Last week, I took a look at the contribution of agglomeration to Auckland’s recent economic growth. Based on observed changes to employment density over the period, plus agglomeration elasticities calculated by David Maré and Daniel Graham, I estimated that 11-12% of Auckland’s recent productivity growth was due to increased urban scale and density.
The gains from agglomeration since 2000 are significant: Auckland’s GDP is approximately $1.4 billion larger as a result. Ultimately, productivity gains are good for everyone. If you’re retired, they help to pay your pension. If you’re in school, they help pay your teachers and living costs. In between, they help fund your health care and pay for your neighbourhood library.
But is agglomeration simply a consequence of urban scale, or does urban form also matter? In other words, are there any reasons that we should prefer one distribution of employment within cities to another?
There are a couple of ways we can address it. One would be to gather data on the spatial distribution of employment in a range of cities, and examine the impact on productivity. This is, implicitly, what Maré and Graham (and other economists studying productivity) have done by measuring effective job density and productivity at a highly detailed level and comparing outcomes within and between cities.
Other papers use a slightly different methodology but also come up with suggestive results. For example, a 2014 paper by Daniel Chatman and Robert Noland finds that public transport provision can encourage agglomeration economies in dense city centres. From the abstract:
Using data on US metropolitan areas, this paper traces the links from transit service to central city employment density, urbanised area employment density and population; and from these physical agglomeration measures to average wages and per capita GMP. Significant indirect productivity effects of transit service are found. For example, in the case of central city employment density, estimated wage increases range between $1.5 million and $1.8 billion per metropolitan area yearly for a 10 per cent increase in transit seats or rail service miles per capita. Firms and households likely receive unanticipated agglomeration benefits from transit-induced densification and growth, and current benefit–cost evaluations may therefore underestimate the benefits of improving transit service, particularly in large cities with existing transit networks.
Another approach would be to simulate the impact of alternative employment distribution on effective density and hence on productivity. Last week, I looked at how Auckland’s job density had changed from 2000 to 2015. This week, I’m also going to consider a simple simulation: What if the city had grown in a different way between 2000 and 2015?
According to Stats NZ’s Business Demography data, Auckland added approximately 174,000 jobs – a 33% increase – over this period. Here’s a chart showing how they were distributed at a local board level. Waitemata local board added the most jobs (almost 41,000) followed by Upper Harbour (22,000) and Howick and Maungakiekie-Tamaki (both around 19,000).
By contrast, the rest of the isthmus and lower North Shore saw exceptionally low rates of change. (A pattern that is matched in population growth: high growth in the city centre, Howick, and Upper Harbour, where planning rules have enabled growth, and low growth in other areas where they’ve prevented it.)
But what if Auckland’s recent employment growth had followed a different pattern? For example, what if we’d chosen to decentralise employment growth to a new “edge city”?
Let’s set aside, for a moment, the fact that creating new employment centres by planning fiat tends to disappoint. (As demonstrated by Manukau’s underwhelming history, and possibly also the new NorthWest mall.) If businesses don’t see an advantage in locating there, it won’t happen.
As a benchmark, consider a new “edge city” in Drury, which is currently a set of paddocks that are conveniently located along the Southern Motorway and the unelectrified portion of Auckland’s Southern Rail Line. Let’s assume that we succeeded in relocating a bit over 25% of Auckland’s recent employment growth to Drury – creating a new employment centre with 50,000 jobs. (Around half the size of the Auckland city centre.) All other areas of Auckland would have seen proportionately lower rates of growth.
What would that do to the city’s potential for agglomeration?
Here’s a map comparing the effective density of employment under this “edge city” scenario with the actual effective density of employment in 2015. (Remember, effective density is a measure of an area’s potential for agglomeration economies, as areas that are accessible to more jobs are likely to be more productive.)
Areas shaded in yellow would experience reductions in agglomeration potential, while areas in green and blue would be more accessible to jobs under the “edge city” scenario. Notice how most of the city is coloured yellow. The only places to benefit from this change are the areas immediately around Drury.
Overall, the job density gains around Drury are far outweighed by the “deglomeration” experienced by the rest of the city. Shifting employment growth to an “edge city” in Drury would have reduced the city’s overall job density by 9%. (In 2015, the average Auckland employee was accessible to around 92,000 other jobs. Under the “edge city” scenario, they’d only be accessible to around 84,000 jobs.)
This would in turn reduce the city’s economic productivity. Based on Maré and Graham’s measured agglomeration elasticity of 0.065, I estimate that Auckland’s productivity would be 0.6% lower under the “edge city” scenario. (Again, using an arc elasticity formula: (92,000/84,000)^0.065-1.)
Because Auckland’s GDP was $88.3 billion in 2015, the productivity losses from deglomeration would equate to roughly half a billion dollars a year. That’s a lot of money. For comparison’s sake, $0.5 billion is roughly equivalent to:
- The cost of buying Auckland a new electric train fleet… every year. Or a pair of new road tunnels under the harbour every ten years.
- One-tenth of the annual cost of providing Aucklanders with public health services – could you imagine cutting 10% of DHB budgets?
- $1000 in the pocket of every one of Auckland’s 500,000 households.
Of course, more centralisation is not always optimal. In a large city, there are good reasons for businesses to spread themselves around a bit. Retailers want to be close to local shoppers, warehouses want to be on cheap land close to transport infrastructure, and so on and so forth. And, from a policy perspective, adding peak transport capacity to enable existing centres to grow may be costly.
But, as this simulation of a Drury “edge city” shows, forcing decentralisation is likely to be highly sub-optimal. Auckland would be less productive if it had chosen to push employment growth into outlying centres, rather than accommodating it in the city centre and other locations throughout the city. Over time, that would translate into lower competitiveness for local businesses, lower wages for Auckland workers, lower living standards for residents, and worse public services and infrastructure.
Do you think urban form can contribute to a productive, happy city?