Where are suburban jobs – are they located in activity centres or are they spread more or less uniformly across the suburbs?

Many people are surprised to learn that nearly three quarters of the jobs in Melbourne are located more than 5 km from the CBD i.e. in the suburbs (see The jobs are already in the suburbs). Here’s another surprise – only 20% of those suburban jobs are located in medium to large activity centres.

The other 80% aren’t sprinkled throughout residential areas in stand-alone developments (although some most definitely are). Rather, they’re mostly located in relatively small centres, for example in what Melbourne 2030 curiously calls Major Activity Centres.

Suburban employment centres 

Defining an activity centre is not as straightforward as it might appear. There are a number of possible approaches, such as identifying higher density clusters of jobs, people or trip ends. Another way is to look for concentrations of particular land uses such as retail space. In practise, planning agencies don’t always seem to apply a lot of rigour to defining centres. Counting the area of retail space seems to suffice in many cases, or accepting historical hierarchies in others.

I defined centres as agglomerations of employment. This is in line with the customary approach in the literature on this topic and is appropriate because employment is a good indicator of economic activity. I broke Melbourne down into 1,950 zones and applied minimum thresholds for job numbers and gross job density to each zone using 1981- 2006 Census data. Zones that exceeded both thresholds constitute centres (contiguous qualifying zones are aggregated to a single centre).

Using 2006 Census job data, I found there are 31 suburban centres in Melbourne. These contain just one fifth of all suburban jobs. That low proportion is not because my thresholds are taxing – I used the mean values of employment and density for all zones across Melbourne. The suburban centres collectively are only around one eighth as dense as the CBD (defined to include Docklands and Southbank).

If I were to set the density threshold at the same level as the inner city (including the CBD) then only 7% of all suburban jobs would be in centres. If it were set at just over half the density of the CBD then just 2% of suburban jobs would be in centres (they would be Box Hill, Doncaster, Dandenong, Wantirna Sth and Heidelberg).

I also found that the proportion of suburban firms located in centres declined significantly over 1981-06, although the number of centres increased. This is a near-universal trend in US cities and is often interpreted as signifying that density is declining in importance as transport and communication costs have fallen.

That such a relatively small proportion of suburban jobs is located in centres is an enormously important finding. It indicates that the great bulk of firms in the suburbs (and hence most firms in Melbourne) either eschew anything but modest density or, alternatively, simply can’t get access to higher density locations.

My view is that it’s a bit of both. Most firms in the modern urban economy exist to serve the needs of residents rather than to export goods and services. Suburban businesses serve consumers directly (unlike the CBD where businesses mostly serve other businesses). They need to be near customers and some of them – personal services in particular – have limited scope for extracting economies of scale. These sorts of businesses don’t want the burden of higher rents and their customers don’t want the congestion that comes with larger, denser centres.

However most of them still want some degree of density. Retailers and personal services firms, for example, co-locate so they can offer customers complementary shopping (e.g. visit multiple shops on the one trip) and comparison shopping (e.g. compare prices – yes it still happens). Most of these firms are happy with relatively small centres.

Share of all jobs in suburban centres (CADs shown light)

On the other hand, there are also many business-to-business firms that don’t need to be near the CBD. The US experience with edge cities – which have upwards of 450,000 m2 of office space (20,000-50,000 jobs) – suggests there could be considerable latent demand for larger, denser suburban centres that offer better parking, less congested access and perhaps lower rents than the inner city.

The first implication of all this is that most suburban jobs are at relatively low densities and accordingly we need to think about transport systems that suit that sort of pattern. The second is that restrictions on development may be preventing some firms from locating in suburban centres and enjoying the benefits of density (i.e. external economies of scale).

Since this is already a bit long, I’ll revisit this topic shortly to examine the size and composition of suburban centres by industry and draw some conclusions about what it all means for policy. At some point I’ll also take a look at the argument that lower communication costs means density is now less valuable (it isn’t).