Melbourne needs lots of new homes—quickly

Our lack of density makes us an international outlier. If the inner 15km of Melbourne were as dense as Los Angeles—not renowned as a particularly dense city—we would have an extra 431,000 well-located homes.

It’s no secret why we’ve got some of the most expensive housing in the world. It’s because more density is simply not allowed—most of inner and middle Melbourne has been zoned for low-density housing.

The good news is that the Allan government is tackling the problem—although not aggressively enough.

The government’s new Townhouse Code makes building townhouses easier. The Activity Centre program will allow new apartments around 60 transport hubs. And further announced changes should streamline planning approvals.

Grattan Institute calculates that these reforms could allow for an extra 1.6 million homes. And around one-third of those homes can be profitably built today, despite higher construction costs.

Similar reforms in Auckland, which up-zoned for extra housing equivalent to 100 per cent of existing homes in the city, led to a building boom that added 4 per cent to the city’s housing stock in just six years and reduced rents by 28 per cent.

But this doesn’t mean Melbourne is now free of planning and housing challenges.

Few mid-rise apartments in the activity centres are commercially feasible to build today, because the big jump in construction costs since COVID has made them unviable.

And new apartments in some more distant activity centres, such as Broadmeadows and Epping, are in low demand.

The challenge now is to allow even more of the homes people want, where they want them.

Increasing the number of activity centres and the height limits in them would help.

Good candidates would be Fairfield and Ivanhoe in the north, and Newport in the west. High demand suburbs should say a broad ‘yes’ to new housing by default.

Melbourne is a great city, but our planning system needs to let the city evolve so it can stay great.

The government should be commended on its pro-housing reforms, but there is still more to do—and much more to build.