The regional advocacy organisation says the report, Regional Population Growth: Are We Ready? - a research project conducted with the University of South Australia and Southern Cross University - suggests Australian cities like Sydney are so congested they have reached peak productivity levels, with "economic stagnation" likely in coming decades if the concentration of population growth continues.

The research, which compared wages, employment, congestion and house prices across metropolitan, outer suburban and regional areas, found there would be "rapidly diminishing returns for agglomeration benefits" as cities grow because "the costs of being big, congestion and high cost of living undermine the benefits of having additional people".

Conversely, the study found that while wages were likely to be less in regional areas, job prospects were considered on par and housing was half, or in some areas, a third of the price.

Researchers modeled scenarios of population growth to 2056 under a "business as usual" projection, where the population remains concentrated in cities, or a "dispersed" projection, which would see millions settle in regional centres.

The study found there would be huge benefits for regional areas under the later scenario, but it would require government strategies to encourage people out of cities.

It listed three "policy levers" available to shape settlement patterns: planning policies that govern land use, infrastructure investment and migration.

Under the status quo, or "business as usual" scenario, Greater Newcastle's population would top more than 846,000 by 2056, up from the 576,800 in the area in 2016.

But if a dispersed growth plan was adopted, the population could balloon to more than 1.8 million under a high-growth scenario or more than 1.2 million under a moderate-growth scenario.

Regional Australia Institute co-chief executive Dr Kim Houghton said Greater Newcastle was "a key part of what we're thinking of with these dispersed scenarios".

"We've got a couple of scenarios in the report," he said.

"One which pushes the growth of Sydney away from the outer suburbs and more towards Wollongong and Newcastle as the neighbouring big centres, but the more interesting and more controversial scenario is what if we push those growth numbers further out beyond Newcastle to Port Macquarie, Wagga, Tamworth.

"In both of those scenarios, Newcastle plays a pretty big role."

Under the business as usual scenario, inner Sydney's population would grow to 1.86 million in 2056 from 1.09 million in 2016. However, outer Sydney would more than double to 7.39 million in 2056 from 3.59 million in 2016.

Under the dispersed scenario, outer Sydney's population in 2056 would only grow to 4.56 million, while inner Sydney's would increase to 1.38 million.

Regional centres like Tamworth, Wagga Wagga and Port Macquarie would pick up Sydney's reduced numbers, massively growing their existing populations.

Dr Houghton said any change to population distribution would require "significant redirection of where we think our infrastructure is going to go".

"Business as usual growth is for those outer suburbs of Sydney and that's where the infrastructure planning is heading," he said.

"But we've done this to say, 'well hang on, there's another alternative pathway here' and we need to redirect some of that whole strategic thinking to some of these [regional] places.

"Unless we start thinking about it, we'll end up that business as usual scenario where we've got another four million people in our city."

Hunter Business Chamber CEO Bob Hawes said the region was "very well positioned" to accommodate high growth if a regional population plan was adopted and infrastructure funding redirected.

"There is a list of imminent and potential infrastructure projects that will elevate the capacity of the region to attract investment and create new jobs, including the John Hunter Hospital Precinct redevelopment, Muswellbrook and Singleton bypasses, the M1 extension to Raymond Terrace, airport expansion and the proposed sports, entertainment and residential precinct at Broadmeadow," he said.

"There is also demonstrable capacity to expand the provision of housing, both through apartment-style development in town centres and new sub-divisions in outer areas, and we have very healthy stocks of employment land.

"Like all areas, we have to be mindful of water security, but the Hunter is better-placed than many."

READ MORE: 'Maximum Opportunity 2.0' study reveals future for Newcastle suburbs

Dr Houghton said further increases in workforce density in Sydney CBD would not bring productivity gains and there was "much more to be gained" in the regions.

"The strong narrative, still, is that the regions are all in decline," he said.

"We know there is about 10,000 jobs in regional NSW at the moment and a lot of them are skilled trades, skilled professions.

"They're quite good jobs, long-term jobs and we know that employers are having trouble filling those. There's potential to move now."

One employer highlighting benefits of living in a regional area to attract employees is Newcastle Permanent, which recently ran a recruitment drive promoting the region.

"The campaign insight was that people don't just get a job when they move to Newcastle for work - they also get a great lifestyle," CEO Bernadette Inglis said.

"While the lifestyle in a regional centre is a big factor in the decision to move, we also find that people want to maintain their professional goals, and appreciate that cities like Newcastle can still support opportunities to achieve those.

"We like to think that Newcastle Permanent has contributed to, and continues to benefit from, the increase in professionals coming from major capitals. I'm proud to be one of our most recent capital city converts, having relocated here from Sydney - and I'm delighted with the move."