Australia’s capital cities are key hubs for innovation and skills that drive national productivity, according to new research by SGS economics.

Contributing 22.5 per cent to Australia’s Gross Domestic Product from just 0.03 per cent of Australia’s land mass, our capital cities have a pivotal role in driving exports and our national economic agenda.

However, a number of challenges are holding our capital cities back. Housing shortages, urban congestion and funding gaps can hinder our cities’ ability to drive further economic growth.

According to Australia’s capital city Lord Mayors, its critically important the federal government continues to work with capital city leaders to supply more homes, unlock infrastructure investment, tackle climate change and drive social cohesion.

According to SGS economics’ report titled The Critical Role of our Capital Cities, our capital cities perform five critical roles:

  • Knowledge generation –innovation hubs, hosting leading universities, research institutions and startups.
  • Supporting productivity – home to a concentration of professional services firms, particularly in key productivity-driving fields like IT, legal, finance and engineering.
  • Generating exports – driving direct exports in areas like tourism, international education; as well as indirect exports through professional services – particularly in the mining, agriculture and manufacturing sectors.
  • Leveraging skills – key labor markets which attract unparallelled access to skilled workers, particularly in specialist fields.
  • Command and control – decision-making and coordination centres for the nation; housing 92 per cent of ASX-listed headquarters and key government institutions.

The Council of Capital City Lord Mayors is a peak body advocating for the interests of Australia’s capital cities. Its mission is to provide national leadership and enable effective coordination, advocacy and representation for our capital cities.

Quotes attributable to Council of Capital City Lord Mayors 2025 Chair Clover Moore AO:

“Our capital cities are the economic engines of Australia. They are centres of population and jobs growth that drive innovation and national productivity from just a fraction of the country’s landmass. We can’t take that for granted.

“We face a multitude of similar and significant challenges, from housing affordability and cost of living to transport connectivity and social cohesion. Without urgent investment in critical infrastructure, we’re not just jeopardising the social, economic and environmental sustainability of our biggest population centres, we are failing to unlock potential and drive national prosperity.

“The Federal Government must prioritise support for our capitals because when these cities thrive, so does the nation.

Quotes attributable to City of Melbourne Lord Mayor Nick Reece:

“Australia is an urban nation – and cities really are the backbone of our country. Around 90 per cent of our population growth will occur in our cities over the next two decades.

“If our cities are doing well, then Australia is doing well.

“Challenges like housing shortages can’t be solved alone – we need to work in partnership with our federal government, as well as our state and territory governments, to unlock supply of new dwellings and make sure our homelessness services are adequately resourced.

“Projects like our Make Room housing initiative, in partnership with the Victorian Government and Unison Housing, highlight the importance of our capital city Councils working together to tackle current and emerging challenges.

“Our cities have an important role in helping with the federal government’s productivity agenda.  That’s why we want a Productivity Commission inquiry into our capital cities and their competitiveness on the global stage.”

Quotes attributable to Marcus Spiller, Principal, SGS Economics:

“This report was called ‘the critical role of our capital cities’ – and its quite clear from our research how much they matter.

“Every day, literally millions of people travel into our capital cities to work, invest, do business, study, shop – among a gamut of other activities.

“That transport infrastructure like the Sydney Metro, the Green Bridges in Brisbane, light rail in Canberra – to name a few examples – is key to unlocking productivity and leveraging further investment in our cities.

“We’re pleased to work with the Council of Capital City Lord Mayors on this important piece of research.

The report is available at: https://www.lordmayors.org/wp-content/uploads/2025/07/The-Critical-Role-of-our-Capital-Cities.pdf 

ENDS

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