Is the urban fringe getting bigger?

The proportion of new dwelling commencements planned for the outer suburban growth areas increased sharply between the release of Melbourne 2030 in 2003 and the release of the revised strategy, Melbourne @ 5 Million, in October 2008.

Melbourne 2030 envisaged 31% of dwelling starts would be located in the growth areas over the period to 2030 (page 30). It expected virtually all the rest would be located within the established suburbs, either clustered around major activity centres or dispersed across the suburbs.

Residential forecasts by region, Melbourne 2030 (click to enlarge)

The subsequent update, Melbourne @ 5 Million, made a dramatic change. It increased the proportion of dwellings expected to be constructed in outer suburban growth areas to 47% – half as much again as envisaged by Melbourne 2030 (page 3).

This change was consistent with the reality of what was happening in the market.

The authors of Melbourne 2030 probably felt at the time that 31% was a reasonable “stretch” target. Over the four years from 96/97 to 00/01, only 38% of new commencements were in the growth areas.

However four years is a short period to use as a basis for policy. As it happened this was a relatively quiet period compared to the boom that followed.

In the new decade, increases in assistance to first home buyers from the Federal and State governments greatly increased demand for lower priced housing and hence for properties on the fringe. Close to three quarters of recipients of the First Home Owners Grant, which was introduced on July 1 2000, bought properties in the outer suburbs in the early years of the decade. The result was that more than half of all commencements were in the growth areas and currently the proportion is still approximately 50%.

It would be easy to condemn Melbourne 2030’s original target as lacking sufficient “science”. Be that as it may, we need to be mindful that it would have been extremely difficult to predict the scale and duration of the boom much less how Governments would respond. Also, it is a 30 year target – it might yet prove to be close to the mark if, for example, there were to be a prolonged slump sometime over the next 20 years.

Dr Steve Keen’s much publicised 200 km walk from Canberra to Mt Kosciuszko after losing a bet that house prices would fall by 40% as a consequence of the GFC, shows how difficult it is to predict where prices are heading. Lest anyone doubt Dr Keen’s forecasting abilities, note that last week he was voted by an international panel as the economist who first and most cogently warned the world of the coming Global Financial Crisis.

It would be easier to pillory Melbourne @ 5 Million for its lack of conviction. Like Melbourne 2030, it doesn’t have any sort of strategy for actually increasing the share of new dwelling construction within established areas. But given that it takes the status quo as its target, I suppose it doesn’t need to.

As I’ve stated before, my view is that many fringe settlers would prefer a more central location if the market could deliver a better space/price compromise in established suburbs. The idea that most Melburnians are committed to a detached house on a spacious suburban block is past its use-by date – as a consequence of generational change and other factors, the status and functionality that once attached to space is increasingly shifting to location.

A key reason the market isn’t delivering affordable options in established suburbs is lack of supply. There needs to be a coherent strategy that moves beyond mere aspirations and shows how the key obstacles to supply in established suburbs will be overcome.

4 Comments on “Is the urban fringe getting bigger?”

  1. Russ says:

    Alan, why does building more dwellings over-all lower the percentage in built-up areas? Glancing quickly at the ABS statistics, the number of dwellings built in established areas was above predictions, over those five years (around 80,000 vs 70,000), but clearly that is still not enough. You are essentially arguing that established areas are less responsive to demand (which I suspect is true), but why is this the case?

    Melbourne 2030 is popularly thought to be encouraging dense developments, but a close reading of the rationale and the figures you posted, suggest it is equally focused on reducing dense development outside activity centres. The real weakness of Melb2030, to me, is the unfounded expectation that development would substantially increase inside activity centres without any incentives or structures to facilitate that process.

    • Alan Davies says:

      Russ, I don’t think the overall volume of commencements is the key factor affecting the share captured by the fringe. I think how many first home buyers are in the market is important because they tend to go to the fringe where detached housings cheaper (the median house and land package on the fringe is about 30% lower than the median house price for all Melbourne). Hence assistance to first home buyers seems to be an important factor driving the increased share of the growth areas.

      I expect another factor is the boom itself – 2nd and subsequent home buyers who might otherwise have bought in an established suburb might be choosing instead to build a new house on the fringe. I think the scale of saving on construction costs on the fringe vs redeveloping or renovating in an established suburb is often overlooked.

  2. […] to affordability rather than a permanent change in preferences towards smaller lots. Second, the share of commencements in the established suburbs is likely to increase as demand from first home buyers in the growth […]

  3. […] Brisbane, Perth and Melbourne are each aiming for around 50% of commencements within established areas by 2030 while Sydney and Adelaide are aiming for 60 to 70%. In Melbourne’s case the target of 53% of commencements within established suburbs is a major step-back from the more ambitious target of around 70% set down in 2002 in Melbourne 2030 (also see here). […]

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