It's good news for Sydneysiders who don't want to travel to work with any more people than they do already - but bad news for property developers.
In mid-2009 there were 500,000 more people living in Sydney than there were in Melbourne, the Urban Taskforce says.
Eight years earlier, however, there were 600,000 more people in the harbourside city than in Melbourne.
The 20 per cent decline is making property developers nervous.
"Melbourne with its long-term population growth of 1.3 per cent a year, will displace Sydney as Australia's largest city in 2037," Urban Taskforce spokesman Aaron Gadiel said in a statement on Tuesday.
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Mr Gadiel attributes the gradual decline in Sydney's population growth to a lack of new houses being constructed.
The "planning system and development levies are ruining NSW", he says.
"If we see a business-as-usual approach by government, Sydney will fail to meet the Metropolitan Strategy housing targets.
"New housing construction will limp along at the 2000s average.
"This means Sydney's annual rate of population growth will fall from a projected 1.1 per cent to just 0.9 per cent a year."
Mr Gadiel is advocating a 12-point plan for the the reform of NSW's planning system.
It includes a recommendation for NSW to introduce stamp duty concessions for off-the-plan home purchases.
The Urban Taskforce is a property development industry group which represents Australia's most prominent property developers and equity financiers.
