Capitals will need millions of homes for 5 million new residents

Sydney and Melbourne will need to build at least another 1.3 million homes to accommodate an extra 3 million residents over the next 18 years, with warnings many people will live up to 80 kilometres from the central business district.

Forecasts from demographic and residential development company Informed Decisions, to be released on Friday, show the current pressures on the nation’s housing and rental markets will only grow, with Australia’s population on track to swell by 7.4 million by 2041.

Two-thirds of those extra people, or almost 5 million, are expected to live in Sydney, Melbourne, Brisbane and Perth as the COVID-era trend of capital city residents moving to rural and regional centres comes to an end.

The Albanese government is under pressure to deal with soaring population growth as the country added a record 563,200 people in the 12 months to the end of March. Many are international students who have come back to Australia to complete university courses.

The surge in immigration has added to the tightest rental market on record, with vacancy levels in all capitals around 1 per cent while rents are growing at 10 per cent a year. House prices have also grown by almost 7 per cent since January despite the sharp lift in official interest rates.

Informed Decisions, wholly owned by property settlement platform company PEXA, said the major cities would need to absorb more people due to their education and work opportunities, which also attracted couples at their “family-forming stage”.

Informed Decisions chief executive Lailani Burra said regional population growth was returning to the pre-pandemic norm with migrants and young families establishing themselves in a handful of major cities.

“What we found was that the regional growth we’ve seen over the past few years was caused by an interruption to regular programming,” she said.

That regular programming means Melbourne, now home to 5 million residents, is expected to have a population of 6.6 million by 2041. Those extra 1.6 million Melburnians will need 723,000 dwellings.

Sydney’s population, now at almost 5.3 million, is expected to reach 6.4 million in 2041, with the city needing 582,000 dwellings.

The new homes will not be spread out evenly.

In Sydney, the company is forecasting 175,000 people will settle in 66,000 new dwellings in an arc between 60kms and 80kms from the city’s central business district.

Another 172,000, requiring 71,000 new homes, will settle in an area between 20kms and 60kms from Sydney’s centre.

Some of the biggest demand will come in the city’s west, including Austral (74,000 residents) and Leppington (46,000), while in the north-west Marsden Park is forecast to add 59,000 people.

In Melbourne, about 190,000 people will need 94,000 homes in an area within 10kms of the city centre. Another 175,000 people in 66,000 dwellings will move to the city’s outer fringes, between 30kms and 40kms from the CBD.

Outer-suburban areas such as Truganina, Mickleham and Cranbourne South are all expected to add at least 51,000 residents.

The situation is not confined to the nation’s two largest cities.

Western Australia is expected to add 900,000 residents by 2041, of which 800,000 are forecast to move into Perth where they will need 334,000 dwellings.

While Queensland is tipped to add 1.6 million residents, 1 million of them are predicted to head for Brisbane, which will require an extra 381,000 dwellings.

A mix of housing will be needed in Queensland due to the changing demographics of the state. The Sunshine Coast’s population of retirees is expected to triple due to migration from other parts of the country and the ageing of existing residents.

The forecasts follow the release by the Housing Industry Association of its latest report on new home sales, which showed a 6.9 per cent jump in September due to a one-off increase in NSW linked to the impending increase in building costs across the state.

Nationally, home sales through the past quarter are 18 per cent down on the same period last year. Sales are down by 36.6 per cent in Queensland, 25.3 per cent in Victoria and 22.2 per cent in NSW.

Housing Industry Association chief executive for industry and policy, Simon Croft, said major policy changes were required at the state and federal level to increase the number of homes.

“Meeting the appropriate levels of new housing for Australia’s current and future population will require changes to the other policies that inflate construction costs,” he said.