Why The Failure of Employment Decentralisation Policy Is Good For The Economy

For the last decade the WA Department of Planning has progressively been introducing policy measures to decentralise employment across the Perth Metropolitan Region. This policy was formalised in Directions 2031 and Beyond, State Planning Policy 4.2: Activity Centres for Perth and Peel, and more recently, Perth and Peel@ 3.5 million.

The rationale behind the decentralisation policy is to reduce overall vehicle kilometres travelled across Perth by locating employment closer to where people live. Such a project is challenging in a city like Perth where employment is currently heavily concentrated in the CBD, and public transport and arterial roads form a web into the suburbs to efficiently transport people to and from work. For this approach to succeed, at the very least requires an understanding of the location decisions of firms, an implementable strategy to attract high-quality employment away from Perth CBD, and significant public investment into supporting infrastructure.

It is therefore interesting to note that over the last 5 years significant public investment has occurred not in the network of high-level activity centres in the suburbs of Perth, but primarily in the CBD and surrounding suburbs. Investment into Elizabeth Quay, the Perth City Link, Riverside and Perth Stadium have resulted in land being unlocked for high intensity commercial and residential developments. Transit infrastructure to these locations has been made more efficient, the streetscapes have been beautified, and the social and cultural environment has come alive.

At the same time, a massive increase in office supply in Perth has been accompanied by a surge in the vacancy rate as mining activity across Western Australia has wound down and many firms in the sector have downsized or disappeared entirely. This has allowed many firms to relocate to the Perth CBD which were previously unable to meet the cost constraints of a CBD address. These firms have suddenly been afforded a number of advantages, including:

  • Close proximity to firms within the same industry cluster
  • Access to specialised labour pools
  • Access to high-frequency transport networks

These advantages are likely to be self-reinforcing, allowing these firms to become more competitive and potentially increase their size and scale of operations. This means it is more likely these firms will be able to remain in their current location in the future if office floor space rents rise. More importantly, the improved competitiveness of these firms has potential to contribute to significant economic growth to revitalise the WA economy and fill the gap left by the mining sector.

The limitations of the employment decentralisation policy is not surprising, given the weak policy measures implemented to encourage decentralisation, the significant public investment in CBD infrastructure, and the economic circumstances of the last couple of years. However, employment centralisation under the current economic conditions is probably one of the better shifts for the State economy. Localised economic development within the Perth CBD affords potential economic advantages that may be leveraged if an understanding of agglomeration economies[1] is pursued. What remains to be seen is whether public policy will continue to insist on pursuing employment decentralisation, or whether it will shift to embrace the current circumstances.

[1] The self-reinforcing benefits that arise from spatial concentrations of firms and people.