The City of Melbourne was the location of the first substantial European settlement in Victoria. The City of Melbourne has developed from colonial settlement to village to town to major city. The role and function of the City of Melbourne has almost turned full circle from its origins as a predominantly residential and commercial area, through a period of depopulation as industry moved in and residents sought housing in areas further out, to its current situation, where significant population increase is occurring through redevelopment of former employment-related uses, such as office space, warehouses, wharves and railway land.
The extent of redevelopment proposed over the next ten years will see the City return to population levels unseen since the 1920s. This is expected to occur through massive numbers of new dwellings being constructed, although the average numbers of persons occupying each dwelling will be far lower than in earlier decades.
The massive growth in population is a result of the attraction of the inner suburbs of Melbourne for tertiary education, employment opportunities and the 'bright lights', which results in much of the population migrating to the City being young adults in their late teens and twenties. The City of Melbourne plays a unique housing role in the metropolitan context. It attracts a large number of overseas migrants. These migrants are primarily made up of students studying at Melbourne University, RMIT and other educational institutions in the inner area of Melbourne. The City also attracts a number of permanent overseas migrants, many of whom settle in areas such as Kensington and North Melbourne.
Note: The migration flows depicted above do not represent future or forecast migration flows. The arrows represent migration flows to the LGA/SLA as a whole and do not indicate an origin or destination for any specific localities within the LGA/SLA.
The City also attracts large numbers of migrants from regional Victoria, the bulk of these being young people studying or moving to Melbourne for lifestyle and/or employment reasons. The City of Melbourne is the most ‘familiar’ part of the metropolitan area for those not from Melbourne and is therefore attractive to migrants not only from regional Victoria but also from interstate. The middle eastern suburbs of Melbourne also provide a net flow of migrants to the City of Melbourne. These can be described as lifestyle migrants moving to the City to be closer to employment and entertainment.
The City of Melbourne also loses people to the inner and middle suburbs, in particular the northern suburbs. Many of these people are moving further out to find affordable housing when the time comes for purchasing, or seeking larger dwellings and yards when reaching their child-rearing stage.
The major driver of population change in the City of Melbourne over the forecast period is the very large number of new dwellings that are expected to be constructed. Melbourne CBD is expected to have the largest amount of development with the construction of around 14,000 dwellings during the forecast period (2006-2031). Both Docklands and Southbank - South Wharf are also expected to experience large amounts of development with 7,100 and 5,500 dwellings expected over the forecast period respectively. The e-gate development in West Melbourne is also expected to provide significant numbers of new dwellings.
While the other suburbs (Carlton, Parkville, Kensington, North Melbourne, East Melbourne, South Yarra and Melbourne - St Kilda Road) are expected to have lower levels of development, there is still expected to be significant demand for these areas.
The built form that is expected with these developments is likely to shape the population. The majority of new dwellings that are expected to be built over the 2006-2031 period are apartments, many of which are relatively small in nature (one and two bedroom). The apartment market has been dominated by young singles, couples and students. Docklands is also expcted to attract some older households.
There are a number of key markets that are being targeted by developers. 1-bedroom apartments are mainly aimed at the student market and owned by investors. A number of developments have between 50% to 75% students (majority overseas), most of which is owned by investors. These sorts of developments are more likely to have younger university-aged populations.
2 and 3 bedroom apartments are aimed at young urban professionals with some investor elements, a part of which is emerging empty nesters and empty nesters providing accommodation for their children while at university. These developments are more focussed on comparatively high double-income households. Most apartment developments have penthouse components (1%), where dwellings can be in excess of $1 million. This market is not easily identified, although corporate apartments may form a significant share of this market.
Another key way of differentiating the owner-occupier market from the investor market is the price point. One bedroom apartments are averaging around the $300,000 mark and are predominantly purchased by investors, while apartment complexes with 2 and 3 bedrooms average $500,000-$600,000 and are more likely to have a greater share of owner-occupiers.
As a result of these different tenure relations, it is common to have a wide variety of vacancy rates across the City of Melbourne. Areas with a large supply of dwellings are more likely to have a high vacancy rate due to the considerable stock being introduced into the market. This is heightened in areas, where the majority of residents are renters and further exaggerated where there are many corporate apartments and temporary stay accommodation.
There is significant potential volatility in the housing market of the City of Melbourne over the next fifteen years due its dependence on a number of factors. These include:
- The investor market - which in turn is reliant on a constant source of tenants (notably tertiary students), a stable interest rate environment, consideration of price points and continued support from financial institutions
- Developer profit and willingness to continue residential construction – highly capital intensive nature of developments means that developers are dependent on financial institutions for support and the balance between investment returns in residential versus commercial developments may create better opportunities in other sectors
- International exposure – including a change in international investor sentiment or a slow down in growth of the tertiary student market, which might occur due to changes in the exchange rate or more competitive costs from other cities in Australia, such as Brisbane or Adelaide
- Policy shifts – which might make development easier or more difficult including taxation, planning regulations, developer contributions to infrastructure services and facilities
- Flexibility of development – ability to be able to change the mix of residential and commercial space to cater for differing market conditions