Australia by Choice, Not Chance

Australia is rightly worried about productivity. But in the rush to debate tax, skills, and energy, one of the most powerful determinants of national performance - where and how our population grows – is continually overlooked. 

Here, Urbis’ Managing Partner James Tuma advocates for a national settlement strategy that makes clear choices about growth, treating urban form and location not as passive planning outcomes, but as core productivity levers.

Australia’s long-running debate about population growth and its impacts is often reduced to an argument about numbers: bigger or smaller, more or fewer migrants, congested cities, or a protected lifestyle. Themes that now feel desperately inadequate.

As Australia moves toward an estimated 41 million people by 2050, the test is whether growth strengthens national performance, or compounds the pressures already weighing on it.

But the links between settlement and productivity remain underappreciated in Australia, despite substantial international evidence that urban form, agglomeration, and infrastructure coordination shape economic performance.

OECD analysis connects productive metropolitan economies with density, connectivity and efficient land use. The Productivity Commission has repeatedly highlighted the cost to productivity associated with congestion, housing misalignment, and reactionary infrastructure sequencing. Treasury’s 2023 Intergenerational Report points in the same direction: it is not growth alone, but where growth is organised and directed that generates prosperity.

Settlement strategy may be a quiet contributor to productivity, but it is a consequential lever alongside tax reform, energy transition, and skills and technology adoption. Few reforms have as much influence over labour efficiency, infrastructure productivity, fiscal resilience, and long-term competitiveness. The call for this change is growing. The Planning Institute of Australia (PIA) recently published a call for a coordinated, long-term framework that directs where and how Australia’s increasing population grows.

The old ‘Big Australia’ debate needs reframing. The crux is not whether – but how - Australia grows. It is a national choice, and choice is the language of strategy. Planning involves regulation, control, and incremental change. Strategy is directional and involves judgement, prioritisation, and trade-offs. It requires a willingness to make bold calls that are not immediately popular, especially in a ‘VUCA’ (volatile, uncertain, complex, ambiguous) world.

What happens is shaped by where it happens

Where people live is not a by-product of economic policy. It is one of the mechanisms through which economic policy succeeds or fails. Settlement patterns influence labour market efficiency, infrastructure productivity, fiscal costs, emissions intensity, supply chain performance, and resilience. They shape the economy’s operating conditions.

Economists have long recognised the productivity effects of agglomeration. Dense urban economies increase innovation and output through proximity and specialisation, as demonstrated by American economist Edward Glaeser. Effective density can lift productivity, especially in more knowledge-intensive sectors, according to agglomeration research by the OECD. The specifics matter less than the conclusion. Well-functioning urban concentration is not simply good planning. It is an economic advantage.

Australia benefits from these effects. Sydney, Melbourne, and Brisbane function as large-scale agglomerations where firms, talent, and institutions create value through concentration. In every city:

• agglomeration increases productivity through concentrated labour and innovation markets. 
• infrastructure efficiency can be delivered because of lower capital and operating costs per capita. 
• labour mobility and participation happen with less friction because of the proximity between housing and employment. 
• freight and logistics become more efficient because distribution systems are simply closer to more concentrated urban markets; and 
• fiscal productivity (‘bang for buck’) is naturally increases because some growth patterns simply cost far more to serve than others.

But the inverse also applies to parts of these cities and some of regional Australia. When housing costs push workers away from jobs, ‘labour matching’ weakens. When infrastructure lags growth, congestion erodes efficiency. When cities sprawl without sufficient intensity, the costs of servicing growth rise while productivity benefits dilute.

Poor settlement outcomes can act as a hidden hand brake on the economy. Worse still, the effects can take generations to unwind. This is why settlement is an instrument (not a consequence) of growth and may be one of Australia’s most neglected productivity reforms.

The cost of complacency

Australia is good at managing pieces of the growth puzzle such as migration settings, housing targets, infrastructure programs, climate adaptation, and regional policy. We have less form in tackling issues of system change, especially in relation to the shape of our urban future.

The consequence of this lack of integration is that we continue to coast. Not ever failing in a dramatic form, just quietly and slowly eroding our productivity and quality of life drivers. Signals that the ‘frog might be slowly boiling’ are seen in rising congestion, declining housing accessibility around major job markets, and in public expenditure chasing growth rather than shaping it.

The Grattan Institute has pointed to significant productivity and welfare losses associated with poor transport and housing integration, while Infrastructure Australia has estimated urban congestion costs could exceed $40 billion annually over coming decades without intervention. Internationally, Enrico Moretti’s work in labour economics and economic geography has shown how housing constraints in productive cities can suppress national output by limiting access to opportunity.

These observations should concern us. Because the risk is not that Australia suddenly fails, but rather we sleep walk into becoming a higher-cost, lower-efficiency economy by accident.

Shifting from planning to strategy?

Australia needs to lift the conversation beyond planning reform and toward settlement strategy.

Planning, by volume of activity at least, is a regulatory tool. It sets rules, manages impacts, and arbitrates between competing uses of land. It is essential but it is not sufficient. A settlement strategy, by contrast, is intrinsically about choice. It asks what pattern of growth best serves the nation over the long term, and then aligns policy, investment and governance around that answer.

