Key takeaways
More than 10,000 rental properties have disappeared from the Victorian market in the past year, with deep long-term declines: including up to 2,000 fewer rentals in sought-after municipalities like Port Phillip, Boroondara, and Stonnington.
Since 2017, landlords have faced over 150 rental reforms, along with higher land taxes and rising compliance costs.
In regions such as the Mornington Peninsula, investors are turning their long-term rentals into holiday homes or Airbnb-style properties to escape stricter rental laws, worsening local rental shortages and homelessness.
Higher land taxes and maintenance costs have made investing in affordable suburbs like “no longer viable,” leading to hundreds of investment homes being sold off.
Vacancy rates have plunged to 2.4% in Melbourne and 1.8% regionally, pushing up rents and forcing workers to live further from their jobs.
New rental supply is mostly limited to outer suburbs and city apartments, not the established areas where demand is highest.
Something remarkable is happening across Victoria’s most desirable suburbs, and not in a good way.
Thousands of landlords are quietly exiting the rental market, leaving behind a growing void that’s reshaping our property landscape.
According to realestate.com.au the latest tenancy bond data, shows that more than 10,000 fewer rental bonds are active across the state compared to a year ago.
[note] That means 10,000 fewer homes for tenants to rent, at a time when demand has never been stronger. [/notes]
But it’s when you zoom in on the local level that the picture becomes truly alarming.
Municipalities like Port Phillip, Boroondara, and Stonnington, once the crown jewels of Melbourne’s rental market, have each seen drops of up to 2,000 rental properties since 2017.
That’s a huge contraction in supply for suburbs that have traditionally been magnets for professionals, families, and essential workers alike.
So, what’s driving this exodus?
The reforms that tipped the balance
2017 marked the beginning of a wave of rental reforms in Victoria: more than 150 rule changes affecting everything from pets to power points, safety checks to minimum standards.
While these changes were designed to improve tenants’ rights and housing quality, they’ve also made being a landlord increasingly complex and costly.
Add to that the rising land taxes, compliance costs, and new minimum standards, and you can see why many investors have decided it’s just not worth it anymore.
As PropTrack's Senior Economist Anne Flaherty puts it:
“A lot of it is to do with the exodus of investors we saw over several years.
There’s high taxes and high compliance, and a period during the pandemic where there was a moratorium on evictions, which put pressure on landlords… And that caused investors to sell off.”
She described the drop in rental supply across premium suburbs as “quite shocking,” noting that property markets should have expanded over the same period given Melbourne’s population growth.
In some regions, landlords aren’t leaving property altogether, they’re just shifting strategy.
Flaherty points out that in areas like the Mornington Peninsula, many investors have pivoted to short-stay rentals, effectively sidestepping the state’s strict residential rental laws.
The numbers back this up: the Mornington Peninsula’s short-stay register jumped from around 2,300 homes in 2019 to more than 3,000 by 2023, before easing slightly this year.
But every property that transitions from long-term lease to short-term holiday stay is one fewer home for a local renter, a pattern that’s deepening the region’s homelessness crisis.
The economics no longer stack up
This isn’t just happening in lifestyle towns.
Even in Melbourne’s middle-ring and outer suburbs, investors are bowing out.
- Also read:Melbourne housing market update | December 2025
- Also read:Australian housing market update | December 2025
- Also read:Latest Property Price Forecasts Revealed. Australian Property Market Outlook 2026: Where To For Prices With Further Rate Cuts Unlikely.
- Also read:Property market headlines versus reality: what the data really says right now | Property Insiders
- Also read:This week’s Australian Property Market Update – Latest Data, State by State December 16th 2025
According to Ray White data, hundreds of investment properties have been auctioned off since the latest round of land tax hikes at the start of 2024: 140 in Craigieburn, 100 in Reservoir, and dozens more across the northern suburbs.
Nerida Conisbee, Chief Economist at Ray White, explains the motivation:
“For investors who don’t have a lot of cashflow, those higher land taxes could push it from being viable to no longer viable.”
She added that many landlords have simply been “tipped over the edge” by the combined financial pressures, particularly in affordable areas where profit margins were already slim.
The result of all this is that renters are facing the tightest conditions in decades.
Melbourne’s vacancy rate has plummeted to 2.4%, down from an average of 5% just a few years ago.
In regional Victoria, it’s an even more painful 1.8%.
And while overall rental supply in Victoria has technically grown since 2017, most of the new stock is in outer-fringe suburbs like Melton and Wyndham, or in high-density city apartments, not the established inner suburbs where demand is strongest.
This geographic mismatch is creating real social problems.
Essential workers - teachers, nurses, hospitality staff, can’t afford to live near where they work.
Commuting times blow out, communities fracture, and local economies suffer.
A market in need of balance
It’s easy to vilify landlords, but the data tells a more nuanced story.
Investors are not the enemy; they’re a crucial part of the housing ecosystem.
When policy pushes them out, renters lose, and the entire system becomes more fragile.
The solution isn’t simply to build more homes, though that’s certainly part of it.
We also need a more balanced approach to rental regulation, one that protects tenants without punishing investors to the point of extinction.
Because if thousands of landlords continue walking away from Victoria’s most liveable suburbs, the result won’t be fairer housing; it’ll be fewer homes, higher rents, and even greater inequality.
In short, the Victorian government’s well-intentioned reforms have reached a tipping point.
Until we restore confidence and financial viability for property investors, the rental crisis will only deepen.
