Melbourne: Governing the growing metropolis

Posted October 01, 2019

  • Local government
  • State government
SGS Economics and Planning Growing metropolis

Presentation to LGPro, August 8 2019

In many respects, Melbourne is a great success story. The metropolis has enjoyed consistent expansion in income and jobs over the past two decades based on a diverse economy configured to high value added sectors.

Melbourne is Australia’s fastest growing city in absolute terms and is tipped to become the nation’s largest city within 10 years. It has an international reputation for livability.

But on closer examination, there are troubling signs evident in Melbourne’s growth management record. For one thing, when economic growth is analysed in per capita terms, the city’s performance is far from stellar, with the metropolitan area recording effective recessions in the past decade.

FIGURE 1: Change in per capita economic growth metro Melbourne and Australia

SGS Economics and Planning Growing metropolis Figure 1
Source: ABS, SGS Calculations

Notwithstanding Infrastructure Australia’s bold pronouncement that the era of ‘urban sprawl’ is over, Melbourne continues to add very large numbers of households to its far-flung fringes.

Outward urban growth per se is not problematic, but situating households in areas with major infrastructure deficits and diminished access to opportunity is. The fastest growing urban fringe municipality (Wyndham – see Figure 2) is located in a metropolitan sub-region which has suffered multi-generational disadvantage in transport and a host of other community infrastructures.

Melbourne’s sprawling development pattern has meant that access to high paying jobs is now spatially stratified. Whereas outward suburban expansion was once a force for social mobility in our metropolis, it is now verging on a force for exclusion. I showed in a paper published in 2013, that new residents moving into Officer when that area was just starting to emerge in 2011 had access to 20 per cent fewer jobs than their counterparts in Lynbrook did back in 1996 when that area was just starting to develop (see Table 1). This was despite the growth in the Melbourne economy in the intervening period.

Today, once distinctly ‘regional’ centres like Drouin and Warragul are following in the footsteps of Lynbrook and Officer as effective growth areas for the metropolis. These new ‘pioneer’ suburbs have the great appeal of affordability and, indeed, the amenity and character of genuine country towns. But they offer access to only very small fraction of the jobs in the metropolitan labour market, and this is especially so for, high paid, knowledge intensive jobs (see Table 2). Note that because Table 2 applies average travel times across the day, it overstates access to jobs from the areas in question, compared to Table 1 which applies the drive times in the morning peak.

FIGURE 2: Dwelling approvals - Melbourne metropolitan growth areas

SGS Economics and Planning Growing metropolis Figure 2
Source: ABS, SGS Calculations

TABLE 1: Longitudinal comparison of two growth areas

SGS Economics and Planning Growing metropolis Table 1
SGS Economics and Planning Growing metropolis Table 1 1
SGS Economics & Planning

TABLE 2: Access to jobs - selected current and historical growth areas

SGS Economics and Planning Growing metropolis Table 2
SGS Economics & Planning

Meanwhile, some basic infrastructures to support Melbourne’s burgeoning growth have been seriously neglected. For example, the city’s stock of social housing has been virtually static for the past decade, while its share of all housing in the metropolis has declined sharply (Figure 3).

FIGURE 3: Occupied social housing in metropolitan Melbourne

SGS Economics and Planning growing metropolis Figure 3 1
SGS Economics and Planning growing metropolis Figure 3 2
Source: ABS, SGS Calculations

Given these problems in dealing with Melbourne’s growth, I want to challenge the received wisdom that the State Government, as a democratic institution, is structurally suited to the task of metropolitan management. In fact, I will argue that we need a radically different approach including the formation of a separate sphere of metropolitan governance.

In the ten years to 2018, total State Government employment grew by around 20 per cent, no doubt to keep pace with strong population growth in Victoria and particularly in Melbourne.

Local government is faced with the same task, but total employment in the sector grew by less than 15% over the same period. Indeed, aggregate employment in the sector has actually fallen since its peak in 2010/11 (Figure 4).

FIGURE 4: Index of aggregate employment - state government sector and local government sector - Victoria 2008/09 = 100

SGS Economics and Planning Growing metropolis Figure 4
Source: ABS, SGS Calculations

This begs the question…is local government better at the job, or does the State have a productivity challenge in managing urban growth? The answer probably is ‘a bit of both’.

