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Melbourne’s population explosion keeps the government on their toes

How many people can Melbourne hold? That’s the question many are asking in the wake of a continuing population boom that has the city’s outer suburbs growing faster than any other area in Australia.

With more than 1,000 people a week pouring into Melbourne’s outer urban fringe, our population growth is leaving the likes of coastal Queensland and Western Australia’s mining towns in our dust.

A report in The Age cites data from the Australian Bureau of Statistics, which reveals that even though there’s been a marked slowdown in overseas immigration across the nation during 2009-10, Melbourne continues to attract the greatest number of new residents than any other major city.

It’s estimated that in the year to June 2010, Melbourne grew by 79,000 people, giving the Victorian capital the biggest growth of any city in Australia and a total population of 4.077 million.

Since 2001, 605,000 new residents have arrived in Melbourne, far beyond Sydney’s 447,000 population increase, Brisbane’s 380,000 and Perth’s 303,000 over the same period.

Not only has this caused the rapid expansion of our urban growth boundaries, it’s also put the city in a position where for the first time in almost 30 years, Melbourne’s population is only 500,000 shy of Sydney’s and gaining.

Melbourne could overtake Sydney

In fact if the growth rate of 2001-2010 were to continue, Melbourne would overtake Sydney as the most populated Australian city by the year 2028, with both having roughly 5.6 million residents each.

The four fastest growing municipalities in Australia during 2009-10 were all on Melbourne’s fringe, with Wyndham, Melton, Whittlesea and Cardinia taking top honours as their combined populations grew by 7% (33,216).

In fact since 2001, Wyndham alone has seen 70,000 new residents flock to the suburb, which is almost the equivalent of adding a city the size of Bundaberg to Melbourne’s south-west fringe.

This rampant migration of new people to Melbourne has caused growing concern regarding the city’s ability to cope with such significant and sudden growth. Already congested road and public transport systems, as well as long hospital room waiting lists have been further strained beyond capacity due to the record population increase and the rising infrastructure requirements are simply not keeping pace.

The state government is experiencing mounting public pressure to sort out the city’s escalating population issues, with calls for new train lines and better development policies to contain urban sprawl and properly distribute the growing number of new Victorians.

Although the fall in overseas student numbers of 96,000 from the previous year cut Melbourne’s population growth substantially in 2009-10, the ABS estimates that this caused more of a shrink in the middle and inner suburbs, not on the outer fringes where the population continued to boom. The ABS says approximately 68% of the city’s new residents settled more than 20 kilometres from the GPO in 2009-10, up from 58% the previous year.

A severely dwindling supply of new housing stock in the inner and middle rings of the city has seen house and unit prices soar over the past few years, pushing lower income earners further out into newly created housing estates on the outer fringes.

That’s no to say the population explosion hasn’t been felt in the inner city, with a sharp rise of 74,000 or 30% over the last nine years. And with a glut of new apartment stock about to come on line, it’s likely migration to popular inner urban areas will pick up once more.

Planning Minister Matthew Guy said the Baillieu government was acutely aware of infrastructure and housing shortages, and promised strategies early in this term to address the problems.

Growing suburbs aren’t necessarily good investments.

But here’s a warning for property investors….

When reports say that Melbourne’s fastest growing suburbs are on the fringes, this doesn’t necessarily make them a good place to invest.

These suburbs are growing physically bigger more houses, but it doesn’t mean prices grow quickly.

Remember investors should be looking for asset growth and we know that in general it’s the land component of a property that appreciates. This means for an investor who is looking for capital growth, they want the land to asset ratio to be as high as possible.

Think about it….

When you buy a new house on a block of land in one of the new outer suburbs, you may be paying $450,000, of which the land, the bit that goes up in value, could be worth around $200,000. This is a very low land to asset ratio indeed. The bit that appreciates is only a small percentage of what you are buying.

Of course there are other reasons why I don’t recommend investors buy houses in the new estates.

While they may be great places to live and bring up your family, in general capital growth will be subdued in these suburbs. Firstly new homeowners in these ‘mortgage belt” suburbs are more interest rate sensitive, as they tend to have less disposable income than people who live in more affluent suburbs.

Secondly, there is rarely a scarcity factor about properties in these locations. Many properties look the same and there is always another estate with more similar houses and more land just across the road. Of course, scarcity is one of the major reasons properties increase in value.

Another reason we avoid buying in these areas is the demographics. While they make good areas for young families and new home owners, there is not the same demand from a diversity of tenants as there is in the inner and middle ring suburbs.

Inner and middle ring suburbs where there is better infrastructure and an element of scarcity generally make better locations to find great investments.



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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