Introduction
I acknowledge the Ngunnawal people, traditional custodians of the land on which we meet, and pay my respects to their elders past and present. I extend that respect to all First Nations people joining us today.
It's a pleasure to join you in the Great Hall, a space that celebrates our democracy and, today, the beating hearts of our economy: Australia's cities.
To the members of the Committee for Capital Cities - Melbourne, Hobart, Perth, Brisbane, Adelaide and Sydney - thank you for your work to champion liveable, dynamic and productive urban centres. As you know better than anyone, cities don't just happen. They are built - economically, socially and institutionally - through the choices we make together.
Today I want to talk about those choices. I'll start by exploring why cities matter for productivity, then look at what makes some cities perform better than others, and finally set out how we can move from ambition to action, building cities that are productive, sustainable and fair.
Why cities matter
Australia has long been called the lucky country, but new research suggests it might be more accurate to refer to the lucky city. A study by the e61 Institute finds that workers in Australia's capital cities earn on average around $8,000 more each year, a gap that opens in the late 20s and persists through working life (e61 Institute 2024).
Some of that difference reflects who lives in cities. City dwellers tend to be younger, more educated and more likely to work in professional roles. Yet even after controlling for these factors, about half of the wage gap comes from what the researchers call the place effect - the productivity advantage that arises from density. Cities allow firms to specialise, ideas to spread more freely and workers to learn from one another. Sydney's fintech scene, Melbourne's health and education cluster and Perth's resources and renewables precinct are prime examples.
Tracking workers who move in and out of the capitals, the study finds that those who move to a city experience an enduring wage lift, around $12,000 higher after 7 years than similar workers do live outside cities. Those who leave cities tend to earn less before departure and see slower wage growth afterwards. Cities, in other words, don't just pay more - they make people more productive.
But the gains are uneven. Knowledge workers - managers, professionals and specialists - reap the largest rewards. For care and service workers, the urban advantage is small. For industrial workers, it has reversed: city‑based trades and machinery operators now earn less than their regional counterparts, reflecting the strength of regional resource industries.
There are even differences between cities. Research on Australian data shows that when a city's employment density doubles, wages rise by around 1.6 to 2.7 per cent (Meekes 2022). That's roughly the increase you'd expect moving from Hobart to Canberra, again from Canberra to Adelaide, and once more from Adelaide to Brisbane. Each step is modest, but these incremental gains compound across a nation.
The Australian findings are consistent with the international evidence. A global meta‑analysis of nearly 300 studies finds that when city density doubles, productivity typically rises by between 1 and a half and 4 per cent, with an average estimate around 2 and a half (Donovan et al. 2022). The evidence is strikingly consistent: denser cities are more productive cities. Density allows workers and firms to specialise, share infrastructure and innovate faster.
It's worth noting that not all of the urban wage premium reflects productivity alone. Some of it comes from more competitive labour markets. In large cities, workers have more employers to choose from, and firms must pay closer to true market value for talent (Hirsch 2023). Cities reward both skill and mobility, but that mobility depends on affordable housing and efficient transport. Without those, the very forces that make cities productive can start to push people out.
Trade, innovation and connectivity
In Australia, our federated structure sometimes makes coordination hard. Commuters don't care which tier of government owns the road, they just want to get home faster. The current City and Regional Deals show what's possible when governments work together. Through 12 agreements, backed by $9.4 billion in Commonwealth investment and $11.7 billion from partners, we are seeing tailored plans that lift local productivity and strengthen regional economies.
Urban productivity also depends on connectivity - both domestic and international. Our major cities are hubs for trade, research and innovation. They are where exporters find customers, researchers find collaborators and start‑ups find investors.
When housing and transport constraints choke growth, the whole system slows down. Loosening those constraints by building more homes and improving transport helps firms expand, workers move and new ideas spread. For an open economy like ours, that's vital.
But in the largest capitals, those connections are becoming harder to sustain. Housing costs in Sydney and Melbourne have risen far faster than in the regions, creating what researchers call an urban housing premium. For lower‑paid workers, that premium now wipes out any wage benefit. Even for higher‑paid professionals, much of the city advantage has been eroded since the mid‑2000s. The economic rewards of city life increasingly flow to homeowners, while renters - often younger and lower‑income Australians - face rising pressure.