My analytical basis for this critique relates to what I have dubbed the ‘natural competencies’ of government.

These natural competencies should ultimately determine the allocation of service and taxing responsibilities based subsidiarity principles.

In a theoretical world, we might consider 4 spheres of governance – local, regional, state, national

SGS Economics and Planning Growing metropolis 02
SGS Economics & Planning

As we go up this geographic continuum, the natural competencies of governments relate less to communities defined by towns and cities, and more to the citizenry at large, regardless of where they live.

This means that, typically, the activities of government have a programmatic or sectoral focus as you move up the continuum. The emphasis is on universality, equal access and economies of scale in delivery.

The disparaging term for this is ‘operation in silos’, but it actually reflects the mandated role of these higher order spheres of governance.

As we move down the spatial continuum, governance becomes more concerned with the ‘citizen in place’. Governments at this level have greater natural competence in connecting up services within a place and optimising their impact taking into account the peculiarities and particular advantages of those neighbourhoods, towns and cities.

If the limits generated by these natural competencies did not exist, you could say that governments could handle everything from the centre, Canberra perhaps?. This clearly doesn’t happen and is intuitively undesirable.

In the Victorian context, we have no ‘regional’ sphere of governance. This means that the State Government reaches down beyond its natural competencies to compensate. In doing so it inevitably struggles against its proclivity towards jurisdiction wide, standardised services – i.e. silo-based delivery systems.

State Governments, therefore, tend to resort to a patchwork of special purpose and overlapping agencies to achieve the coordination and connected up approach they crave.

Meanwhile, local government is inherently a place based sphere of governance, delivering a multiplicity of services to a spatially defined community. It may not be obvious to municipal officials and elected members in their daily management struggles, but local government is expert at cross-portfolio coordination to provide services in place.

SGS Economics and Planning Growing metropolis06
SGS Economics & Planning

The current Victorian State Government is acutely aware of the need for service integration around place. The latest effort in this direction is the formation of the Department of Jobs, Precincts & Regions – sitting alongside a procession of similar initiatives and structures developed over the past decade or so (Figure 5).

FIGURE 5: Some state agencies involved in metropolitan growth management

SGS Economics and Planning growing metropolis figure 5 2
SGS Economics and Planning growing metropolis figure 5 list
Source: State Government website

Notwithstanding these efforts at place-based policy making and implementation, projects of a city shaping nature occasionally ‘drop from the sky’ – the Suburban Rail Loop being a recent example. I am instinctively supportive of a project like the SRL, and the vision shown by Government in pursuing this initiative is admirable. Nevertheless, it is problematic that a massive project like this, with such far reaching, intergenerational, effects can be conceptualised in the equivalent of the bureaucratic ‘backroom’ with no real links to the other apparatus for integrated planning and service delivery.

The innate silo tendency of State Governments can also trump the best designed architecture for integrated, place-based service delivery. A good example, in my view, is provided by the erstwhile Office of Living Victoria (OLV). It was commissioned by the State Government of the day to champion integrated water cycle management across the whole of metropolitan Melbourne – requiring a catchment and place-based approach to integrating urban planning and water planning. The institutions of State Government convulsed and ultimately spat out the intruder. Notwithstanding the odd show piece project, Melbourne’s water infrastructure system is much the same as that originally put in place a century ago, characterised by long distance haulage of water and waste water, haphazard management of urban drainage and little recycling. Without doubt, OLV was badly managed, but the institutional barriers it faced were probably also real.

It is a fair question to ponder that if, as I contend, the State Government is structurally incapable of managing urban growth, why is it that we have a metropolis that is famed internationally for its livability?

For one thing, for 100 years of its 180-year history, the metropolis had the benefit of a city-wide sphere of governance responsible for water infrastructure, roads, major parks and land use planning. It was called the Melbourne and Metropolitan Board of Works. It was democratically mandated, had its own tax base and sat between State and local government.

It was abolished in 1982/83 by the incoming Cain Labor government, principally because a reforming government with its own ambitious agenda for transforming Melbourne, did not want to have its authority to do so contested by another powerful body. In my research, many of the senior people involved in taking down the MMBW now look back with regret.

