Melbourne's "mining boom" is false economy

The Saturday Age published an article hailing the boom in Melbourne CBD apartment construction, with Lord Mayor, Robert Doyle, labelling it Melbourne’s own “mining boom”:

If you were to stack all of Melbourne’s newest buildings into a single skyscraper, you would create a tower that would look down on Mount Everest.

A boom in apartments, coupled with a still-healthy business sector, has brought a golden era for Victoria’s capital. For the first time in Melbourne’s history, housing has outstripped office space in the city centre.

Lord mayor Robert Doyle has dubbed it Melbourne’s own ”mining boom”…

Knight Frank research director Richard Jenkins said… ”insatiable” demand for city apartments, which showed no short-term signs of slowing, was being driven by overseas buyers and developers.

Cr Doyle said Melbourne’s boom era could last another decade, though ”not at this pace because this is pretty frenetic”…

Cr Doyle said it was essential the Metro One rail link was built by the state government…

”If they treat it just as a public transport option, they will miss the fact that it is not just about relieving congestion on the trains, it is about driving the economy of the central city.”

With the Melbourne’s manufacturing sector facing near-extinction, it is clear that the authorities have turned to selling citizenship, population growth, and foreign investment to drive growth. This is a false economy to my mind.

The latest annual state accounts by the Australian Bureau of Statistics (ABS) revealed that Victorian real Gross State Product (GSP) grew by only 1.6% in the year to June 2013, but fell by 0.2% when measured on a per capita basis (see next chart).

To make matters worse, despite overall Victorian GSP growing strongly, real GSP per capita has shown essentially no growth since June 2008 (see next chart).

This suggests that Victoria’s recent economic growth has indeed been driven by it’s nation-leading population growth (see next chart), with everyone’s share of that growth remaining largely unchanged. At least from a narrow economic perspective, Victorians have treaded water.

Much of this growth has been driven by increased construction to cater for the growing population, as well as rising foreign investment. Since the beginning of 2008, Melbourne has accounted for 37% of all capital city dwelling approvals, despite comprising only 28% of capital city households (see next chart). Obviously, when the construction stops, so does the growth that it creates, raising question marks about its sustainability.

Finally, Victoria’s trade deficit is immense, totaling nearly $39 billion in the year to December 2013, suggesting that Melbourne is sucking financial resources from the mining states in order to support its growing population (although a proper comparison would need to include interstate trade flows as well):

All of which raises the question: what is the end-game of Melbourne’s current economic model? If all the city is doing is growing for growth’s sake, pushing against infrastructure bottlenecks and failing to increase the living standards of the pre-existing population, where does it lead?

Many that live in Melbourne (myself included) would argue that it was a more liveable city a decade ago before the huge surge in the cost of living (think housing), roads and public transport became congested, and residents were forced to stump-up money to fund projects like the desalination plant, which arguably would not have been required had the population not grown so strongly.

High immigration and population growth is fine if it is for a purpose and fits an overall plan. Otherwise, it is merely uncoordinated ponzi-nomics. Melbourne seems to be following the latter path.

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Melbourne’s “mining boom” is false economy