The office will adapt, CBDs will innovate, and more remote working “could increase the concentration of office jobs in CBDs,” Productivity Commission chair Michael Brennan told the audience at the Property Leaders’ Summit recently.
Twice in the last 12 years, Australia has weathered a global economic crisis better than almost all of its developed economy peers, Brennan said in his speech to an exclusive crowd in Canberra.
“We went into the last two global crises with strong fiscal buffers, well capitalised banks, comparatively flexible labour markets and an openness to trade, all of which helped support the response and recovery.”
But that good news came with a qualification: Australia’s poor recent productivity growth by historical standards.
“Real growth in per capita GDP and incomes over the last decade has been the slowest in 60 years. In terms of income growth, the last decade has resembled the 1970s.”
While Australia is “materially richer” than we were in the 1970s and the economy is more efficient and “closer to the global frontier,” Brennan said the statistics “serve as a caution against the view that our aim should be simply to rebuild the economy of 2019”.
Not every pre-existing business model disrupted by the pandemic should be restored, Brennan argued. “Not all of them were sustainable or desirable.”
Brennan talked about two “forced experiments” from the pandemic: the increase in working from home and the continued uptake of online shopping. “Both reflect the adoption of digital technology and both have the potential to be transformative and disruptive of existing business models to some extent.”
For 20 years prior to the pandemic, the share of the workforce working from home was “remarkable steady” at around five per cent. Last year during the pandemic it shot up to around 40 per cent. While working from home is not practical for many people, the Productivity Commission estimates that around 40 per cent of jobs can be “in principle” done remotely.
Brennan talked about the trade-offs between the time savings of the commute with the loss of social connection and creativity that comes from co-location. The Productivity Commission has previously called out the risks of remote work, with a prolonged period of remote work potentially reducing “the organic development of ideas, dampening potential productivity gains had these ideas come to fruition”.
While the “forced learning” from the pandemic is that working from home can be effective, Brennan argued that the “real productivity gain will come not from replicating at home the precise tasks previously performed in the office, but by changing both”.
“The true ongoing innovation may be less about where we work and more about how we work. The office will adapt – probably to be more focused on collaboration and team-based work. CBDs will innovate, to remain attractive locations for work and leisure.”
Brennan said it would be “foolhardy to proclaim the death of the city”.
“It is even possible that increased working from home could increase the concentration of office jobs in CBDs,” he added.
The story of online retail is similar. “The online share of retail spending spiked during 2020 and has moderated since but is unlikely to return fully to its pre-pandemic levels,” he said. The online share of non-food retailing, for example, has doubled in less than four years.
While the future remains cloudy, the Productivity Commission has found the increased uptake of digital technology during 2020 “has created some uncertainty about the location of economic activity into the future”.
“The office will evolve, as will different forms of retail. The shift of industrial land from manufacturing to logistics may continue. Perhaps office and residential uses will blur.
“But in the face of all that, we still have state planning systems that are highly prescriptive as to what different forms of economic activity can occur and where.”
The Productivity Commission has observed a “proliferation” of commercial zone types and “often a lack of uniformity about zone definitions” across local government areas. “The allowable uses in those zone types can be quite limited, with few ‘as of right’ uses or even none.”
Brennan said the Productivity Commission proposes several areas of reform, including standardisation of permissible land uses across all local government areas, streamlined assessments, “rethinking what constitutes a low-risk application”, and cutting DA assessment times through more concurrent decision-making.
“Even incremental progress on these fronts would position us to better respond to change and uncertainty.”
The path to higher productivity growth “should not be seen as the quest for a policy El Dorado” or “a single big thing, or a destination flowing with riches”. Rather, “it is a whole lot of little things that potentially add up,” Brennan concluded.