Why it is time to focus on the economic development of Australia’s regions

It is pretty obvious that Australia is a big continent. What is less obvious is why our regions have been so economically constrained and what we can do about it.

Over the last twenty years, as Australia’s cities boomed, the conversation about economic development in the regions was sporadic – but never dominant. Whitlam’s support for economic development of Albury-Wodonga, or Windsor and Oakshott’s support for the regions represent blips in a debate that has otherwise focused on the economic benefits of urbanisation.

Policy makers may not have said it, but there has long been an assumption that it is the economic growth of cities that matters most. Whilst there is no doubt that urbanisation is one of the megatrends of our time, we need to start to integrate regional and city economic development if we are to ensure that scarcity pressures in our cities do not lead to an imbalance in our national economy.

From London to New York we are seeing price pressures in major cities. There is no reason to expect that pressures will subside any time soon. The reason for this is that the factors that are driving price increases will continue. A major driver of price is emerging markets such as China where private wealth is seeking to secure capital by investing in premium property in established markets. In the Australian context one of the drivers has been Chinese investor interest in residential housing. This is good for Australia’s economy because it stimulates the local construction sector but it also potentially imbalances the economy.

With price pressures in our major cities showing no signs of abating we need to think about the way regions can act as a pressure valve.

Over the next decade we will start to see 4.5 million baby boomers transition from the workplace. For the first time in their history they will be able to choose where they live, rather than needing to live close to where work is located.

The evidence suggests that some baby boomers will actually seek to live in inner city areas where urban amenity is high. But not all baby boomers will be able to afford the sky rocketing inner city prices. For boomers whose superannuation account balances are not large, the regions may be attractive, enabling downsizing whilst maintaining living standards.

However in order for the regions to act as a release valve for cities we need two things; to reform land supply and build infrastructure linkages.

Land supply is a major issue. In a continent as large as Australia, how is it that land pricing is not cheaper in the regions? Economics 101 should suggest that it should be possible to sell a house in a major city where land has a high scarcity value and buy cheaply in the regions where there is far less scarcity pressure. Yes, there is a differential, but is nowhere near what it should be.

The reason for this lies in the way land is managed in regions. Land up to the edge of a town can be owned by a farmer who has no incentive to sell. Even if an individual wished to, land is zoned rural and cannot be used for housing.

The zoning of land made sense in an era where governments had to pay for infrastructure in the form of water and electricity connections, but does it make sense now when it is possible to go off grid?

Improvements in solar technology, water storage and mobile phone connectivity mean that it is possible to live, and indeed build communities, that are not connected via wires and polls to the grid.

This libertine idea that people should be able to live where they choose would send shivers down the spines of town planners who have got used to the power that has been progressively handed to them to control the way we live.

The fear of planners, and politicians, is that if planning was deregulated then it would ultimately result in political demands to retrofit infrastructure. But is this actually the case? If development was allowed with the clear understanding that infrastructure will not follow then the political expectation can be managed.

Another shibboleth that needs to be tackled is the idea that big farming is better than small farming. History has played a part here. There is no doubt that giving returning diggers from World War 1 small plots of land that were destined to fail was not a sensible public policy.

But 100 years later farming is changing. There are now opportunities to build niche farming businesses, and in fact we are seeing more and more innovation in this area of the farm sector. Small farming has an economically important role to play in the agribusiness sector, and yet it is structurally not supported.

Opening up Australia’s regions also needs infrastructure – but it needs is the right infrastructure. In particular we need fast connectivity to the city, both in terms of transport and broadband. We need to dump the idea of a fast train from Sydney to Melbourne and focus on more practical fast connections between major cities and regional centres. This has unfortunately fallen off the policy radar.

If we were able to open up land use in the regions then this would act as a pressure valve on our cities. Price differentials in city and regional housing would enable retirees to unlock capital and maintain living standards in retirement. It would enable small businesses to set up where costs are cheaper. It would enable innovative agribusiness to develop niche products to serve growing global markets.

Achieving change is never easy. Part of the problem is that our so called city slickers need to start thinking about the bush in a different way. The economic challenges that our nation faces however means that this is just too an important piece of reform to ignore.

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