Norwest business park has no train station at all, you need to get out at Parramatta and switch to a bus. Given that the Norwest is a predominantly Christian area they probably don’t want to be hiring from too broad a pool anyhow so they know the inner city gays and alternative lifestyle freaks never go West for any reason and that no doubt suits both parties just fine. That’s just your local Sydney prejudice at work :-)

There’s a clear positive feedback loop: an area becomes a transport hub, so business is attracted to that, so workers are attracted to those businesses, so officialdom sees the need to upgrade transport for that location. Land prices move as a negative feedback (the transport hub starts to price itself out of the market) but as pointed out above, prestige is approximately in proportion to land prices and prestige is positive feedback (our business must be successful because we can afford a stupidly expensive office, so you should be a customer/supplier/investor of such a great enterprise).

You can see Parramatta as an excellent example of positive feedback in action. It has always been a second city hub (since the colonials) but growth really kicked in when government courts and offices were moved to Parramatta. In addition, a decision was made to move the most significant bus terminus away from Granville (note that Granville is the logical rail hub for that area) and also lots of work was done upgrading and modernising the bus fleet. Now with that seed started, we have private legal business and accounting business deciding that Parramatta is an attractive place to setup shop, so the IT/computer shops are coming to support the offices and so the ball starts rolling with workers getting attracted from nearby regions, etc.

IMHO the next big growth push for luxury apartments is going to be along the Parramatta river. What used to be industrial land is getting cleaned up (industry has moved to Asia now) and no doubt there will be huge environmental pressure to clean the entire river system, so the old industries are doomed forever in that area. Probably the river will eventually be once again used as a transport corridor for workers on the daily commute to either Parramatta or the city.

fair enough. I dont know either who actually makes the location decisions of foreign headquarters but merely assumed it would more often be someone who didnt have to live there themselves. You seem to have better info on that than me.

I started thinking about this when I lived over the road in North Ryde. I came back from work in the city at 7-8 am and was on mind crushingly slow buses filled with miserable snoozing commuters who had already changed transit from other buses or trains in the city and were funneled through harbour crossing bottle necks to a suburb with very little appeal. Why was Macquarie Park popular in a way that other sites weren’t, because it sure wasn’t accessible.

That’s why I figured something else was playing a part along side the obvious factors.

Paul – I’m not sure if this is the counter factual we could look for since I’m not sure the decision is generally made by the CEO overseas, as opposed to a foreign manager living here. Anecdotally, and the anecdotal evidence I have is skewed heavily towards Japanese firms in Sydney, the latter is the case (and the local managers all live on the lower North Shore (Artarmon, Neutral Bay, Northbridge and other points on Middle Harbour. If we could differentiate firms by who where made the decision that would be great though.

Mike – The question then becomes why are so many industries clustering there. Finance in the CBD makes sense for prestige reasons, but a given industry could cluster in almost any place. Why disproportionately here?

The rent is cheaper for a start. Workers are probably willing to trade off salary for a shorter commute as well. I think most accept a lower salary if their work doesnt require them to live in expensive suburbs; suburbs expensive mainly because you can access jobs easily. And workers with smaller commutes are likely happier, more well rested and probably more productive.

I agree that the rent is cheaper. But I’m not convinced about the other advantages.

1. Workers are probably willing to trade off salary for a shorter commute …

Quite likely. But to take advantage this they’d probably have to move house. Buying and selling houses is disruptive and costs a lot of money. How long will the job last?

2. I think most accept a lower salary if their work doesnt require them to live in expensive suburbs; suburbs expensive mainly because you can access jobs easily.

Probably. But many of the organisation’s high value employees will have a spouse who works and children who attend school or university. A shorter commute for worker may result in a longer commute for other family members.

Workers will typically avoid uprooting their families.

3. workers with smaller commutes are likely happier, more well rested and probably more productive.

Agreed. But I suspect that workers choose housing based on long term considerations. Buying a house near your current job may mean an even longer, more difficult commute for your next one. A good strategy is to locate somewhere with access to an abundance of job opportunities.

If businesses are anything like the public service, outer suburban or regional head offices will last long enough for an employee to buy a house and settle their kids into a good school. Then a new CEO will move the office back to the CBD.

Similarly there was a time when if I was in advertising I would have wanted to work in North Sydney.

The trouble empirical observation with the principal-agent story is the issue of head-offices of foreign companies. Why should they be in the CBD? If you are right, they should take advantage of the suburb-solution because its a foreign ceo making the decision on where others are going to be located.

I think the CBD has more advantages than you give credit for. Its close to the airports, shorter on average to get to than many suburbs, and closer to rival businesses from which companies can poach workers.

The problem with locating in the suburbs is that there is no one suburban area where all your workforce is going to live. Changing trains is a pain in the butt and some suburbs don’t get as regulat trains. Plus I think nothing could be more depressing than going into another suburb to work and leaving late, within walking distance in the city you can at least get a decent nightlife and leisure facilities and everything hasn’t been shut down yet.

Of course not. We’ve been shown time and time again they’re quite capable of doing it themselves.

Also, the networking analysis is superficial. City centres provide proximity to corporate advisors of every stripe for corporates, and proximity to each other and to clients for corporate advisors. It is a strongly-reinforcing virtuous circle.

Overall your lack of practical experience is very obvious, because you haven’t considered proximity to restaurants and night-life as an aspect of each factor listed.

You will also be cheered to know that there are some very value-conscious companies. GE’s Australian headquarters are not in the CBD at all and I understand that their internal policies make it unlikely that they would build/rent in a CBD. PwC in Melbourne, as well as ExxonMobil, Vanguard and many others, are in Southbank, a short walk across the bridge from the more prestigious CBD. Relevant to my previous point, this may not have been possible in PwC’s case if not for the excellent restaurants along Southbank.

None of this is to denigrate the relevance of corporate managerial prestige, though.

Some other things that I think is relevant in the American experience is planning bias towards greenfield development that happened post war (and still exists to a large extent) and the amount of power held by local government. The planning power meant that small counties have a great incentive to offer heavy incentives to lure companies (large and explicit, and thus hard for shareholders and managers to overlook). The amount of services funded by local government also leads to considerable path dependence as well. You only need a few companies moving out and the urban government loses a bit of taxation, cuts services a bit and some more people and companies move out etc. Gaining revenue just adds more reason for the outside counties to offer more incentives.

pablo – I even went out and bought the hard copy from the corner shop just to show gratitude for some genuine attempt at policy analysis.

It’s because the CEO lives in that expensive suburb. The people running companies would far rather have their minions commute long distances than commute those distances themselves.

Reason ‘B’ may have more explanatory power than you allow. Consider the American experience:

When I started asking developers when, exactly, they first thought it plausible to build quarter-of-a-million-square-foot office monoliths out in some cow pasture, far from the old downtowns, I found it eerie how often the year 1978 came up….The only thing I’ve discovered that begins to account for that nationwide pattern is that 1978 was the peak year in all of American history for women entering the work force. In the second half of the 1970s, unprecedentedly, more than eight million hitherto non-wage-earning women went out and found jobs. The spike year was 1978.

That same year, a multitude of developers independently decided to start putting up big office buildings out beyond the traditional male-dominated downtown….The new advantage was proximity to the emerging work force. These Edge City work centers were convenient for women. It saved them time. This discovery was potent. A decade later, developers viewed it as a truism that office buildings had an indisputable advantage if they were located near the best-educated, most conscientious, most stable workers underemployed females living in middle class communities on the fringes of the old urban areas

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Full post here.