The e61 Institute warns that this combination of strong wage gains for some and high housing costs for many risks creating 'cities of knowledge workers and regions of everyone else'. Productivity depends not only on where jobs are, but on whether people can afford to live near them. And increasingly, people are voting with their feet.
Millennials are leaving Sydney and Melbourne in record numbers, driven by the search for affordable housing and family‑friendly lifestyles. Between 2016 and 2021, both cities lost tens of thousands of residents in their thirties. That shift risks draining our biggest cities of the very workers who make cities dynamic and innovative.
That's another reason why our government has placed such a high priority on increasing housing supply, working with states and territories to meet our ambitious 1.2 million home target by improving regulations, encouraging modular construction and training the skilled workers we need to build new homes. As Minister Clare O'Neil points out, it's not fair to leave outer suburban Australia to deliver all the housing Australia needs (O'Neil 2025). We need to increase the density of middle‑ring suburbs, which already have the transport networks and public services to support a larger population.
From ambition to action
City policy isn't just housing policy. Across government, we have been re‑examining what makes cities thrive, not just economically, but socially and environmentally. Our CBDs cannot be our only economic hubs. We need thriving precincts across each city, with jobs, universities, hospitals and services within reach. That is the idea of the polycentric city, multiple hearts beating together.
We can already see it emerging: Parramatta in Sydney's west, Geelong south of Melbourne, Ipswich outside Brisbane and Joondalup north of Perth. Each is building its own distinctive mix of education, industry and culture.
From research and practice alike, 3 principles stand out.
First, invest in connectivity and housing. Every extra minute stuck in traffic is a minute lost to family, creativity or rest. Fast, reliable transport expands labour markets and lifts productivity. Affordable housing close to jobs allows workers to participate fully. Productivity isn't only about what happens in offices; it's also about what happens, or doesn't happen, on the commute.
Second, build up established suburbs. Rather than endlessly building out, we should encourage councils in middle‑ring suburbs to approve their fair share of new housing. To take a Melbourne example, growth over the past few decades has been 10 times larger in outer suburbs such as Melton and Wyndham than in inner suburban areas such as Boroondara and Bayside (O'Neil 2025). Modestly increasing density around public transport corridors is an effective way to tackle the housing crisis, boost productivity and reduce inequality.
Third, plan for inclusion and climate. Urban growth must be sustainable. Our government's Net Zero Plan lays out the path to decarbonisation, supported by investment in renewables precincts, electric vehicle infrastructure and green building standards. Productivity gains that erode natural capital are short‑lived. The cities of the future will be those that cut emissions while creating good jobs, retrofitting buildings, expanding public transport and re‑greening our suburbs.
Underlying all this is the recognition that productivity boosts wellbeing. When cities run better - when people spend less time commuting, breathe cleaner air and have fair access to opportunity - the benefits ripple through the entire economy.
Conclusion
To paraphrase Jane Jacobs, cities are not problems to be solved but solutions to be cultivated. They are where Australians test ideas, trade stories and build the future.
The decade ahead will test whether we can turn ambition into results. governments have set a big target for housing supply. Technology is reshaping industries. The climate transition is accelerating. The question isn't whether our cities will change, but whether we'll shape that change wisely.
As we move forward, let's remember that every decision about housing, transport, education and climate is also a decision about productivity - about how we turn the potential energy of our cities into kinetic energy for the nation.
Thank you to the Committee for Capital Cities for bringing us together, and for your ongoing work to ensure our capitals remain not just beautiful and liveable, but productive, sustainable and fair.
Note: My thanks to officials from the Australian Treasury for assistance in preparing these remarks.
References
Donovan S et al. (2022) Unravelling urban advantages: A meta‑analysis of agglomeration economies, Journal of Economic Surveys, 38(1):168-200.
e61 Institute (2024) The Lucky Country or the Lucky City? Capital Cities, Regional Areas and the Geography of Opportunity in Australia.
Hirsch B (2023) The urban wage premium in imperfect labour markets. IZA Discussion Paper No. 16542.
Meekes J (2022) Urban density and the Australian wage premium. University of Melbourne Working Paper Series.
O'Neil C (22 October 2025) Address to the West of Melbourne Economic Development Summit, Melbourne.
