Economic forecaster BIS Shrapnel predicted that Melbourne could overtake Sydney to become the nation's largest city by 2037 as population in the harbor-city is expected to fall and the number of constructions are also showing signs of decline.

Urban Taskforce chief executive officer Aaron Gadiel, who commissioned the report, said that the annual population growth of Sydney is forecasted to drop to 0.9 percent from the earlier projection at 1.1 percent if the New South Wales government does not restructure its planning system to allow construction of more homes in the city.

On the other hand, Melbourne's population is seen to rise to an estimated 1.3 percent each year. While the city's population is seen to grow to 5.7 million by 2036.

Gadiel said in a statement, "Over the past decade, Melbourne has proved far more capable of accommodating extra people than Sydney. If the recently revised state government Metropolitan Strategy housing targets for Sydney are delivered, then Sydney's population in 2036 would remain greater than that in Melbourne. However, that's simply not going to happen without significant reform of the planning system."

The cultural and sporting rivalry between Melbourne and Sydney dates back to the colonial times. Melbourne is host to at least five of Australia's 10 biggest corporations, including BHP Billiton Ltd. and Telstra Corp.

Sydney for its part is home to four of the 10 largest companies in Australia. The harbor city also boasts of the Opera House, Harbour Bridge and Bondi Beach.

Home prices in Melbourne jumped 18.5 percent in the fourth quarter of 2009 compared with the same period in 2008. But Sydney posted a 12.1 percent rise in home prices from October to December 2009.

Gadiel said if Sydney would not reform its housing policies, construction of new homes in the city would reach only 17,000 per year, well below the minimum 25,000 a year needed to keep the city 's "head above water."