Melbourne capital city economics

A year in review. Today we are analysing performance of Australian capital cities. We believe that solid economic performance of capital cities is a big driver for growth of property prices. If Australian capital cities manage to reposition themselves towards knowledge-based economies that should be able to generate sustained economic performance. And where economies perform well people flock. Attracting people results in further demand for housing which drives property prices.

Melbourne economy and Melbourne property prices

We are proud of Melbourne and how far the city has come lately. Melbourne is a success story, a city that managed to transform its economy from that of manufacturing economy to a diversified, knowledge based and finance economy.  Successful state government planning (regardless of political affiliation) and very active, skilled and entrepreneurial population has managed over the last decade to completely shift economy of the state and its capital.

Melbourne city economy has been re-positioned.
Melbourne is a transformed city

Melbourne property market is partly the reason for this success story. Unlike Sydney, where businesses struggle with high rents and unsustainable warehousing costs, Melbourne has planned ahead. Significant redevelopments of manufacturing and abandoned property over the decade provided the space and room for local businesses to grow. Significant number of new employers have moved into Southbank and revitalised Docklands.

We are also positive on Melbourne infrastructure spending. Infrastructure often acts as arteries of the economy and Melbourne is doing it right. There is significant push to invest in roads and public transport that supports areas outside the middle ring. This further supports Melbourne property prices as people can get to work in fairly short time.

However, we believe that Melbourne needs to significantly step up its investment in infrastructure. Significant growth of employment in the CBD has the potential to absorb a large portion of the new infrastructure spend. Should that happen Melbourne risks running into same traffic and productivity losses as Sydney.

Melbourne property market. Now that is a difficult beast. We are still very cautious on Melbourne high rise and dense living property. We don’t believe, Melbourne apartments to offer significant capital gains anytime soon. While we believe that strong economy and population growth is likely to absorb Melbourne oversupply of units, we are staying well clear of any high-density property for the moment. Melbourne houses are another story, we think in short term, there is still some pain for Melbourne. In the medium term we are seeing below average growth, and we are positive on Melbourne property market in the long term.

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