Opportunities Rise with Melbourne Housing Challenges

Melbourne’s urban renewal projects and ambitious housing targets are creating major opportunities for developers despite the many challenges. Speaking at The Urban Developer Future2034 Melbourne breakfast last week, Ethos Urban director Melbourne Chris McNeill painted a picture of the Victorian capital as a significant global city with untapped potential for development. “We’re often harsh on ourselves,” McNeill told the event. “We run Melbourne down a little bit and think of ourselves as a bit of a backwater on the far side of the world. And I don’t think we are, I think we’re a bit more than that. “The ... thing about Melbourne, which we all know inherently, is that the identity attached to a lot of our original inner suburbs is really strong. “These all have their own unique identity and it’s a great thing to be able to build a city’s character around.” McNeill highlighted the capital’s proximity to the state’s regional hotspots as a plus, saying “not only are they much closer to Melbourne, but they are pretty well connected by comparison with the other states, by rail, road and freeway”. Despite often being underestimated, Melbourne stands tall among international counterparts, according to McNeill. With a population of 5.3 million, it surpasses many European cities and is comparable to major North American urban centres. ▲ Ethos Urban director Melbourne Chris McNeill speaking at The Urban Developer’s Future2034 Melbourne breakfast. Melbourne’s current growth rate of 3.3 per cent is expected to stabilise at 1.7 per cent to 2 per cent by 2034—still high by Western standards. By 2034, the population is projected to reach 6.3 million. To accommodate this growth, the city requires around 44,000 new homes a year—about 440,000 new homes over the decade. The Victorian Government has set an even more ambitious housing target of 80,000 homes a year, bringing opportunities and challenges for the development industry. The Government wants 70 per cent of new development in established areas and 30 per cent in growth areas, a shift from the current 62:38 split. The 70:30 policy is part of Plan Melbourne 2017-2050, which seeks to curb urban sprawl and make better use of existing infrastructure. According to a report from SGS Economics and Planning, urban consolidation will lead to more efficient use of existing infrastructure and reduced urban sprawl, which could also increase Melbourne’s GDP by 2 per cent. It acknowledged that the high costs of accommodating households in greenfield settings and increased demand for services in growth areas were major concerns. “With governments, developers and residents struggling to keep up with already existing demand for infrastructure and services in our outer suburbs, finding a more efficient and effective way to manage Melbourne’s growth, and its cost, remains a key challenge,” it said. Goldfields managing director Marco Gattino told the Melbourne event that the “70:30 ratio the Government’s trying to push—that’s a total fantasy”. ▲ Goldfields managing director Marco Gattino speaks during the Melbourne breakfast event. “We don’t have the capacity to output that many developments even though we have what I would say is the most competitive, deepest construction sector in the country,” Gattino said. “You need to look at the preferences of migrants. I think it’s the other way around—70 per cent want to live in greenfields, not in the city. “We will not meet those targets. There is no chance we will. “But ... it’s a very exciting time to be a developer. Just those huge numbers provide huge opportunities for us.” McNeill highlighted several urban renewal plans already on the go, including the Fishermans Bend project (40,000 homes over 30 years) and the Arden Precinct development, but says “we’re going to need to somehow find a lot more big strategic sites in which to develop” if the state wants to meet these targets. “We need to encourage development with big yields to ensure that that development is viable enough to meet the middle of the market and not be aimed directly at the upper end of the market,” he said. “So, I would encourage government to think big on that front and really generate and drive larger yields in those activity centres.” This is music to Salvo managing partner James Maitland’s ears. “It’s great to see high densities back in fashion,” Maitland told the Future2034 Melbourne breakfast. “I think when we talk about delivering the number of homes that they want, you’re not going to get that in single dwellings or in townhouses. You’ve got to do it in high density, which is what we love.” Other urban strategies McNeill wants to see include industrial areas near public transport stations reassessed for mixed-use development and investment in transport infrastructure to unlock opportunities in Melbourne’s west. ▲ Box Hill is an early example of Melbourne’s future urban landscape. And in 2034, he expects the current CBD, which includes the Hoddle Grid, Southbank and Docklands, to extend to surrounding suburbs such as Richmond, Collingwood, and South Yarra. McNeill says opportunities for developers also lie in the potential for high-density development around key transport nodes, such as the models seen in Sydney and Toronto. “If you look somewhere like Chatswood, you’ve got suburbia punctuated by a very significant cluster of high-density development around Chatswood Station,” he said. “And the same occurs in Toronto. If you run directly north of the CBD along one of the key metro routes, 15 to 20km out from the middle of Toronto around each station, you have clusters of 15, 20 and 25-level buildings. “Box Hill is your early model for what many, many other key centres in Melbourne might look like in future.” However, challenges persist. The urban growth boundary remains a significant constraint, with bipartisan support for its retention. McNeill said changing the boundary would require an act of parliament, “which is politically difficult”. “It’s government policy that there will be no change to the urban growth boundary,” he says, but doesn’t rule out future adjustments, particularly if housing affordability becomes a pressing issue. McNeill says any future changes might resemble the “logical inclusions” review of the past, rather than a major expansion. Other challenges include the current lack of viability in the apartment market and the need for substantial infrastructure investment. McNeill believes these issues will resolve over time, presenting opportunities for developers who plan strategically. Another area of concern is Melbourne’s slower growth rate compared to other capitals. According to CoreLogic data from September 2024, Melbourne’s median home value has risen by 19.8 per cent in the past five years, significantly lower than cities such as Perth and Brisbane. Slower growth in housing values could potentially hinder Melbourne’s competitiveness in the property market and affect its economic development. “It’s sort of the elephant in the room is that Melbourne is just too cheap,” Maitland said. “That’s causing a lot of the issues for us. But from a government point of view, wanting more supply and cheaper prices, it makes it tough to get things to work on our side. “It’s going to be challenging because things are going to get more expensive. So, we’re going to be butting our heads against the governments that are trying to make things cheaper and more affordable, and how we navigate through that is going to be interesting.” McNeill remains optimistic about Melbourne’s future and the role developers can play in shaping it. He emphasises the need for bold thinking and collaboration between government and the development industry. “We’ve got to have the planning frameworks in place that accept that the development industry will need genuine yielding in those sorts of areas ... to ensure that they can actually meet the middle of the market.” And from a developer perspective, Gattino, too, is optimistic. “I think we’re going to have the best four to five years that we’ve had in in decades. We’ve done our penance, so to speak. And I think that of all the markets nationally, I think Melbourne offers the greatest opportunity.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

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Leon Della Bosca
Mon 16 Sep 24

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Opportunities Rise with Melbourne Housing Challenges

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