Here’s one way to look at the after-effects of the pandemic: we are now definitely past peak skyscraper.

If the world’s skylines are not hereafter punctuated with ever-higher spires, that will be a symbol of a major change happening beneath. The people those buildings are meant to serve are living their lives in new ways.

Let me explain.

We have lived through an era of increasing density, of ever-higher buildings. The top 10 list of tallest buildings in the world is full of those completed since 2010. That’s a global phenomenon, but the pattern is repeated in Australia where the second-, fourth-, fifth- and sixth-tallest towers were finished in the past two years.

CBDs were booming as people chose to live near highly centralised workplaces. More apartment towers followed the office towers. And as more people lived centrally, the more it made sense to place offices, universities or retail outlets in city centres. A self-sustaining cycle was developed that rapidly changed the physical fabric of Australia.

While it might not have affected much of Australia by percentage of land area, it dramatically affected Australia as perceived by Australians. Most Australians work in, live in, or visit a capital city centre reasonably regularly. It would be a mistake to say, “Oh these crowded areas are barely a dot on the map”. If that’s where most people are, it matters.

Here comes the spread

The pandemic is a huge circuit-breaker for this cycle. We have finally latched on to the intermediation upside of the internet. Working from home in your trackies is not so bad. Neither is having your groceries delivered.

This has major implications for the way we live — and for our economy, so it was no surprise to hear the RBA’s assistant governor, Dr Luci Ellis, address them in depth last Wednesday.

Ellis, perhaps the most inquisitive and lateral thinker at an RBA otherwise staffed by boffins, is the perfect person to present such a piece on the big picture.

“There will be at least some cases of people moving further out from the city centre because long commutes will not seem so unpleasant if you only need to do it a couple of days a week,” she said. “And where full-time working from home is possible, ‘work from home’ really starts to mean ‘work from anywhere’. So for some it has been possible to move to an entirely different population centre.”

After years of looking like it might not reshape the physical world after all, the internet is wreaking havoc on the way we use physical space. The effects will be felt in every corner of the country.

Ellis said: “Online delivery stretches beyond retail … This pattern is apparent in a range of industries, from telehealth and online learning, to construction and property development firms using virtual walk-throughs in place of in-person inspections. And although business travel is unlikely to disappear completely, many contacts expect to be more selective about whether in-person meetings are needed.”

This could play havoc with Australia’s largest single asset class — our many trillions in real estate.

“With more people working remotely, the need for as much office space comes into question — just as the need for retail space does as more shopping goes online,” Ellis said.

Australia is used to a pretty simple pricing system for land. As the next chart shows, the closer you are to a CBD, the more expensive the home (with some bonus for being near the water).

Source: RBA, 2011. Note that land prices fall even more steeply as you move out from the city centre, compensated by the fact lots grow larger.

Who can say if this pattern will break? It seems likely that families will choose a larger home in a more charming setting over a smaller home in the gritty inner city. Some may move just a suburb or two. Others may find a great spot on the coast. Others might go full tree change and settle onto acreage; some might favour many hundreds of hectares (although not those with school-aged kids — schools are likely to serve as something of an anchor for families).

Where the pandemic reverses mega trends, it can be expected to be only a blip. For example, as we grow wealthier we spend more on services and less on goods. The pandemic changed that, with more spending on goods like food to cook at home, electronics etc, and less on services like holidays. That can be expected to flip back when the economy reopens fully.

Where the pandemic accelerates mega trends, we will see rapid change. Evolution that would perhaps have been spread over a decade will happen in a year or less.

As people move outward, so companies may realise they need to offer working from home to attract good staff, and other services might disperse, too. A self-reinforcing cycle could develop for population spread, just as it did for concentration.

A great dispersion is potentially afoot and the era of ever higher skylines is likely behind us.

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