The State Government was also better able to cope in the past because the metropolis was smaller and easier to contend with. Moreover, the world of commerce was simpler and more amenable to centralised planning and management. We now have an economy which demands a nuanced place-based approach, something that is more challenging for State jurisdictions with the silo tendencies.

So, while we have an energetic State Government with a big vision for Melbourne, I don’t think this sphere of governance has the wherewithal to manage metropolitan development towards an adopted end, at least not by itself.

We need to construct stronger institutions for integrated metropolitan planning and infrastructure co-ordination, and we could start by building on the Greater Sydney Commission (the GSC) model. The Commission is an arm’s length agency with a clear mission to build and take custody of the metropolitan strategy. It has delivered a compelling plan (a Sydney of three cities; Eastern Harbour City, Central River City and Western Parkland City) which shows every sign of aligning investment and planning across State agencies and local government.

But making a good plan is only a start for, and probably the easiest part of, managing the metropolis. The GSC model needs to be taken further in three key areas: democratic mandate, fiscal autonomy and functional jurisdiction.

On the question of democratic mandate, the governance of a Melbourne Metropolitan Commission should set aside the GSC’s system of appointed district and subject matter commissioners and instead allow for genuine local government representation. This could involve members directly elected by citizens. However, at least in the early stages of its existence, a more modest form of democratic representation could be pursued. The last iteration of the MMBW provides a useful model in this regard: There were five electoral colleges of councillors across the metropolis, each mandating one of their numbers to sit on the board of the Greater Melbourne Authority. The State Government appointed the other members; unsurprisingly it held a controlling majority, but local government still felt real ownership of the institution.

The Melbourne Metropolitan Commission would require a degree of fiscal autonomy, otherwise it would not enjoy genuine agency and independence. I think the obvious source of revenue for this sphere of governance would be the sale of development rights through a licencing system. This would require clear assertion of community ownership of development rights and treating them as we would any other publicly owned economic resource (like mineral resources, water, commercial fisheries etc); that is, we would charge an access fee.

A working model is provided by the ‘change of use charges scheme’ in the ACT, whereby development proponents must pay around 80% of uplift in land value to the Territory Government upon development approval.

We already charge a de facto development licence fee in different parts of the planning system. For example, proponents of development exceeding a plot ratio of 18:1 in central Melbourne are required to pay the residual land value of the additional floorspace in the form of various public benefits.

A broad-based development licencing system could raise between $500 million and $1 billion per year, or much more, depending on where the value capture rate is set. This new tax base for regional governance would be ‘non-distortive’. Because it would amount to a tax on land rather than on developers, Melbourne would continue to enjoy the investment flows into productive construction it would have otherwise seen.

In terms of functional jurisdiction, the Commission would be the custodian of Plan Melbourne. And it would be the planning authority for all those parts of the city which are of metropolitan significance – major activity centres, the principal public transport network (PPTN), the urban growth boundary and the national employment and innovation clusters. Local government would have to stand aside in these areas.

The Commission should be given a ‘gate-keeper’ role in the testing of potential city shaping projects generated by the State Government ‘silos’. Projects would only progress to business case stage if they are congruent with the preferred spatial strategy.

The Commission would own and operate the PPTN and the arterial road network, as well as metropolitan parks and the stormwater, sewer and water supply system. As a place-based sphere of governance it would be able to unlock synergies and innovations in these systems which have proven elusive for State Governments acting alone.

Letting metropolitan Melbourne loose to achieve its full potential would benefit all Victorians and Australians in general. And contrary to the popular retort, would not render the State Government redundant. The State would still be responsible for the laws under which the metropolitan authority operates, just like local government. Moreover, the State Government would remain responsible for many of the big budget functions in our community, including education, health and policing. There’s plenty of policy and power to contest in these areas!

This reform would require genuine power sharing in the interests of a better metropolitan Melbourne. State Government would obviously need to loosen its grip on a number of functions it has directly controlled since the mid 1980s, especially over the planning system and investments in city shaping infrastructure (though the State would ultimately have the last word). Local Councils would, as mentioned, have to give up control of some parts of their municipalities, but they would have a real and meaningful stake in the governance of the metropolis.

You can read more about the case for a ‘self-governing Melbourne’ in Australia's Metropolitan Imperative - An Agenda for Governance and Reform.

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