Mr Smith - speaking at yesterday's annual plan hearings - urged councillors to follow in the footsteps of cities such as Wellington and invest in a shared space for artistic groups.
An arts hub could allow groups and individuals greater interaction and the ability to share resources, from meeting rooms to photocopiers, to make the most of the city's reputation as an artistic city.
"There's a lot of people doing some amazing stuff, but they are not working together," he said.
The city had buildings available that could be used to provide a home for such a hub, he said.
The idea appealed to Cr Richard Thomson, who wondered whether incentives could be used to encourage the city's arts community to move into buildings south of the Exchange and rejuvenate the area.
Mr Smith said the idea had been talked about before but was a good one, and should be explored again.
He believed it should start with one building acting as an arts hub, which could provide something for other private galleries to "spring off".
"If there's enough groups working in that area, it can create momentum." The fashion industry already benefited from incubators, but the same did not seem to happen for the wider arts community.
The idea should be discussed by arts groups, perhaps through the council's Your City, Our Future programme, and with representatives from the council's economic development unit, he said.
"I think that's a really exciting thing that would help put us on the map." Mr Smith was speaking yesterday on behalf of the Dunedin Fringe Arts Trust, which organised the annual festival, and also for the Dunedin Midwinter Celebrations Trust, which organised the midwinter carnival.
He also urged councillors to continue supporting the fringe festival - with $40,000 in council funding already budgeted for 2011-12 and 2012-13 - and even consider a small increase.
Extra funding of $2000 would allow festival organisers to attend festivals in Melbourne and Adelaide, in Australia, to try to lure more prominent performers to Dunedin. That would help enlarge the Dunedin event, Mr Smith said.
