The Melbourne housing market has not performed as strongly as some other capitals over the last year, but Melbourne’s property values are expected to play catch up over the next year or two.
We are seeing some early signs of a boost in confidence in both buyers and sellers and auction clearance rates have remained strong showing a significant depth of buyers in the market.
There is significant "inbuilt equity" in the undervalued Melbourne housing market at present, but not all Melbourne property is created equal - you need to know where to buy, what to buy and what suburb is ripe for investment.
One thing is becoming clear, if you wait around until interest rates eventually fall, all you’re going to be doing is playing tug-of-war with owner occupiers over the best properties.
With vacancy rates at historic lows, rentals are skyrocketing in Melbourne
Are you wondering what will happen to the Melbourne property market for the rest of 2024?
Melbourne has been Australia’s strongest performing housing market over the last four decades; however, over the last couple of years it has underperformed.
In fact, over the last 12 months dwelling prices have been basically stagnant, while many other capital cities enjoyed double digit capital growth.
Melbourne's property values have risen 10.6% since the onset of Covid in March 2020, but they are still -4.4% below their previous peak in March 2022.
Here is the latest data on the median property prices for Melbourne.
Property
Median price
Δ MoM
Δ QoQ
Δ Annual
All dwellings
$776,044
-0.2%
-1.2%
-1.0%
Capital city houses
$929,715
-0.2%
-1.5%
-1.1%
Capital city units
$610,652
-0.1%
-0.5%
-0.9%
Regional dwellings
$567,042
-0.2%
-1.4%
-1.0%
Source: CoreLogic, 2nd September 2024
The fact that the Melbourne housing market has not performed as strongly as some other capitals over the last year creates a window of opportunity for strategic property investors as Melbourne property values significant upside potential.
The average price of a Melbourne standalone house is the lowest it has been against its Sydney equivalent in around twenty years.
There is significant "inbuilt equity" in the undervalued Melbourne housing market at present, but not all Melbourne property is created equal - you need to know where to buy, what to buy and what suburb is ripe for investment.
One thing is becoming clear, if you wait around until interest rates fall, all you’re going to be doing is playing tug-of-war with owner occupiers over the best properties.
Buying properties below replacement cost in a market poised for recovery could yield substantial returns as the economic conditions improve and interest rates eventually fall.
Not only will strategic investors benefit from Melbourne’s long-term growth, but they will also get a “free kick” as the Melbourne property market catches up and reverts to its loan term mean growth rates.
Why the underperformance of the Melbourne market?
The underperformance of Melbourne's residential property market can be attributed to several factors, but the root cause boils down to economic challenges.
Victoria has experienced significant economic setbacks, particularly evident in the net reduction of 7,606 businesses during the financial year 2022-23, according to the Australian Bureau of Statistics.
One of the main reasons for the decline in business numbers in Victoria is the aftermath of the state's extensive lockdowns.
Another critical factor is the increased tax burden on businesses.
The Victorian government introduced a payroll tax surcharge in the 2021-22 State Budget as part of a “mental health and wellbeing levy”, targeting businesses with a payroll of $10 million or more.
This was followed by a further increase in payroll taxes in the 2022-23 State Budget as part of a 10-year COVID debt levy to repay the government’s substantial borrowing during the pandemic.
The economic struggles of Victoria have had a direct impact on the property market. Where the economy and jobs go, the property market follows.
At the same time…
Property investors are getting disillusioned with Melbourne
Property investors are increasingly abandoning the Melbourne market, driven away by stricter residential tenancy legislation and higher land taxes.
Recent reforms in tenancy laws have tipped the balance heavily in favour of tenants, making it more challenging for landlords to manage their properties effectively.
Additionally, the Victorian government's decision to hike land taxes has further compounded the woes of property investors.
Despite the current struggles, there is a significant opportunity in Melbourne's property market.
Property prices are considerably below replacement costs, creating a unique buying opportunity.
This situation is similar to where Brisbane and Perth were three years ago.
Back then, both cities were experiencing a period of underperformance, but those who bought during that time have since seen significant capital growth as the markets recovered.
At Metropole Melbourne we’re finding that strategic investors and homebuyers are back actively looking to upgrade, picking the eyes out of the market.
As you can see from the following chart, the number of properties listed for sale in Melbourne has not increased much since the market turned in early 2023.
On the other hand, the Melbourne auction market started the year strongly showing a significant depth of buyers in the market.
