Agglomeration economy AHURI
AHURI research finds productivity benefits of an agglomeration economy are maximised when a mid-range population density city focuses on a regional strength. Image – Canva
  • AHURI research finds productivity benefits maximised during agglomeration economy in mid-range density cities
  • Suggest potential to implement strategies focusing on regional strengths, to promote economic growth in Australia's regional cities
  • Government policies should emphasise investment in major infrastructure for regional areas and cities and satellite cities, says lead researcher Professor Chris Leishman

Research by the Australian Housing and Urban Research Institute (AHURI) has found Australian cities that focus on particular regional strengths have heightened productivity.

The research paper, titled ‘Inquiry into population, migration and agglomeration’, was conducted by researchers from the University of South Australia, University of Sydney, Curtin University and Swinburne University.

Lead researcher, Professor Chris Leishman from the University of South Australia provided commentary on the findings of the research.

Agglomeration economies key to maximising productivity

The research was undertaken with the aim to determine the optimal size of Australian cities, and the scale at which productivity is maximised.

Productivity benefits arise through a phenomenon known as agglomeration economies.

Agglomeration economies occur when firms are located in the same high-density area, and brings the benefits of cost savings, efficiencies and increased market potential.

The research by AHURI found agglomeration productivity benefits arose at a relatively small scale in Australia, beginning in metropolitan regions with a population exceeding 100,000.

After this population range was surpassed, productivity benefits increased disproportionately thereafter.

As productivity benefits increased more strongly in sub-metropolitan regions than cities, this suggest that agglomeration effects are most strong in the population mid-range between city and neighbourhood.

“This finding suggests there is strong potential for strategies that seek to support economic and population growth in ‘second order’ and regional Australian cities by focusing on particular local or regional strengths.”

Professor Chris Leishman, Lead Researcher

“We also found people are happy to move between metropolitan and regional areas, and within regional areas, suggesting that policies enabling mobility will benefit regional housing and labour markets.

“Overall, household moves are triggered by more than dwelling and locational preferences, but reflect employment, health, education, recreational and lifestyle-related services,” said Professor Leishman.

Core factors of productive cities

Several productive regional, satellite and growth-centre cities were analysed and core characteristics contributing to their success were identified.

The productivity factors included: historic connections to primary industries; recent restructuring of economies; diversification into health and social care, retail and education; economic development initiatives targeting technology sectors; and the influence of having a local university campus.

AHURI researchers also recognised several international planning approaches that could be utilised to promote economic growth in Australia including: the interconnected development of satellite cities linked to major metropolitan centres; regional development of a network of decentralised centres linked to technology clusters; and identification of designated growth centres within an economic diversification strategy.

Agglomeration benefits were also found to produce higher wages, which weren’t outweighed by higher housing values, although higher-income individuals did receive disproportionately higher benefits.

Agglomeration economies could widen inequalities however, as rising housing costs would be felt across the entire income distribution.

“Our research suggests government policies should emphasise investment in major infrastructure for regional areas and cities and satellite cities that have already been identified as locations of population and economic growth.”

Professor Chris Leishman, Lead Researcher

Professor Chris Leishman, UNISA
Professor Chris Leishman, UNISA. Image – UNISA

“We encourage targeted support designed to capitalise on growth opportunities, particularly economic development aligned to the knowledge-industry activities.

“We also see real benefits for increased support for transport connectivity between major cities and their regional or satellite cities—but we also emphasise that these policies must be offset by other policies designed to maintain or improve housing affordability in the regions,” concluded Professor Leishman.

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