Out of centre jobs – out of sight

The draft District Plans present some intriguing perspectives on Sydney’s long-term development path. In particular, the notion of a ‘precautionary approach’ appears to be something novel. To an extent, this notion appears as a placeholder in the policy process, functioning as a basis for not taking action to rezone any given property – until something better or more is known about the impact of this action.

However, the definition of decision impacts remains quite specific to certain business operations. There are certain land uses that are most keenly preserved as distinct regional pools, the ‘employment lands’ formats. Businesses in these formats are deemed more worthy of protection (assistance), on the basis that they have higher productivity value to the economy.

There is a persistence for policy to view different parts of the city as distinct economic agents, worthy of separation for planning policy. My view is that most markets don’t function this way. Moreover, ‘employment lands’ formats aim to hold the businesses that are the least likely to be defined by their surrounding region. Manufacturers and wholesale trade businesses are principally operators at citywide, national or international levels.

This note sets out why I see the continued regionalisation of goals for ‘employment lands’ as being problematic.  It seems more logical to focus on the net jobs gains that are achieved through redevelopment – such as commercial/retail floorspace that is integrated within a mixed-use precinct.   This floorspace is essential to the continued growth of dominant business formats such as professional services and health care.  It seems far easier to assign high probability of expansion from these business types than it is to risk a ‘do nothing’ approach to current zoning on the basis that a given district has a need for certain services to be provided locally.

image-20141215-24297-6jsbmp

 

Is a nurse less productive than a factory worker?

In microeconomics, the roots of productivity analysis are found in the efficiency of generating a specific output. In macroeconomics, there are adjustments made to the ‘technology’ of specific industries to allow aggregation into national accounts (GDP). This aggregation permits a metric of labour productivity to be calculated, but not total factor productivity (TFP) as GDP lacks the essential measure of capital expenditure (hence the ‘Gross’ in GDP).

Adequate methods for calculating and aggregating capital expenditure have proven to be elusive. TFP sits in the dusty theory books, so labour productivity is deemed to be an adequate alternative. For a national economic metric, this alternative can still be useful.

However, it should not be seen as a uniformly useful measure of business function. It is close to useless for capital-intensive businesses, such as manufacturers, where the scale of outlay for equipment is dominant in the whole reason for being. The point here is that capital-intensive businesses or sectors will have high labour productivity, but this does not equate to greater economic value.

However, there has been a long tradition of settling for labour productivity as an adequate benchmark. It has been weaved into the rationale for preserving industrial zoned land, where manufacturing is located. By extension, planning policy has accepted that all regions should place a premium on this land zoning.

Most recently, the draft District Plans have shown a tendency to reinforce the substance of ‘employment lands’ by implementing a precautionary approach. In addition, the nature of business formats entitled to protection within ‘employment and urban services lands’ has been adjusted, moving away from the traditional manufacturing formats.

By definition, the precautionary approach is a step backwards on the score of evidence-based planning. Under this approach, a lack of evidence is not a hindrance to the merit of zoning status. If a manufacturer shuts down, then the land should be preserved for industrial use even if there is no market for a comparable use. The environment may become more favourable in five or ten years’ time.

For Government, one appeal of the precautionary approach is that it obviates a decision-making process for many planning proposals. In many cases, developers are presenting proposals that contend to generate more jobs through a mixed-use precinct than the current scope of an old industrial precinct. The precautionary approach provides comfort, anchoring a policy refusal by reference to the superior productivity of industrial property.

However, this appeal for policy-makers needs to be weighed against evidence on trends in employment by sector. Over the past decade, NSW jobs growth by sector has shown the following outcomes:

  • Healthcare and Social Services – 162,000 increase
  • Professional services – 110,000 increase
  • Manufacturing plus Wholesale Trade – 41,000 decrease

It is evident that business closures and weak demand are generating opportunities for rezonings from industrial use to other formats. Meanwhile, the city has enjoyed massive growth beyond the manufacturing and wholesale trade sectors. Given that city-wide jobs growth has been very strong over the past decade, it doesn’t seem obvious that a precautionary approach is needed to constrain the process of economic recalibration.

For example, Toyota is ceasing its existing operations at Caringbah – it will no longer be undertaking manufacturing, but it is moving its distribution and servicing (?) centre to Eastern Creek.  This process reflects the city-wide nature of ‘employment lands’, with a decrease in employment in one district being somewhat offset by an increase in another district.

In particular, ‘employment’ business relocation is a fundamental function of a market economy, and it must be incorporated into the planning process.  There are very few business functions that are integral or ‘essential’ to a specific LGA or district.

One aspect of the precautionary approach is the desire to wait for resets of land balance accounting on specific types. However, waiting for the outcomes of future reviews of the demand and supply for employment land is likely to be fruitless.  In the relevant categories, there is clearly a low quantity of land that is zoned and undeveloped in established areas across the city.

Attention should immediately shift to the following questions: how much scope is there for consideration and substitution of geographic location?  And how many jobs might be foregone if the current zoning is maintained? These are larger issues that should be considered at a citywide level, rather than being identified on a district by district basis.

Our concern about the future scope for jobs growth is that centres are not sufficient to enable the demand for floorspace across all sectors.

The draft District Plans specify the targets for baseline jobs growth in key centres. The chart below shows a summary of jobs growth for strategic and district centres. Across Greater Sydney, centres are projected to account for approximately 23,000 jobs p.a., with a large portion located in the Central district that includes the Sydney CBD and Green Square.

 

District Plan projections of employment in centres and workforce (2016-2036 per annum)

Jobs

Note: South and North districts, and West and South-West districts, have been aggregated

 

The chart also shows the projected growth in workforce age population (persons aged 20 to 64 years), which is set at 41,000 persons per annum. The Central district is expected to have a net inflow of workers to fulfil the aim for 10,000 in that region’s centres. However, in all other districts, the employment slated for centres represents a minority of the likely total based on workforce growth. Even for the combined North and South Districts, jobs in centres account for just 45% of workforce growth.

Allowance for jobs growth beyond centres appears to be an essential part of the strategy, but it is unclear as to how this will be managed. Our view is that major industrial redevelopment sites have historically made substantial contributions to the strong growth in employment observed over the past decade.

It would be a step backwards to stop this process from continuing. Quantifying the relative productivity of a nurse and a factory worker is not a problem that needs to be solved by the planning process.


About the author

Jason Anderson
Chief Economist
E: jason.anderson@macroplan.com.au
P: 02 9221 5211
Jason Anderson is MacroPlan’s Chief Economist. Jason joined the MacroPlan team in 2010 after working as a Senior Economist for a Property Market Research Company, and prior to that as a senior researcher with both the private sector and Federal Government. Jason possesses extensive quantitative and research experience in the fields of residential analysis and commercial property and development. Jason’s views on the property and development sectors are regularly sought by the national media.
 
About MacroPlan
MacroPlan’s experienced and qualified economists align their understanding of macro-economic forces with micro-economic variables such as geographic and industrial characteristics, demographics, labour market shifts, resource demand and commercial realities.  Contact Jason Anderson, Chief Economist today to discuss your property research requirements.
twitterlinkedinby feather
Comments are closed.