Sunday, July 12, 2015

Why our most livable city is Melbourne - or Sydney, or Canberra

You want to live somewhere better than where you are, right? Who wouldn't, given the weather we've been having? It ought to be easy enough to work out where. At this week's economists conference in Brisbane, Melbourne-based Daniel Melser, a senior lecturer in economics at RMIT, outlined the results of calculations by human resources firm Mercer, the Economist Intelligence Unit and the Property Council of Australia.

Each calculates a livability index from the bottom up. They aggregate scores for things such as the natural environment and access to housing and health services to come up with a total livability score. Two of the surveys assign their own scores to the component parts, one surveys Australians to work out the scores for the component parts.

The overall winner (according to Mercer) is Sydney. It's the 10th most liveable city in the world, beaten internationally by only Vienna, Zurich, Auckland, Munich, Vancouver, Duesseldorf, Frankfurt, Geneva and Copenhagen. Melbourne is further behind in 16th place, behind Toronto.

Which is odd, because when the Economist Intelligence Unit does the calculations, it finds Melbourne to be Australia's most livable city. Actually it finds Melbourne to be the world's most livable city – out of 140 – eclipsing stars such as Vienna, Vancouver, Toronto, Adelaide, Calgary, Sydney, Perth and Auckland.

The Property Council might be expected to come to similar conclusions, given its local knowledge, but instead it finds Canberra to be Australia's most livable city, ahead of Adelaide, Hobart, Melbourne, Brisbane, Newcastle, Wollongong, Sydney, Perth and Darwin.

There's nothing much wrong with the methodology of each survey and probably nothing much wrong with the scores assigned each city for each attribute. The problems come when they try to add them up. How do you weigh the environment against transport? How do you weigh education against access to shops?

Melser thinks that rather than guessing the weights to work out what city Australians "should" prefer to live in, we should instead look at what Australians actually do.

It's called a "revealed preference" approach. Here's how it would work for Coca-Cola and Pepsi. Instead of assigning scores to the ingredients and adding them up according to a weighting, we look at what Australians actually buy.

If more of us buy Coke than Pepsi (we do) it can be safely assumed we like Coke more. We have "revealed" our preference. There's no need to examine anything.

At RMIT University, Melser got together with Curtin University academic Grace Gao and tried to apply the idea to cities. If all cities were equally good, their reasoning went, there would be no need to pay any Australian a premium to live in one instead of another.

Naturally some employers offer higher wages in some cities to compensate for higher living costs. But any extra premium, over and above what's needed to make up for living costs, would suggest that a city had a low quality of living or something else unpleasant about it that required compensation.

Using census data on incomes and housing costs across 56 different regions they determined that Australia's most pleasant places to live are Sydney's north shore and northern beaches and Sydney's eastern suburbs, followed by inner Melbourne and Melbourne's inner south.

The people who live there might be well-paid, but not so well paid as to overcompensate for the costs of living. They live in inner Sydney and Melbourne because the love it.

It's the same on the Gold Coast, the Sunshine Coast, Coffs Harbour and Warrnambool. People live there because they like it, not for the excess pay.

Australia's least-pleasant locations turn out to be in Perth, the Western Australian outback and the Northern Territory. People are often very well paid there, but in order to keep them there rather than merely because it's expensive.

Canberra is in the middle. It's neither a hardship post that requires special compensation, nor so wildly popular that people put up with high prices in order to live there.

What do the good places have in common? Weatherwise, Melser and Gao find they are not too hot, with plenty of rain. Facilitywise, they have large arts and recreational sectors and lots of restaurants. On the other hand they are not particularly well endowed with shops. Melser and Guo find the bigger the retail sector, the less popular the location.

Their groundbreaking survey suggests you probably prefer to live where you always thought you would prefer to live, and where you've probably been quite rightly telling yourself you can't afford.

In The Age and Sydney Morning Herald