Unaffordable housing and traffic congestion will slow economic growth

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LACK of housing affordability and traffic congestion is posing a threat to future economic growth and productivity in larger cities.

According to a new report by researchers from the University of Adelaide, Curtin University and the University of Glasgow, increasingly expensive housing costs are leaving households unable to live in areas that offer opportunities for better wages.

While metropolitan growth is driving up housing costs, on the other side of the coin, businesses are also struggling to hire skilled and semi-skilled staff at the wages they can afford.

“There is growing statistical evidence that rising ‘quit rates’ due to unaffordable housing and long commute times are already affecting cities such as Sydney, London, Toronto and Los Angeles,” says Professor Chris Leishman, lead author of the report.

As a result, the rate of 25 to 40-year old workers who are leaving major metropolitan areas for smaller cities and towns in growing.

“This limits local productivity growth by influencing labour supply, which cause losses in efficiency,” added Leishman.

The research found that across the majority of countries, smaller cities with populations of up to 3 million are better set up for economic growth than their larger counterparts.

According to recent research from AHURI, there seems to be a point of diminishing return for the positive relationship between population and wage growth, with smaller cities seeing more significant income gains from population increases than larger cities.

“Government has an important part to play in our cities. Failure to manage the diseconomies of large cities, that is the high housing costs and long commute times, will reduce productivity and redistribute income and wealth away from the productive sector of the economy,” said Leishman.

The report argues that for larger cities to continue to witness productivity growth, housing policies need to be reconsidered, with a focus on economic infrastructure to allow for further economic development.

“A second step is to move away from a narrow focus on the poorest households and the homeless and to set their concerns within a broader housing-systems framework that has regard to all housing outcomes in the metropolitan area and in the nation.” Concluded Leishman.

AHURI research from earlier in the year also found that low-income workers across the country are struggling to find affordable rental housing within reasonable range of jobs, putting pressure on urban productivity.

While at the same time, COVID-19’s impact on immigration is also shrinking the countries capacity for productivity, with the total loss of new migrants during the pandemic estimated to cost the economy by $80 billion by 2025.

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