Melbourne’s Renaissance: the making of a global powerhouse

Posted by Luke Graham

In the mid-19th century, gold was discovered in what is now known as the Victorian goldfields. In the coming years, the young British colony at the bottom of the world would endure its infamous gold rush. This would leave a lasting legacy on Australia’s national identity, including events such as Melbourne’s rise to rival Sydney as a commercial powerhouse, as well as the Eureka Stockade. During this era, Melbourne was rumoured to be the world’s wealthiest city, overtaking established behemoth cities such as London, New York and Paris. The indulgent architecture of the City of Melbourne is one of the few remaining visible relics of this time.

Despite growing considerably since the 19th century, Melbourne’s status as the world’s wealthiest city is a distant memory. In fact, Sydney’s presence as Australia’s business and finance capital is hardly contended with any real merit. Nevertheless, Melbourne’s global significance is enduring a renaissance; boosted by invariably high levels of liveability, ethnic and cultural diversity, education, global economic rankings, and substantial population growth. Some years ago, Melbourne’s rapid population growth led to forecasts it would overtake Sydney as the country’s most populous city by 2051. This projection continues to come forward, with more recent estimations reporting it could occur as soon as 2026.

With growth, however, come growth pains. Looking to the likes of New York and London, a reasonable question arises as to whether we are prepared to host an international powerhouse in Australia. One particular challenge is how we expect to house this swelling population. Despite newspaper headlines of previous years touting housing oversupply, the city’s rental vacancy rate hasn’t exceeded 3 percent (equilibrium) in more than half a decade.

Although housing undersupply is a competitive advantage for property investors, it limits a city’s liveability. As a result, it also impacts its ability to attract and retain talent (as we have recently seen in Sydney). Government policy that would impact supply of new housing should therefore be discouraged, even in the face of pressure from fringe activist groups.

Melbourne’s capacity to stretch its urban boundaries into former pastoral lands to the west, north, east and south-east likely contributes to the city’s ability to remain price competitive. Even after Sydney’s 2017-19 correction, Melbourne houses remain approximately 22.6 percent cheaper than the harbour city. Accompanying the city’s housing affordability is a robust state economy, with CommSec announcing Victoria as Australia’s best-performing state.

Property investors seeking to cash in on Melbourne’s renaissance would benefit from envisioning the city’s future rather than its present. For instance, as the population further swells, where will housing be most in-demand? How will the culture of Melbourne transform with major migration levels from interstate and overseas? What does this mean for the amenity and design of housing?

Over the coming months, we will address these questions and more via the research blog.

Posted by Luke Graham, on 11th Feb 2020