Benefits of city living evaporate as high housing costs climb: e61

The financial incentives for workers to live in cities have all but evaporated, a new report has found, with the declining benefits of metropolitan living likely driving a worker exodus to regional Australia.

Sydney siders in the CBD on the commute to work. Declining benefits of metropolitan living are likely driving a worker exodus to regional Australia. Picture: Newswire/Gaye Gerard

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Financial incentives for workers to live in the nation’s cities have all but evaporated, a new report has found, with the declining benefits of metropolitan living likely driving a worker exodus to regional Australia.

The research, authored by independent think tank e61, finds that city-based workers on average receive around $8000 more in annual wages than their regional counterparts.

The earnings gap, known as the ‘‘urban wage premium’’, is more pronounced among white collar workers, while care and service sector employees and industrial workers have smaller differences in their pay packets.

But housing costs, which have been rising at a much faster rate in the cities than in the regions, probably because of the inadequate supply of new homes in urban areas, has significantly reduced the benefit of city-based ­living.

This is likely to be most acutely felt by those entering the housing market for the first time, the report finds.

Gianni La Cava, a research director at the think tank, said in many cases, higher wages had failed to offset the higher housing costs in capital cities.

“Small wonder we are seeing workers in their thirties leaving Sydney and, to a lesser degree, Melbourne,” Dr La Cava said.

“Where previously it was common for industrial workers to move out of cities, we are now seeing all types of workers, including managers and professionals, leaving Sydney and Melbourne.”

Dr La Cava said the implications for productivity of the flow of workers to the regions were mixed, with the regions benefiting from the trend.

“It’s a major worry for national productivity if well-qualified workers are moving away from the highest-paying and most productive job opportunities that in many cases still concentrate in cities,” he said.

“On the other hand, it does represent an opportunity for Australia’s regional areas to attract and retain relatively high-income knowledge workers who could stimulate their economies.”

Governments should prioritise allowing people to live affordably near highly productive job opportunities, Dr La Cava added. “This likely means easing zoning constraints, abolishing stamp duty, and ensuring immigration policy aligns with housing policy,” he said.

White-collar workers are the only employee cohort who are ultimately better off from living in the city, the report finds, with the advantages of residing in metropolitan areas steadily falling in the decade prior.

City-based professionals are just $700 a year better off than their regional counterparts, despite earning $13,730 more. A decade earlier, in 2012, that same cohort was $11,150 better off.

For workers employed in care and service sectors, such as childcare workers, the average wage is higher in the city but those workers are ultimately worse off than their regional counterpart. Picture: iStock

For workers employed in care and service sectors, such as paramedics, childcare workers and administrative assistants, the impact of city living is even more disadvantageous. While average wages are $2620 higher in the city, those workers are ultimately $8250 worse off than their regional counterpart.

Industrial workers in cities, such as truck drivers and labourers, on average earn about $1000 more than their regional peers, and are almost $10,000 worse off overall after accounting for housing costs.

The paper finds that the dramatic erosion of financial benefits for city workers has corresponded with an exodus of workers from Sydney and Melbourne. Every year between 2016 and 2021, a net 130,000 people left Sydney, and a further 25,000 left Melbourne for other parts of the country.

Despite the exodus, record overseas immigration is masking the number of people leaving the largest capital cities, the report finds.