Melbourne residential underperforms
The Melbourne housing market has noticeably underperformed since 2022, with a modest local price correction in recent years, compared to the sustained pricing uplift observed in most other capital city markets in Australia.
A heavier tax burden
There are many reasons behind this subdued performance. The need to repair the Victoria state budget has drawn a broad suite of local property taxes. In turn, investors have been badly spooked by this higher tax burden and reallocated elsewhere.
Sustained housing demand
Housing market fundamentals remain favourable for Victoria. Demand is still being buoyed by firm overseas migration and diminishing interstate outflows. When set against the subdued construction pipeline, Melbourne remains well undersupplied.
Lower rates as the catalyst
With the move to lower interest rates in 2025, the housing market is set for another cyclical upturn. Melbourne is well positioned for this upswing, given relatively more affordable price points, especially compared to other, more expensive markets.
The road to recovery
After a long run of underperformance, Melbourne residential is finally set for a pricing recovery in late 2025 and 2026. To be clear, Melbourne’s price discount is likely to persist, rather than narrow over the course of the next upswing.
Navigating the comeback
For developers who have been downbeat about the prospects for Melbourne, we are expecting a cyclical turning point to take hold. Lower borrowing costs and higher selling prices should be key factors behind a cyclical uplift in building activity ahead.
