It wasn’t always like this. Back when Melbourne was crowned the second best city in 2016, it was also Australia’s second most expensive. But Victoria has been delivering new housing, has increased taxes on secondary homes which discouraged some property investors, and the 2020 pandemic and subsequent lockdowns prompted some population outflows.
“It’s pretty much been evolving that way since about 2021 … when we started to see a lot of the disruption that really caused Melbourne to have quite a soft housing market,” Lawless says. “A lot of people left the state through the pandemic.”
And while people are returning – recent research by property advisory firm Charter Keck Cramer found that Victoria’s population is expected to outgrow other states and territories over the next 25 years, adding about 1.3 million people in the decade from 2021 – the state’s high debt burden and tax imposts on property investors are often cited as keeping the housing market from recovering strongly.
“It is unprecedented in many ways that Melbourne would be so comparatively affordable relative to Sydney, let alone Perth, Adelaide and Brisbane,” Lawless says. “I mean, when you look at if you stack all the capital cities in a list and look at the median housing values, Melbourne comes in at number six now.”
But it also means buyers’ money goes a lot further. Victoria is leading the nation when it comes to first home buyers, who can now purchase an entry-level unit at a lower price than five years ago, Domain data shows.
First home buyers made up almost a third of owner-occupier lending in Victoria in the year to September, Australian Bureau of Statistics data shows, above the 10-year average and a higher share than in NSW.
Separate Domain data shows an entry-level house price in Melbourne is $720,000, while the median price is $1,111,084 – still less than Sydney’s entry house price of $1,150,000.
Melbourne is also leading the country when it comes to rental affordability.
While rents in all Australian capital cities are at record highs, for houses, they are lowest in Melbourne, at $580 a week.
In contrast, Sydney’s median asking rent for houses was $800, while Perth, Darwin and Canberra all commanded $700 for houses.
“Rents in Melbourne, while still painfully high historically speaking … are still significantly lower than the other states,” says Ashleigh Chang, an associate in Grattan’s Housing and Economic Security Program. “It’s a step in the right direction for Melbourne.”
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The latest rental bond data shows 23,000 landlords have exited the market since mid-2023, following the investor tax rises announced in the May 2023 state budget, a trend analysts say has helped home buyers.
Independent economist Saul Eslake says while these taxes were initially imposed by the Victorian government as a revenue-raising measure, they have inadvertently helped Melbourne’s housing affordability.
“Victoria needed to raise more revenue or cut spending given the financial hole it is in – they were not intended as a housing policy measure,” he says. “But they’ve had the effect of discouraging investment in Victoria by property investors, and I would say that’s a good thing.”
Victoria has also built more homes than any other state, Eslake adds. “More dwellings have been completed in Victoria than NSW, despite NSW having 30 per cent more people.”
For Chang, the real success of Melbourne (and Victoria) lies in its attention to housing supply. The state government has recently released all drafts for its 60 proposed activity centres, mostly based around public transport hubs in inner and middle Melbourne suburbs.
“One of the things we highlight in our last report is the type of reforms that have gotten us to that point where we were able to have more supply,” she says.
“A big one is the townhouse code that allows two or three story townhouses across most zones. Our recommendation is that we should be allowing … more townhouse apartments in the middle suburbs close to jobs, uni, transport, not just on the fringe.”