Why has Melbourne grown faster than Sydney?

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Sydney is well known as Australia’s global city and main finance centre, yet despite hosting theOlympic Games, Sydney’s growth since 2000 has been much slower than Melbourne’s. Melbourne has performed better in a number of key areas whilst Sydney since 2000 has remained steady. Both employment and population have grown faster in Melbourne. Sydney’s population grew by 10.8% between 2001 and 2011, but Melbourne’s grew by 17.6%. Sydney lost 249,000 persons by out-migration to other locations in Australia between 2001 and 2011 whereas Melbourne lost 41,000. Melbourne’s share of international air passengers, expressed as a proportion of Sydney’s, increased from 36.9% in 2000 to 55.1% in 2012. The average time international visitors spent in Victoria, expressed as a ratio of time spent in NSW, increased from 31.5 in 2000 to 55 in 2012.
Employment grew faster over 2001-2011 in Melbourne than Sydney in some industries like pharmaceutical manufacturing (19.4% vs -6.1%), health insurance (82.7% vs 4.0%) and superannuation funds management (56.1% vs 7.1%). Sydney still remains dominant in aviation and international tourism and so it’s not surprising other cities are increasing share at its expense. Melbourne likewise continues to be dominant in containers and international students but also lost share.

Sydney increased employment in some higher order services at the expense of Melbourne, notably in newspaper publishing, TV broadcasting and advertising services. However Melbourne performed better in telecommunications, market research services, management consulting, computer systems design and recruitment services. Melbourne lost more ground in manufacturing (and this will be reinforced by the headline losses this year). Yet the great bulk of jobs in any city are much the same because they service the local population; Melbourne’s key advantage over the period was its higher net population growth.

Housing costs explain the relative performance of the two cities, pointing out that an outer suburban (greenfield) house in Melbourne costs two thirds of one in Sydney. Housing construction didn’t keep pace with population growth in either city but Melbourne did much better: Victoria experienced a supply deficiency of 17,600 dwellings in relation to underlying demand between June 2001 and June 2010. But NSW’s deficiency over the same period was 73,700, indicating that housing construction in Sydney fell significantly short of population growth.

A 2010 study of dwelling costs by the National Housing Supply Council found it cost $561,000 to deliver a typical three bedroom house and land package on Sydney’s fringe. That’s considerably more than the $375,000 it cost in Melbourne. The difference is mainly down to Sydney’s constrained geography and high developer charges. The cost of raw land in Sydney at the time was $152,000 per lot on average, compared to $50,000 in Melbourne. Further, developer contributions were almost $60,000 per lot lower in Melbourne.

Infill housing is more expensive in Sydney too. The Council’s study found a typical two bedroom apartment within 2-10 km of the CBD cost $554,000. In Melbourne, a comparable apartment cost $490,000. There is speculation that Sydney’s complex planning rules, “relatively worse transport system”, and poorer investment attraction programs might also have contributed to its lesser performance over the period.
More generally, it seems that Melbourne’s underlying geography is now starting to be an advantage in competition with Sydney. It’s less expensive and more easily developed urban fringe reduces land costs for housing, logistics and other uses. Melbourne airport’s location does not necessitate a curfew, unlike Sydney’s. The European quality of the built form of Melbourne’s central areas, such as its laneways and trams, has also captured the zeitgeist of Generation Y and helped make it Australia’s preferred destination for aspirational young professionals. These are all significant features that will keep Melbourne very competitive with Sydney.
Although Sydney is clearly Australia’s global city, Melbourne also has formidable strengths. It regularly ranks in lists of top financial centres like Richard Florida’s Global Economic Power Index (although behind Sydney). It benefits enormously in terms of legacy institutions from having once been the country’s national capital (1901-1927) and at one time its major commercial centre.
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