REAL estate prices would decline, city productivity would reduce and income would fall if the Australian Government uses its forthcoming sustainable population strategy to place a cap on capital cities at their current population, according to a new report released by Urban Taskforce this week.
The report, titled 'People Power' and prepared by property economists at MacroPlan, aims to stimulate debate and responds to references by the government that the "carrying capacity" of some of Australia's regions may have been reached.
"There is a risk that the Federal Government's 'sustainable population strategy' will seek to constrain our most productive places - our major cities - in the name of encouraging population growth in less productive areas," the report states.
The report writes that larger urban areas are generally more productive as they enable greater specialisation in labour use, better matching of skills and jobs, and a wider array of consumption choices for workers and ancillary services for producers.
"As long as the productivity benefits generally outweigh higher costs for land, labour, housing, and other necessities, the expansion of major cities will continue."
However, the report finds that the government can stymie this natural expansion by preventing or constraining new dwelling construction in major cities; regulating immigration intake and settlement; and withholding funding for major urban infrastructure.
Urban Taskforce Chief Executive, Aaron Gadiel, said if the government uses those powers, "our cities, our communities and our national economy will suffer enormously."
While city population caps would avoid the externalities associated with city expansion, such as the environmental impacts from fringe development and congestion problems in the transport system, the report finds that capping city population sizes and limiting growth to regional areas would result in:
- A more substantial reduction in productivity from city centres;
- Increased transportation costs associated with movement of goods to households;
- There would be little investment in or need for new mass transit systems; and
- There would need to be substantial public investment in creation of a new capacity for delivery of services, in particular through new hospitals.
In addition, the report finds that population caps in capital cities would result in significant declines to residential property prices of Australia's capital cities, ranging from an 18.3 per cent decline for Sydney to a 6.6 per cent decline for Adelaide.
The report also finds that a population cap imposed across Australia's five largest cities could reduce national income by $5,000 per person within 10 years.
The report states that governments are "poor judges as to whether a nation's population suffers from over-concentration in a single urban area," adding that "experts studying this area emphasise that national governments should not try to regulate city sizes to attain optimal size cities."