A national settlement strategy accepts that not all places will grow at the same pace, and that this is neither accidental nor unfair. It involves backing some cities and regions to grow faster because the economic, social, and resilience returns justify it. It supports greater urban intensity where productivity gains are strongest and sequences infrastructure to shape rather than react to growth. And it recognises that leadership involves risk, because avoiding choice is possibly the worst outcome.

The Netherlands, Singapore, and Germany have approached settlement in precisely this way. Different models, different geographies, but a shared understanding that how a country organises its people and places is a strategic economic decision, not an administrative one. Settlement is treated as a driver of national performance, not a by-product of regulation.

Politics naturally plays a role here. The agenda and investment required for cities to meaningfully respond to these threats and opportunities are often subject to short-termism, cruelling opportunities for the realisation of exponential benefits that likely materialise through an intentional strategy. This isn’t about building universal agreement (usually a sign of a poor strategy) – but taking an evidence-based leadership position that transcends political cycles.

Australia has capable institutions and strong planning systems. What we lack is an explicit national choice about how we want to grow. That absence of intent is becoming increasingly visible and increasingly costly.

Cities as productivity platforms

Our major cities are central to national prosperity. The question is how they absorb growth without eroding the advantages that make them unique and productive.

Density sits at the centre of this and is often framed defensively, as though it were simply a concession to growth. But it is an economic asset, supporting stronger transit economics, broader labour catchments, more efficient service provision, greater participation, and more vibrant and interesting places.

But density without infrastructure and quality is not strategy, it is simply the manifestation of pressure. The task for us all is not ‘density at any cost’, it is better urban intensity aligned with transport, schools, health, utilities and public realm. This shifts the dialogue from managing a housing problem (and the now over-used concept of ‘inter-generational equity’), toward choosing how we want our cities, and ultimately our nation, to perform for the next generation. 

Regions are the untapped dividend

In the settlement discussion, Australian regions are frequently treated as spillover areas – drastically undermining and understating the opportunity.

Many regional cities have economic foundations including universities, health assets, export industries, and energy systems. Some could play a much larger role in national growth if investment were aligned intentionally.

This is not an argument for decentralisation as ideology (where everyone gets a prize, regardless of performance). It is an argument for distributed concentration: a deliberate strategy that backs some places harder than others.

In practice, that means building a deeper national urban system - one where more cities and towns play meaningful roles, but where we make bigger, more focused bets on the infrastructure and growth that will generate the greatest cumulative national benefit. Not every place wins equally, but Australia moves further and faster as a result.

Reignite our national ambition

There is also room to revisit the question of new cities or major growth centres, particularly in the context of a nation moving toward a population of around 41 million people.

This idea often attracts immediate scepticism, sometimes rightly. Planned cities are complex, slow to mature, and exposed to political and market risk. But if we are to almost double our population, they must be on the table.

As Australia heads toward 41 million people, the question is not whether our existing cities can grow, but how far they can do so without crossing thresholds that undermine liveability, productivity, and social licence. Density and infill will rightly do much of the work. Regional cities will play a larger role. But it is reasonable to ask whether, at some point, deliberately establishing new cities becomes part of a balanced national response.

Canberra remains a powerful demonstration that new urban settlements can succeed when vision, institutions, and long term commitment align. Conceived as a national project rather than a speculative development, it has grown steadily into a mature city with a strong economic base, high workforce participation, and a concentration of national institutions that continue to anchor its role in the national economy. The lesson is not that new cities are easy (they aren’t) – and this one is the nation’s capital. The lesson is simply that they are possible.

The alternative of continuing to load all growth into a small number of increasingly strained metropolitan systems carries its own risks, notably around affordability, equity, and amenity. Are we prepared to shape settlement patterns in ways that protect the liveability of our cities while creating enduring national value?

Settlement strategy is the big green lever

Climate belongs in this discussion not as a constraint on growth, but as part of the economic logic of better growth. Settlement strategy does more than reduce exposure to risk. It shapes whether cities, which generate around 70 percent of global emissions, become part of the climate problem or one of the largest levers for solving it.

Compact, well-connected urban form lowers per capita emissions through transport efficiency, lower infrastructure intensity, and better performing buildings. IPCC and OECD work increasingly points in the same direction: density, in the right locations, is often part of the environmental solution, not its antagonist.

Ironically, denying density on environmental grounds frequently pushes growth outward into more car-dependent and land-consumptive patterns, degrading both productivity and environmental performance. Ironically, cities are not merely places to reduce harm, but platforms for net-positive ecological outcomes.

Seen this way, settlement strategy is not simply about accommodating growth. It is one of the few levers that can lower emissions, as well as lift productivity and strengthen resilience.

The crossroads

Australia will grow. What remains unresolved, and increasingly urgent, is whether we are prepared to decide how that growth works for us.

A National Settlement Strategy would not promise uniform outcomes or universal agreement. It would do something more valuable: make an explicit choice about how Australia wants to perform, and then organise cities, regions, infrastructure, and investment accordingly.

It would acknowledge that not all places grow at the same pace, that prioritisation is unavoidable, and that strategy requires backing some bets harder than others in the national interest.

And critically, it would recognise something we have been slow to articulate – that productivity is shaped not only by what we do, but where we do it. Nobody said this would be easy, but doing nothing is no longer an option.