Where to for Melbourne housing – will it ever be affordable?

In 2002, the Victorian government announced grand plans to control the rapid urban sprawl of the day, protect identified greenfield land and centralize housing with new construction to be focused in and around a number of major transport centres.

The idea was simple; develop medium density, apartment style accommodation around established urban centres with good public transport infrastructure and amenity, thereby minimsing the burden on the city’s already congested road networks and stopping the march of new housing estates into the outer ‘burbs.

The Melbourne 2030 Planning Scheme

Melbourne 2030 was applauded by some and scorned by others, as town planners and industry experts took sides according to whether they believed the scheme would be a great success or an almighty flop.

Fast-forward some ten years on and a new research paper by Monash University’s Centre for Population and Urban Research called ‘The End of Affordable Housing in Melbourne?’ proves the Melbourne 2030 naysayers correct.

An article in The Conversation says the study argues housing affordability has collapsed and the type of housing being provided is unsuitable to the needs of the additional households that will emerge over the coming decade.

Further, they claim the government is largely burying its head in the sand with regard to Melbourne’s predicted property crisis and the failed Melbourne 2030 policy.

Rather than creating compact, affordable accommodation options with the development of new apartment stock in established urban pockets, a decade into the planning scheme we have seen escalating inner city dwelling prices push most home buyers well out of contention and price increases in suburbia push more would-be property punters out to the urban fringe.

In other words, the exact opposite of what the government intended with Melbourne 2030 has occurred and in fact, late last decade, house and land prices on the fringe were no longer affordable for most aspiring first-home buyers as the stock of land marked for subdivision had depleted.

The government does an about face

In an about face, the Victorian Labor Government responded by requiring municipal councils to introduce new structure plans for established suburbs, in a bid to open up additional development rights for medium-density housing, particularly along transport corridors. It also added 41,600 hectares within the Urban Growth Boundary for potential subdivision.

And it introduced a new Precinct Structure Plan (PSP) process under the supervision of the newly established Growth Areas Authority (GAA), to speed up the planning process and increase the amount of fringe land ready for subdivision.

How we live is changing

The only problem with this new plan, is the assumption of policymakers that household numbers, which had been on a steady decline up until recently, would continue to fall and see more of us choose to live in compact, unit and apartment accommodation; a trend that has since started to reverse.

Now, the Centre for Population and Urban Research (CPUR) says that according to their data, the majority of new households formed during the decade 2011 to 2021, who will be looking for accommodation in Melbourne, will be amongst young adults.

And of course most will be either thinking about or starting a family. Hence, they argue, apartment living is unlikely to meet this need, especially if all that is available is very small apartments.


The biggest problem with apartment stock, according to the CPUR analysis, is affordability for the family market. Construction costs for larger apartments are prohibitive, meaning less are being built and the limited supply that does exist is in high demand.

What about the oversupply?

At first glance this data seems contradictory to recent reports of an oversupply in Melbourne. But when you drill deeper, it’s clear that the issue is we are building too many smaller dwellings – with thousands of CBD apartments coming on line that are less than 70 square metres, most of which are purchased off-the-plan by investors.

For projects currently in the planning stages or under construction, the trend is towards even smaller apartments. Meanwhile the cost of infill in Melbourne has risen to levels that most new households cannot afford, largely because the cost of the land on which to build townhouses or units has escalated.

The outlook

While some commentators continue to argue that we are heading for a housing price crash in Melbourne, Monash University says this is unlikely in because the escalation in house prices is largely due to scarcity.

They say you just have to look at Sydney to realise demand trumps affordability issues every time, with the city experiencing a far worse housing affordability crisis by the year 2000 than in any other Australian capital city.

Despite this, housing prices continued to rise due to the combined effect of a slump in new dwelling construction due to restrictive development costs and an ongoing growth in household numbers – largely as a result of immigration.

Monash University’s Bob Birrell says, “Those planning Melbourne’s future have not come to grips with the causes of Melbourne’s affordability crisis. The provision of even more high-rise apartment blocks or further extension of the Urban Growth Boundary, — the current Victorian Government’s strategy — will not provide a solution.”



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Michael is a director 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. Visit Metropole.com.au

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