Can the NBN ‘save’ our cities?

In a recent blog post I asked if our largest capitals could grow bigger and remain liveable. Now I’m looking at the flipside - whether or not the National Broadband Network (NBN) will give regional centres the wherewithal to draw population growth away from Sydney and Melbourne.

This question is prompted by avuncular New England Independent, Tony Windsor, who argued on Q&A on August 23 that the National Broadband Network could be a key driver of decentralisation:

“If there’s been a piece of infrastructure (if it’s done correctly) that negates distance as being a disadvantage of living in country Australia, this is it …

“We’re going through a population debate at the moment. The election was about the people of western Sydney and western Melbourne and Dick Smith and others talking about how we’ve got to constrain the population of this nation. Nothing about regional Australia in that context. Nothing about the infrastructure out there. If we get the broadband system right it could revolutionise country living and solve some of the city-based problems.”

I’ve previously concluded (here, here, here and here) that the prospects for diverting growth from our cities to regional centres on a significant scale do not appear promising (other than if nearby regional centres become satellites i.e. de facto outer suburbs). However could the NBN, as Mr Windsor suggests, be the magic bullet?

Doesn’t look like it to me. I’m always struck by the example of Canberra. It would seem to have all the right ingredients in place for growth - it is pump-primed with tens of thousands of public servants, has an extraordinarily high level of human capital, has excellent air connections to capital cities, is close to the Hume Highway and cable internet is available in major commercial areas and some suburbs.

Yet the ACT still only has a population of 352,000, whereas Sydney accommodates 4.5 million people and Melbourne 4 million. The population of the ACT grew by just 5,900 over the 12 months to June 30, 2009 (1.7 per cent), while Melbourne grew by 93,500 (2.4 per cent) and Sydney by 85,400 (1.9 per cent).

Obviously major corporations aren’t going to shift to the regions. They’re prepared to pay a big premium in rent to be in the CBDs of large cities when, if they wanted to, they could make substantial savings by relocating just a few kilometres away. But smaller companies are also unlikely to be attracted to regional centres in significant numbers just because of the NBN. There are just so many other factors that determine location.

First, capital cities offer a much larger home market - 45 times larger if Sydney’s population is compared with Albury/Wodonga’s, Ballarat’s or Launceston’s. And if the firm sells to other businesses rather than consumers, the ratio will generally be even larger.

Second, major cities offer a larger and more diverse labour market for firms. Talented staff want to be in a place where there are lots of job opportunities within their industry. Young staff prefer the social opportunities offered by a large city.

Third, it is easier for a firm to keep abreast of industry developments if it is located in a place with a large number of its suppliers, customers and competitors.

Fourth, capital cities offer much better air connections, both within Australia and overseas, than virtually all regional centres.

Fifth, it is easier to access specialist legal, financial and technical services within a big city.

The fact is that moving large quantities of data at high speed isn’t a key determinant of where most firms locate. As I’ve noted before, if anything, telecommunications has increased the demand for face-to-face contact, not reduced it. And maximising connections between people is precisely what big cities excel at.

I don’t think rents matter much in all this. And anyway I doubt that regional centres offer rents so much lower than those on offer in middle or outer suburban office parks that they come within cooee of offsetting the foregone benefits of a big city location. Also, the likelihood that regional centres will be less congested isn’t an advantage - in this context it’s more likely a sign of lower desirability.

That small proportion of firms (or more likely, functions within firms) that is constrained by high data transfer requirements could indeed move to NBN-enriched regional centres, but they could also move to the suburbs and enjoy the advantages of a big city. Or they could out-source to overseas suppliers.

In Melbourne at least, they could even locate in the city centre. I noted a few weeks ago that NAB and ANZ have set up their international headquarters in Melbourne’s Docklands precinct. The availability of low-rise “large floor plate” buildings means they can potentially consolidate the major part of their corporate operations in one (very central) location.

So I can’t see the NBN having a major impact on the relative shares of population growth in regional centres and our two largest cities. But I do see it having a positive effect on life in the regions. That will, as Mr Windsor says, be in part about applications like education and health services, but it will also make it easier for regional residents to start up viable information-heavy small businesses like this one.