You could put your location in the domain name, which would help a lot. By definition you'd be including the names of local suburbs, streets, local businesses, leaders, celebrities and so on. As long as you remembered to put these keywords in the titles of your posts you'd be drawing in some very targeted traffic pretty soon.
There are quite a few of these local blogs now. But it seems to still be an unsaturated niche, particularly in Australia. And if you were in a small city, or a big town, there's a good chance you'd be the only one doing such a thing. Even if you weren't, there'd be little serious competition. If you persevered it would be pretty easy to become the local blog. You'd be sure to garner some mainstream media attention (particularly if you sought it!) and could even achieve a measure of minor celebrity.
Here's a good site for those interested in such a project.