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    Will Melbourne’s population growth spell good or bad times for the housing market?

    Strong long-term demand is projected for Melbourne - particularly for land and detached houses, according to RiskWise Property Research CEO Doron Peleg. 

    Peleg says there is too much focus on short-term growth and not enough focus on long-term projections.

    According to the latest ABS data (2016-17), Melbourne is Australia’s fastest-growing city and recorded its highest-ever net annual population increase of 125,000 with a growth rate of 2.7 percent.

    Based on the city’s growth trends, demographer Bernard Salt has predicted that Melbourne’s population will skyrocket past five million by 2021 and past eight million by 2050. By 2030, he estimates that Melbourne will overtake Sydney as Australia’s most populated capital city. 

    SHORT-TERM

    Peleg says in the short-term the cooling market in Melbourne, the current lending restrictions (combined with tighter lending restrictions) and scrutinising lending applications following the Banking Royal Commission, are likely to have an impact on the housing market, including the risk of slight price falls in some areas. 

    “However, due to this strong population growth the Melbourne market has shown its resilience. As per CoreLogic, dwelling prices in Melbourne have increased by 3.7 percent and in the past quarter they have declined by a very modest 0.7 percent,” adds Peleg.

    “Also, auction clearance rates are reasonable at around 62 percent, as per Domain results this weekend. It should also be noted that although there is, and has been, a very large supply of units, due to the outstanding population growth, the supply has been absorbed by the market.”

    MEDIUM TO LONG-TERM

    “Melbourne historically grew to the southeast and out to the east and didn’t extend to the north and the west,” says Professor Peter McDonald of Melbourne University’s school of population and global health. 

    From a property perspective, this means there will continue to be “very high demand for land in those areas”, according to Peleg.

    “Therefore, freestanding houses in the western and northern suburbs with reasonable access to the CBD are projected to experience solid capital growth in the medium to long-term,” he says.

    McDonald feels that “when a city reaches five million people it only performs efficiently with the best public transport systems and infrastructure”.

    According to Peleg, “due to potential problems with public transport systems and infrastructure in those outlying areas, townhouses and large apartments in small unit blocks that are well-suited for families, located in areas with good access to amenities and to the CBD, are also projected to enjoy long-term growth.”

    However, he also says that units in high-rise buildings and small units not suitable for families carry a higher level of risk in the long-term, as lending restrictions and any potential changes to negative gearing could majorly impact property investors. 

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