While the data is insightful, as we know, Melbourne’s market is not a one-size-fits-all property market and A-grade homes and investment-grade properties remain in strong demand and are likely to outperform, many holding their values well.
There is a clear flight to quality with A-grade homes and investment-grade properties still in short supply for the prevailing strong demand, but B-grade properties are taking longer to sell and informed buyers are avoiding C-grade properties.
This is creating a window of opportunity for homebuyers and property investors with a long-term perspective.
Sure, many discretionary buyers and sellers have left the market at present, but life will go on in the Victorian capital – people will get married, people will get divorced, families will have babies and many Melbournians are going to need to move house.
When they realise interest rate rises have stopped (and we're possibly there already) and that inflation is under control (and we're past the peak already) they will come back into the market with a vengeance.
Half of Melbourne's suburbs now $1million -Plus
Despite Melbourne relative under performance, 306 suburbs notched up by price growth in the last financial year and the Melbourne housing market millionaires list has continued to grow with 192 suburbs, 47% of the cities total, now boasting typical seven figure house prices.
Proptrack economist Anne Flaherty said they were good prospects for Melbourne prices to continue rising, saying...
The trend we're going to see over the next year is more more suburbs into the $1 million club.
Prices of stabilised after falling I think once we continue to see that population growth drive demand for homes, that will push property prices up. And the reality is Melbourne's population is forecast to any other capital."
Ms Flaherty said it was also possible the wider Melbourne median house price could be at $1 million as soon as three years from now.
Vacancy rates in Melbourne’s rental market are usually very tight, often sitting below the national baseline.
And thanks to soaring demand and a severe undersupply across Victoria, and the rest of the country, the national vacancy rate is exceptionally low today by historical standards.
SQM Research reports Melbourne’s vacancy rate at 1.5%.
By comparison, the vacancy rate which represents a balanced market, is around 2-2.5%.
As we know, Melbourne’s rental market, like most places across the country, has plunged into crisis.
Near-record-low vacancy rates, high rent prices, strong demand, and a rising population have combined to push the city’s market into a high-pressure cooker environment.
The data for vacancy rates and also weekly rent listings highlights that the distressing state of Melbourne’s rental market leads to a bleak outlook for renters.
Melbourne's decline in vacancy rates and number of rental listings can be attributed to two factors:
One major factor is the city's strong economy and job market. Melbourne is home to a number of major industries, including finance, technology, and healthcare, which are driving the demand for housing.
Another factor is the city's growing population. Melbourne's population has been growing steadily in recent years, with more people moving to the city to take advantage of its job opportunities and quality of life.
This increased demand for housing has led to competition among renters, driving down vacancy rates.
Overall, the decline in vacancy rates in Melbourne is a sign of the city's strong economy and growing population.
While it may be more difficult for renters to find a property, the city remains an attractive place to live and work.
Key trends for Melbourne’s housing market 2024
The Melbourne property market has been one of the strongest and most consistent performers over the last four decades.
After booming through 2020 and 2021 with prices rising by 15.8%, Melbourne housing values fell -7.9% from their peak in March 2022 through to the recent trough in January 2023.
While the Melbourne housing market turned the corner in early 2023, property price growth has been slower than in most other capital cities.
Any way that you look at it, Melbourne has now clearly passed the bottom of the downturn, and while Melbourne has not seen as sharp a recovery in prices this year as other capitals have, it also did not see as large a decline in 2022.
And there are firm indications that Melbourne property values and rents will slowly keep rising throughout the rest of 2024.
The level of new dwellings completed in Victoria in 2024 is likely to be the lowest level in 10 years with the current level of approved dwellings in Victoria 15% lower than the 10-year average;
Having said that, Melbourne’s housing markets were fragmented in 2023 with more than 50 Victorian suburbs seeing house prices exceed the average national house price growth for the year.
Across sub–regions, Melbourne's Inner and Outer East are outperforming marginally while the North West and West are seeing prices stabilise rather than rise.
Conditions are notably softer outside the capital, with property prices in most regional centres in Victoria falling or at best only stabilising.
And it’s worth remembering that even though Melbourne’s property market underperformed in the last year or two, it has been one of the strongest and most consistent performers over the last four decades.
Supply will not keep up with demand from all the new immigrants coming to Melbourne, and boosted by below-average vacancy rates, Melbourne residential rental rates grew by more than 9% for both houses and units over the past 12 months.
Melbourne's population growth vs. housing market
Note: Projected population growth will continue to support Melbourne’s recovery, but will also pose problems.
Currently, there are 5.8 million people living in Melbourne, and 6.8 million in Victoria.
