Melbourne to Surpass Sydney as Australia's Most-Populous City, Report Says

Melbourne could overtake Sydney to become Australia’s largest city by 2037 as its home construction surpasses the pace of its harbor rival, according to a report by economic forecaster BIS Shrapnel.

Sydney’s population growth rate will fall to 0.9 percent a year from a projected 1.1 percent if New South Wales state doesn’t simplify its planning system to allow more home building, Aaron Gadiel, chief executive officer at the Urban Taskforce, which commissioned the report, said in a statement. Melbourne will see population growth of about 1.3 percent a year, Gadiel said, swelling the number of people there to 5.7 million by 2036.

“Over the past decade, Melbourne has proved far more capable of accommodating extra people than Sydney,” he said. “If the recently revised state government Metropolitan Strategy housing targets for Sydney are delivered, then Sydney’s population in 2036 would remain greater than that in Melbourne. However, that’s simply not going to happen without significant reform of the planning system.”

Sydney -- home to the Opera House, Harbour Bridge and Bondi Beach -- and Melbourne, host to the Australian Open tennis tournament, share a cultural and sporting rivalry dating back to colonial times. Melbourne boasts the local head offices of five of Australia’s 10 biggest companies by market value including BHP Billiton Ltd. and Telstra Corp., edging out Sydney’s four.

Melbourne home prices rose 18.5 percent in the fourth quarter from a year earlier, eclipsing Sydney’s 12.1 percent advance in the three months to Dec. 31, according to Australian Property Monitors. The government’s first home-buyer initiatives pushed demand higher even as the global financial crisis and government regulations curbed developments.

Supply

Without reform, the supply of additional homes would reach 17,000 a year, below the minimum 25,000 a year needed for Sydney to “keep its head above water,” Gadiel, who heads the representative group for property developers and equity financiers, said.

At this rate, New South Wales’s share of overseas migrants -- needed to bolster the economy as the population ages -- would shrink to 25 percent, the report said.

The housing shortage and rising prices have already pushed New South Wales’s portion of immigrants to 30 percent now from 40 percent in the 1990s, according to Jason Anderson, senior economist at BIS Shrapnel.

Victoria state is currently building new homes at double the rate of New South Wales, the BIS report found.

“Sydney is not getting the housing puzzle right at the moment,” said Ben Phillips, senior economist at the Housing Industry Association. “Developers and industry groups have been calling for these changes for years. The problem is you can’t get one level of government to solve this problem. We need to get an all-of-government solution for this.”

Metropolitan Strategy

Sydney’s metropolitan strategy, a plan for the city released by the state’s government, estimates the city will need an additional 640,000 new homes by 2031.

About 30 percent of these new homes should be built on newly released land, with the rest added to already built-up, or infill, areas, the metropolitan strategy says.

Yet, New South Wales’ development policies don’t support this aim, Anderson said on April 15.

“In Victoria, for example, you get stamp duty concessions when buying new apartments, where you only pay it on land, not the building,” Anderson said. “But you don’t have that in Sydney. The government has said it wants 70 percent of new supply from infill development, but it won’t change policy to reflect that.”

New South Wales must “limit bureaucratic and political” games by ensuring proposals that meet standards receive approval; make authorities work on stricter timetables; clarify matters to be considered while assessing developments; and cut development levies, the BIS Shrapnel report recommends.

Affordability

The New South Wales government’s focus on infill development has contributed to making Sydney the second-most unaffordable city in the annual Demographia International Housing Affordability Survey, according to the report’s authors. The report, which compared 272 markets in the U.S., U.K., Canada, Ireland, New Zealand and Australia in the third quarter of 2009, ranked Vancouver as the most unaffordable housing market.

Residential land release in Sydney fell to 2,000 lots per year in 2007 from a historic average of 10,000 lots as a result of the New South Wales government’s high-density policies, the report said.

Sydney home prices will rise 32 percent between 2009 and 2013, BIS Shrapnel estimates.

Australia-wide, the gap between how many homes are supplied and how many are needed increased by 78,900 dwellings in the year to June, a government report today showed.

“The housing supply issue includes a diverse range of issues including land supply, council approval processes, labor and capital availability, and taxation,” HIA Chief Executive Graham Wolfe said in a statement. “Failure to address these considerable issues will have dire outcomes for the cost of housing for both those purchasing homes and those who remain in the rental market.”

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

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