Real Estate Research

Could Melbourne's house price boom derail its global city status?

Melbourne is the world’s “most liveable” city. If you can afford the property prices, that is.

12/07/2017

Ryan Bennett

Ryan Bennett

Securities Analyst, Real Estate

As we found on our recent visit, Melbourne boasts an enviable wealth of cultural offerings and quality higher education establishments. Its employment pool is diverse, driven by finance, real estate, healthcare and education.

Little surprise, then, that in 2016 Melbourne was named the world’s most liveable city for the sixth year in a row by the Economist Intelligence Unit.

The attractiveness of a city is a key part of how we grade it in our own Schroders Global Cities investment index. It is one of many measures. We also examine the prospects for economic growth and the quality of a city’s universities, for example.

The allure of Melbourne, which is ranked eight in our index, has resulted in one million people joining the city’s population in the past 12 years. To put that in perspective, Sydney’s population has grown by 820,000 over the same period.

In response, 500,000 residential housing units have been built in Melbourne.  But it hasn’t been enough. 

Over the last five years, home values have increased by over 50%.  As a result, housing values in the city now account for roughly nine times that of Melbourne’s median income. A multiple of three times is a normal level of affordability. 

From an investment perspective, this provides an opportunity for developers such as Mirvac to grow its earnings over the next several years through the continued development of new apartments and homes.

Our verdict

Melbourne earns a position in our top 10 Global Cities due to its diverse economy and strong university system. However, home affordability is clearly an issue that needs to be addressed.

Hopefully, developers can work with local municipalities in order to incentivise new construction in order to maintain its status.

Schroders Global Cities index ranking: 8th

Strengths

  • Diversified economy
  • Strong university system
  • Good public infrastructure

Weaknesses

  • Low barriers to new supply
  • High cost of housing
  • Risk of a slowdown in immigration driven by political reform