At the time of Australia's federation on 1 January 1901, Melbourne became the seat of government of the federation. The first federal parliament was convened on 9 May 1901 in the Royal Exhibition Building, subsequently moving to the Victorian Parliament House where it was located until 1927, when it was moved to Canberra. The Governor-General of Australia resided at Government House in Melbourne until 1930 and many major national institutions remained in Melbourne well into the twentieth century.
In the immediate years after World War II, Melbourne expanded rapidly, its growth boosted by Post war immigration to Australia, primarily from Southern Europe and the Mediterranean. While the "Paris End" of Collins Street began Melbourne's boutique shopping and open air cafe cultures, the city centre was seen by many as stale—the dreary domain of office workers—something expressed by John Brack in his famous painting Collins St., 5 pm (1955).
Height limits in the Melbourne CBD were lifted in 1958, after the construction of ICI House, transforming the city's skyline with the introduction of skyscrapers. Suburban expansion then intensified, serviced by new indoor malls beginning with Chadstone Shopping Centre. The post-war period also saw a major renewal of the CBD and St Kilda Road which significantly modernised the city. New fire regulations and redevelopment saw most of the taller pre-war CBD buildings either demolished or partially retained through a policy of facadism. Many of the larger suburban mansions from the boom era were also either demolished or subdivided.
To counter the trend towards low-density suburban residential growth, the government began a series of controversial public housing projects in the inner city by the Housing Commission of Victoria, which resulted in demolition of many neighbourhoods and a proliferation of high-rise towers. In later years, with the rapid rise of motor vehicle ownership, the investment in freeway and highway developments greatly accelerated the outward suburban sprawl and declining inner city population. The Bolte government sought to rapidly accelerate the modernisation of Melbourne. Major road projects including the remodelling of St Kilda Junction, the widening of Hoddle Street and then the extensive 1969 Melbourne Transportation Plan changed the face of the city into a car-dominated environment.
Australia's financial and mining booms between 1969 and 1970 resulted in establishment of the headquarters of many major companies (BHP Billiton and Rio Tinto, among others) in the city. Nauru's then booming economy resulted in several ambitious investments in Melbourne, such as Nauru House. Melbourne remained Australia's main business and financial centre until the late 1970s, when it began to lose this primacy to Sydney.
As the centre of Australia's "rust belt", Melbourne experienced an economic downturn between 1989 and 1992, following the collapse of several local financial institutions. In 1992 the newly elected Kennett government began a campaign to revive the economy with an aggressive development campaign of public works coupled with the promotion of the city as a tourist destination with a focus on major events and sports tourism. During this period the Australian Grand Prix moved to Melbourne from Adelaide. Major projects included the construction of a new facility for the Melbourne Museum, Federation Square, the Melbourne Exhibition and Convention Centre, Crown Casino and the CityLink tollway. Other strategies included the privatisation of some of Melbourne's services, including power and public transport, and a reduction in funding to public services such as health, education and public transport infrastructure.
The decade of the 1880s was one of extraordinary growth, when consumer confidence, easy access to credit, and steep increases in the price of land, led to an enormous amount of construction. This 'land boom' was followed by a severe economic crash in the early 1890s which lasted until the end of the century. During the boom, Melbourne had reputedly become the richest city in the world, and the largest after London in the British Empire.
The decade began with the Melbourne International Exhibition in 1880, held in the large purpose-built Exhibition Building. In 1880 a telephone exchange was established and in the same year the foundations of St Paul's, were laid; in 1881 electric light was installed in the Eastern Market, and in the following year a generating station capable of supplying 2,000 incandescent lamps was in operation. In 1885 the first line of the Melbourne cable tramway system was built, becoming one of the worlds most extensive systems by 1890.
During a visit in 1885 English journalist George Augustus Henry Sala coined the phrase "Marvellous Melbourne", which stuck long into the twentieth century and is still used today by Melburnians. Growing building activity culminated in a "land boom" which, in 1888, reached a peak of speculative development fuelled by consumer confidence and escalating land value. As a result of the boom, large commercial buildings, coffee palaces, terrace housing and palatial mansions proliferated in the city. The establishment of a hydraulic facility in 1887 allowed for the local manufacture of elevators, resulting in the first construction of high-rise buildings; most notably the APA Building, amongst the world's tallest commercial buildings upon completion in 1889. This period also saw the expansion of a major radial rail-based transport network.
In 1888, the Exhibition Building hosted a second event even larger than the first, the Melbourne Centennial Exhibition, spurring construction of numerous hotels including the 500 room Federal Hotel, The Palace Hotel in Bourke Street (both since demolished), and the doubling in size of the Grand (Windsor). A brash boosterism that had typified Melbourne during this time ended in the early 1890s with a severe depression of the city's economy, sending the local finance and property industries into a period of chaos during which 16 small "land banks" and building societies collapsed, and 133 limited companies went into liquidation. The Melbourne financial crisis was a contributing factor in the Australian economic depression of the 1890s and the Australian banking crisis of 1893. The effects of the depression on the city were profound, with virtually no new construction until the late 1890s.
Since the mid-1990s, Melbourne has maintained significant population and employment growth. There has been substantial international investment in the city's industries and property market. Major inner-city urban renewal has occurred in areas such as Southbank, Port Melbourne, Melbourne Docklands and more recently, South Wharf. According to the Australian Bureau of Statistics, Melbourne sustained the highest population increase and economic growth rate of any Australian capital city in the three years ended June 2004. These factors have led to population growth and further suburban expansion through the 2000s.
From 2006, the growth of the city extended into "green wedges" and beyond the city's urban growth boundary. Predictions of the city's population reaching 5 million people pushed the state government to review the growth boundary in 2008 as part of its Melbourne @ Five Million strategy. In 2009, Melbourne was less affected by the Late-2000s financial crisis in comparison to other Australian cities. At this time, more new jobs were created in Melbourne than any other Australian city—almost as many as the next two fastest growing cities, Brisbane and Perth, combined, and Melbourne's property market remained highly priced, resulting in historically high property prices and widespread rent increases.