Urban population growth and its effect on the housing market

The release of the ABS historical population data has detailed urban population growth of the last 110 years. As of 1911, those living in urban area comprised 57.5 per cent of the population. As of 2021 this figure climbed to 90.3 per cent.

Since 1954, the majority of Australia's population has resided in Capital cities, and urbanisation increased at a rate three times higher in the first half of the 20th century than the second.

In 2018, the urban population of Melbourne overtook Sydney's. However, Sydney continues to have the largest greater capital city statistical area population.

Urbanisation impacts

What does this immense rise in urban living mean for the Australian housing market? According to Mathew Tiller, head of research and business intelligence at LJ Hooker Group, there are many consequences of this trend.

“Urbanisation has significantly influenced Australia’s housing markets, leading to a broader range of property types, high demand, and more expensive dwellings. Stronger population growth within cities has increased competition for available housing, pushing property prices higher and encouraging the development of smaller land lots, on city fringes, and high-density living, particularly in CBDs and near major transport hubs,” said Tiller.

“Additionally, urban areas have seen more investment in infrastructure and amenities, further boosting property values. This trend is likely to continue due to ongoing economic opportunities, lifestyle preferences, and access to services. However, challenges like housing affordability and congestion will require a whole-of-government approach to find innovative solutions.”

Dr Diaswati Mardiasmo, chief economist at PRD Real Estate noted that the effects of urbanisation are already pronounced, leading to a trend known as ‘gentle density’.

“We are already seeing some effects of this, especially in government housing plans. The South East Queensland Regional Plan for example, have already commenced on a path for gentle density throughout local councils across south east Queensland, with gentle density being lower number of story apartments (so anywhere between three to four storeys). With the high amount of people and lower amount of land available in urban areas, I see us moving more towards that gentle density frame of mind, to be able to accommodate the higher number of people and minimum resources (i.e land).”

“Gentle density allows for a more balanced combination between stand-alone houses, townhouses, and apartments; so that we don’t see traditionally house only type suburbs being disturbed too much in their typology and characteristics – we don’t suddenly see a big apartment tower in the middle of a mostly houses/family type of suburbs,” said Mardiasmo.

“From a price perspective we will continue to see growth in urban areas, even if we do have gentle density / additional apartments – simply because of the demand. And realistically, in a suburb, you might be able to put one or two gentle density complexes. So, there is some help from the concept of gentle density, in terms of additional stock, however it won’t stop price growth. It may moderate it when compared to no gentle density, which does help with affordability.”

CoreLogic research director Tim Lawless recognised the same trends affecting Sydney, with a substantial increase in multi-unit dwellings being seen across the city.

“We have seen a clear trend towards densification, especially in the largest cities like Sydney where multi-unit dwellings have risen from comprising 28 per cent of housing stock twenty years ago to 40 per cent in 2024. Some cities haven’t densified anywhere near as quickly, for example, in Perth, the multi-unit dwellings comprise just 16 per cent of housing stock in 2024,” said Lawless.

“Similarly, as populations have expanded, the urban form of cities has also growth, with new greenfield housing estates appearing further away from the CBD. Alongside population growth and a change in the composition and location of housing, new infrastructure has been developed to provide connectivity and amenity.”

Lawless continued: “As housing stock increases its logical to expect the scarcity of value of strategically located land has also increased in value. Areas close to the city and coastline have accrued a significant value premium. Also, areas that have benefitted from capital investment in the form of new transport infrastructure have often seen a boost to values on the back of improved liveability.”

Will these trends persist?

Will urbanisation continue to place strain on the housing market? According to Mardiasmo, there are a variety of variables at play

1. Wrap around infrastructure development growth (to ensure liveability if people were to move out of urban areas)
2. Vibrant commercial parks and sector (to ensure people have jobs closer to home)
3. Residential construction costs and challenges (so that it is more feasible to build housing stock in mass amount)

“At the moment point 3 is quite prohibitive, which is why more people are flocking to urban areas. So, in the short term, the way things are going right now with point 3, I do expect for these trends to continue,” said Mardiasmo.

“However, in the longer term, with points 1 and 2 being addressed (as infrastructure build can take some time) we may see this trend start to reverse a little. We saw it when there were large masterplan communities being built and COVID-19 forced people to work from home or businesses to find CBD fringe / outer suburbs offices; so, the possibility is there. That said, if we look at other countries, most places are going towards gentle density / apartment living, due to the same issues – high population growth and less land resources.”

Lawless agrees that change is needed to address density concerns in capital cities: “Our cities will continue to evolve as the population increases. Logically we will see greater densities around working nodes such as CBDs and along key transport spines such as railways.”

“New satellite cities and activity centres will also emerge, such as what we have seen in areas like Parramatta and Chatswood. One of the greatest challenges with population growth is ensuring an appropriate level of investment in infrastructure keeps pace. There are plenty of examples where this hasn’t been the case, leading to significant congestion on roads or public transport or stuffy access to essential amenities such as health care and schooling.”

An ageing population

Further compounding the effects of urbanisation is Australia’s ageing population. The Australian Institute if Health and Welfare has said that one in six Aussie’s are aged over 65. Tiller believes this will affect the housing market.

“Australia's ageing population is reshaping the housing market. Data from the ABS shows the median age has risen from 22.5 years in 1901 to 38.4 years in 2021, with the proportion of people aged 65+ increasing from 4.2 per cent in 1901 to 17.7 per cent in 2021.”

“This trend is expected to continue as fertility rates remain low, significantly influencing housing markets across the country. There has been, and will continue to be, increased demand for new housing tailored to older Australians—smaller, more manageable, walkable properties close to services and amenities. Retirement and aged care homes will also become more prevalent as older Australians downsize from large freestanding houses.”

[Related: InvestorKit reveals strongest capital city property markets]

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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