Australia's cities are growing denser
Australia’s cities are growing denser, with impacts being seen across the housing market. IMAGE: Canva
  • Australia is seeing its highest population growth since the mid-20th century.
  • Melbourne and Adelaide have higher population densities than Sydney.
  • While population density can influence rental demand and housing values, its impact is complex.

Australia, known for its vast landscapes and urban hubs, is witnessing a surge in population growth reminiscent of the mid-20th century. As cities and towns become denser, understanding population density could be the key when it comes to deciphering housing trends.

According to recent data from CoreLogic, Australia boasts a population density of merely 3.5 people per square kilometre, ranking among the lowest globally. However, beneath this seemingly sparse statistic lies a tale of concentrated urbanisation. With half of the populace residing in the three largest cities and 75% of Australians occupying just 2.6% of the landmass, it’s evident that our urban centres are densifying at a rapid pace.

Urban density showdown: clash of the cities

Contrary to popular belief, Sydney doesn’t hold the crown for population density among Australian capital cities. According to CoreLogic‘s research, Melbourne takes the lead with 521 residents per square kilometre, closely followed by Adelaide. Sydney’s lower density, despite a significant portion of medium to high-density housing stock, can be attributed to its sprawling metropolitan region, encompassing areas like the Central Coast and the Blue Mountains.

The rise in population density across Australian capitals unfolds diverse narratives. Perth, experiencing a population boom, opts for densification through smaller block sizes rather than vertical expansion. Meanwhile, the Australian Capital Territory is seeing a rise in medium to high-density housing, signaling shifting housing preferences in the region.

Australian population density
Australian population density over the past 20 years. DATA: CoreLogic

Analysing CoreLogic’s granular data reveals intriguing shifts in population density over the past two decades. Inner-city precincts of Melbourne have risen to dominate the highest-density locations nationally, dethroning Sydney from its former supremacy. Melbourne’s CBD-North emerges as the epicentre of density, marking a significant transformation in the past few decades.

Australian suburbs with the highest population density
Australian SA2 (Statistical Area Level 2) suburbs with the highest population density in 2023, and their growth over 20 years. DATA: CoreLogic

The relationship between population density and housing trends is a complex interplay that holds significant implications for both future homeowners and property investors. While the impact of population density on rental growth is notable, it’s important to recognise that the correlation is rather weak, especially in the unit sector.

Data from CoreLogic suggests that areas with high population density have exhibited slightly stronger rental appreciation over the past 12 months compared to lower density areas. However, this trend is not consistent over the past decade, where higher density areas have shown slightly weaker growth. This nuanced relationship underscores the need for a deeper understanding of local market dynamics.

Interestingly, the relationship between population density and appreciation in house rents is even weaker than in the unit sector. Contrary to the trend observed in units, higher population densities have been associated with slightly weaker rental appreciation over the past 12 months, but slightly stronger growth over the past decade.

Delving deeper into the data, it becomes apparent that the relationship between unit values and population density is more significant. High-density unit markets generally exhibit lower levels of value growth over both short and long terms, reflecting periods of higher unit supply that may weigh on value appreciation. This trend is particularly evident when analysing the top 20 highest-density SA2 (Statistical Area Level 2) locations nationally.

Rental demand dynamics and supply influences

Despite softer value growth, high population density areas often boast strong rental demand, attributed to their higher number of amenities and proximity to major employment nodes and academic facilities. These areas are popular among a diverse range of cohorts, including students, inner-city professionals, service workers, and migrants.

However, the influx of new housing supply, especially in the high-rise sector, can contribute to softer value growth in high-density precincts. The delivery of hundreds, if not thousands, of new dwellings to the market in a relatively short space of time can impact market dynamics, influencing property values and rental trends.

In conclusion, while population density plays a role in shaping housing trends, its impact is nuanced and multifaceted. Understanding these dynamics is crucial for both prospective homeowners and property investors looking to navigate the ever-evolving real estate landscape.

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