban and regional areas have performed strongest while inner city apartments have not fared so well – meaning the market performance has been uneven.

And living standards nationally, according to consultants Deloitte, have come “roaring back.” So lots of good news all round.

Even the commercial property industry – allegedly beleaguered by the problems of the CBDs – is confident. The latest Property Council/ANZ survey of industry confidence was reported thus: “…property industry confidence levels are steadily bouncing back after recording near-record highs as the sector surges into economic recovery from the COVID-19 pandemic. The national industry confidence for the March quarter continued its upward trend to 142 points, rising 19 index points from the previous quarter at 123. This is the highest index score since September 2017.” 

The highest since late 2017. Meaning, the highest since long before anyone had heard of a Chinese city called Wuhan.

So how can we reconcile claims that “thriving CBDs will be critical to Australia’s economic recovery” when the economic recovery seems well and truly underway, even while CBDs languish?

There is no doubt that CBD property owners and businesses are being severely challenged in the current market. But the evidence strongly suggests that this challenge is largely confined to the inner cities. To suggest that CBDs require government subsidised initiatives because CBDs are allegedly “critical to Australia’s economic recovery” is in stark contrast to what the evidence is suggesting: that Australia’s economic performance is not reliant on CBDs to anywhere near the extent once claimed.

Efforts to seize the virtuous high moral ground of centralised economic superiority are not new. The mythical powers of the inner city have been celebrated by urbanists for decades, often at the expense of suburban and regional economies which were often at the same time subject to derision.

And in fairness, calls for initiatives to support CBDs may have merit. I happen to agree. Markets in temporary stress deserve support, as we do for many industries and for some particular geographic regions - although I don’t see that extending to ongoing business welfare.

At the same time, it’s also fair to remind ourselves that CBDs typically account for just one in ten of metro wide jobs. That proportion is even less on a national basis. CBDs also tend to be home to higher paying jobs. Plus, CBDs tend to enjoy preferential capital spending priorities over high growth outer suburban or regional areas. They are privileged domains, with the best taxpayer funded amenity in terms of public transport services, recreation facilities, arts, culture and entertainment, and are surrounded by some of the country’s most expensive housing. Life inside the bubble was intoxicating before Covid. Now the bubble is in trouble and it seems to be reaching out for yet more support.

Yes, CBDs are important to the economy and important to the life of a city. But what we are seeing unfold is an economic resurgence in Australia which, if anything, has busted the myth that CBDs are central to the wider economic performance of the country. The current economic resurgence is evidence that the economic contribution of CBDs has been overstated while the importance of suburban and regional centres and their economies has been understated, if not ignored, for too long.

So, while we’re called upon for short term support initiatives to revive CBD fortunes, we need to temper that support with the realisation that the wider non-CBD economy continues to do much of the heavy economic lifting. Imagine the potential if we got ourselves more invested in that than we have in the past?