Victoria experienced the biggest population increase over the year to June 2023.
This can mostly be accounted for by a steady inflow of interstate and international arrivals and a subdued number of Victorians leaving the state (compared to other states which have had higher arrivals but also higher departures).
And the population growth is expected to continue growing too.
The Victorian government has a business plan to increase Melbourne's population by 2050 to 8 million people, which will put Victoria’s population at around 10 million people.
This means that over the next 30 years, Melbourne is likely to require 1.5 million more dwellings which will be made up of 530,000 detached houses, 480,000 apartments, and 560,000 townhouses.
While this increased demand is likely to translate to continued strong property price growth and a more robust economy, which is great news for investors, its infrastructure will struggle to keep up.
However Melbourne's public transport system, in particular, is struggling to keep up with the increased demand, leading to overcrowding, delays, and other issues.
The city's roads are also becoming increasingly congested, making it difficult for people to get around.
To address these challenges, the Victorian government has committed to investing heavily in public transport infrastructure.
The Metro Tunnel project, for example, will create a new underground rail line through the CBD, while the Suburban Rail Loop project will create a new orbital rail line connecting Melbourne's suburbs.
These projects will help to relieve congestion on Melbourne's roads and public transport system, providing much-needed relief to commuters.
The local government also has plans to invest in the city’s sustainable infrastructure and practices and is looking to develop new areas in surrounding suburbs to help facilitate the impending population boom.
Despite the Victorian Government’s Housing Statement ambition to build 800,000 dwellings in Victoria over the next decade, the number of dwellings under construction across Victoria has fallen over the past 12 months.
According to the ABS, there are currently 68,100 dwellings under construction across Victoria, 6% lower than the activity recorded 12 months ago, largely impacted by the slowdown of high-density apartment development.
The level of new dwellings completed in Victoria in 2024, is likely to be the lowest level in 10 years.
With construction costs having risen by up to 40% since Covid and higher financing costs, the level of new supply is likely to continue to decrease in coming years with commencements falling to their lowest levels since 2014.
Top 10 Melbourne suburbs where property has earned more than the average worker
Overall Melbourne property prices grew by a relatively modest 1.33% over the year.
But in the exclusive inner-Melbourne suburbs of Toorak and South Yarra, houses still gained more than the average wage at $237,486 and $136,311 respectively.
Meanwhile, suburbs east of the city in Canterbury, Balwyn and Surrey Hills also saw house values jump by $160,638, $156,400 and $125,312 respectively.
Further east the data was also impressive.
House prices in Wheelers Hill, Park Orchards, Lysterfield and Doncaster East increased $115,706, $103,194, $101,332 and $99,385 respectively over the year, all more than the average Australian wage.
But it seems that freestanding Melbourne houses within a close distance of the CBD or in good school catchment zones are the most stable.
It really is a tale of two cities - while some properties over-perform, others underperform.
But the expert consensus is that strong population growth and tight supply will continue to push property prices upwards as we move through this next stage of the property cycle.
And that is even in the face of the Reserve Bank continually hiking interest rates in order to get on top of Australia’s soaring inflation levels.
While Melbourne’s property market has lagged behind Sydney and Brisbane, there are clear indicators that it will continue on its upward trajectory.
Here are some of the most recent expert forecasts to take note of:
ANZ forecasts a 3-4% property price rise in Melbourne in 2024.
CBA forecasts a 5% property price rise in Melbourne in 2024.
NAB forecasts a 5.5% property price rise in Melbourne in 2024.
Westpac forecasts a 3% property price rise in Melbourne in 2024.
PropTrack forecasts a 1-4% property price rise in Melbourne in 2024.
SQM forecasts up to a -3% property price fall in Melbourne in 2024.
Overall though, supply remains constrained much like Australia’s other major cities.
Oxford Economics recently made the following forecasts of where house prices will be in 3 years time.
As you can see, they expect very strong property price growth for both houses and units in Melbourne over the next three years as Melbourne reverts back to mean long-term growth rates.
About Michael YardneyMichael is the founder of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
419 comments
Hugh Campbell2024-09-03 18:35:12
Michael, I own a 2. Bedroom apartment in Ormond. The tenants have just given notice.
I do not have a mortgage on the property and just wondering if I should continue to rent out the property or put it up for sale.
Hi Michael, hope you are well.
My wife and I (first home buyers) are looking around the Frankston area to purchase! Would love to know your thoughts on the area.
