Melbourne has a lot going for it. It has a large population and something like a population density equal to Stockholm. Its central area is jammed with housing; at the moment, there is more than enough to go around, and more than can be built on the fringe of the city. In such a nice place, nobody might be interested in economic decline. That’s because to be urban, Melbourne almost has to be a city of decline. Or, put more simply, people need to move out of the city to find work.
That means the only healthy place in the city is the central business district. Once people come, they want to live near things, which creates a lively hub, an increasingly lively corner of a bustling place.
It’s hard to imagine a more exact contradiction of the modern dream of metropolitan living. You can get hip downtown living for less than most people pay to rent an apartment in outer suburbs. That’s something like the dream of choosing an Alaskan fishing village as your favourite vacation spot. If you’re planning to move in with your girlfriend, it’s one of the best things you can do for the environment. And yet you’ll be walking around with so much texturised trash in your backpack, or at least carrying so much waste with you.
Unfortunately, all that urban is getting more urban. The gaps in the central business district have widened, the foot traffic is light, and congestion is at an all-time high. Meanwhile, people want to move closer to the city, which means less traffic for the already heavy city traffic. So one big option for fixing the problem is to move the downtown farther away from the city centre.
As a general rule, this project is a good idea. People like downtown living. If the ability to live there was cut off, they’d probably go elsewhere.
So why are the government-subsidised “populations boomers” having such a tough time making that happen? Because while making the CBD significantly emptier would be great for the environment, it might not be great for Melbourne’s economy.
Since 2000, a great many of the people who’ve been moving to the city have been building replacement homes for their existing ones, which means adding extra non-office residents. That’s when the demographic “migration syndrome” kicks in, where the sheer number of people moving into new housing pushes up prices and depresses demand.
The point of a housing boom is not to produce enough houses to keep up with existing demand, but for a community to get beyond its planning limits and build homes on an unprecedented scale. Then more people want to live in the city.
Obviously, when that happens, there’s a tendency to act accordingly. New homes, mostly rental ones, can push down demand for other sorts of housing, which pushes prices higher.
When that happens, the eventual soak-the-bubble effect begins, which pushes housing prices down and further dampens growth, which leads to even more bubble-busting.
The end result of this process is that the density boom has probably just begun — and the quality of the growth that’s coming online is dismal. Low-rent apartments have been too closely subsidised in part to give people a reason to move to them. As a result, new housing has come on the market at far below market prices, which is one reason why single-family and semi-detached housing are so depressed — people have nowhere to go if the only place they can afford is their native suburb, while other prices and benefits lag far behind new construction.
This pattern has played out not just in Melbourne, but also in many U.S. cities, including Dallas and Minneapolis. But oddly, the policies that have allowed for such experiments are famously loathed in Australia, including some of the best. The result has been higher prices, slow growth, reduced housing opportunities and, for now, still no urban renewal.
There are a few things that could turn this screw up, and would make a big difference for Australia. But maybe there’s no need for Australia to fix things to the extent the U.S. (and many other countries) has. Melbourne will have to be its own country, and that country isn’t Washington, D.C.
Paul Krugman is a New York Times columnist.