I’ve been following your blogs for several years now and really enjoy your perspectives and also those of the numerous comments.
I live in Victoria, have one rental property and could be best described as a battler, trying to aspire for something better.
Got home from work tonight to find five letters from the Victorian SRO in my letterbox. I was expecting a $975 land tax slug (like all Victorian landlords) for the 2023 year but found that I owe over $2,700 as the Victorian SRO has a retrospective policy of backcharging new land tax liability for the prior four years.
I was expecting the new Victorian land tax slug, but not four years worth.
Why aren’t I hearing more on this? Do people realise they’ll be copping land tax back to 1st January 2020?
Hi Michael – I just stumbled upon your site, very informative! I’m considering purchasing an investment property (1 or 2 br apartment) in Kensington, Melbourne, off the plan – in what looks to be a sturdy, beautifully designed building, informed by climate change etc. It is also quite close to the freeway though and kind of overlooks it. It’s pretty pricey (560k for 1br, 855k for 2br), with a huge rental shortfall so I’d be making up quite a bit of the mortgage myself, but with long term capital gains in mind. But is it worth it?? Appreciate your thoughts or advice here!
Hi Michael! Great article as always. Keen to get your observations more specifically on the northern suburbs. Bought a 3-bed house as an investment property for ~800k in 2021 in Kingsbury. The average income growth isn’t as strong as east and south east suburbs. How much do you think the valuation relative to CBD proximity and demographics that reflects the backgrounds of new immigrants have on the capital growth potential? Thanks, Anthony
Anthony – you are right, there’s not one Melbourne property market so it’s important to understand the specific suburb that you’re buying in and then the locations within the suburb. Kingsbury hasn’t really performed as well as other locations, has it? Lot has to do with the local demographics
Hi Michael. Thanks for the great article. Very detailed and reader friendly. What are your views on a 2×1 1970s apartment in Hawthorn? Reasonably busy road but trams and Yarra at your doorstep. FHOB and don’t want to make an irrational decision.
Sarah – it’s an important decision, and Hawthorne is a great area, but please avoid main roads – those properties are always harder to sell and lease, and even though you’re going to be living in it initially. It won’t be your forever home and is likely to underperform.
Hello, thank you for the information. You noted about Western suburbs that they had “…the rising tide of the strong Melbourne property market lifted all ships, now that the cycle has reached its mature stage, many of these locations, especially the blue-collar suburbs will struggle.” What do you mean “struggle”?
Is that means that their prices are going to “flat out” or “drop down”?
Has invested in a house 10yrs ago in Vic post code 3030, however, the rental yield is crap and struggling to find a quality tenants. Is that mean that the time for cash out had come?
Vera I see areas like where you have invested as likely to underperform over the next couple of years, as they will be hard hit by the rising cost of living, rising mortgage rates and rising rent. Remember your future income will be dependent upon your tenants ability to pay increasing rent over the years, so the demographics of where you invest is critical.
John, I can’t answer this without much more context. What makes a good investment for one person won’t be necessarily be the right property for another investor. The property you bought should have been the physical manifestation of a whole lot of decisions you made, and made in the right order. Why not email me the address – to [email protected]
We have an investment property, a one bedroom unit in Brunswick East, purchased off the plan in 2016, with the promise of capital growth which never materialised. We are sitting at a capital loss at the moment. Should we sell, cut our losses and buy an investment property elsewhere or wait it out? Any advice on where to invest next?
Jo- sorry to hear of your problems – buying off the plan rarely works, but I can’t answer your specific question in this forum – I’ll send you an email
Great Read Michael…..What are your thoughts on keeping 1.5m 4,2,2 townhouse in northcote with fixed mortgage (at a good time) for next couple years vs selling and buying something freestanding around 1.8m with backyard around carneige/murumbeena/glen iris/glen Waverly for family with young kids
Great read Michael. What are your thoughts on capital growth on 70s 2 bedroom South Yarra unit in a block of only 5? Walking distance to the G and the tan
Great location and I like the fact that it’s a small block – however these apartments have had minimal growth over the last decade – so it must be big and family friendly, have a good floor plan and look good from the street otherwise just another old 70’s apartment
Hello – looking at buying 1st property preferably to live in, 3bdr in Melbourne east suburbs and needing advice- good value properties in Yarra Ranges (Upwey to Belgrave on metro train line), or smaller property in bayside from Chelsea -Frankston south.
Need to cap at $800k – any advice much appreciated on where biggest growth is expected in your opinion- don’t want to blow my one chance…