• Melbourne’s median house price increased in the March 2024 quarter, its first quarterly increase since 2021, rising to $928,500;
• Victoria’s population is growing at record levels, increasing by over 190,000 over the past 12 months, leading to housing finance commitments sitting 10% above the 10-year, led by first home buyers;
• Melbourne residential rental rates grew strongly over the past 12 months with average rents for Melbourne houses up by more than 9% and rents for units up 13%.

Residential Market Summary

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. The level of new dwellings completed in Victoria in 2024, is likely to be the lowest level in seven years. With population growth of Melbourne running at record high levels and declining vacancy rates, rents for both houses and units have risen across all precincts to now all-time highs as at March 2024.

Prices

According to the REIV, Melbourne’s median house price increased in the March 2024 quarter, its first quarterly increase since 2021. As at March 2024, Melbourne’s median house price was $928,500 according to the REIV, having increased by 2.1% over the quarter, however, remains 2.1% lower than prices recorded 12 months ago. Similarly, Melbourne median unit prices rose over the first quarter of 2024, increasing to $634,500, up 0.3% in the quarter. Interestingly, as at March 2024, the Melbourne median unit price has increased by 3.8% over the year, however current levels remain 8% below the record levels achieved in late 2021. In comparison, Melbourne median house prices remain significantly below their peaks, with current levels 18% lower. Outside of Melbourne, the median Victorian Regional house price decreased by 0.7% over the March 2024 quarter, falling to $605,000 – 3% below the peak of 2022. In contrast, the median Victorian Regional unit price remained stable at $418,000, and remains below the levels recorded 12 months ago. While the undersupply of housing maintains upward pressure on prices, the outlook for values remains subdued given the persistent cost of living pressures and worsening affordability challenges.

Melbourne Dwelling Prices

Supply

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 67,400 dwellings under construction across Victoria, 3% lower than the activity recorded 12 months ago, largely impacted by the slowdown of high-density apartment development. While the number of detached houses currently under construction in Victoria remain close to 10-year highs, the number of apartments currently under construction is 21% down on the peaks of 2019. The level of new dwellings completed in Victoria in 2024, is likely to be the lowest level in seven years. Looking forward, with construction prices having risen by 25% over the past three years 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. The decline in the pipeline of housing stock is further evidenced by decreasing level of approved dwellings in Victoria with current levels 17% lower than the 10-year average.

Victorian Housing Loan Finance

Demand

Victoria’s population is growing at record levels, increasing by over 190,000 over the year to September 2023, the highest level of any Australian state. Victoria’s population growth was driven by overseas migrants with the state still losing people moving to other states. While total annual Victorian housing finance commitments sit 10% above the 10-year average in February 2024 with $82.1 billion financed, annual levels have fallen by 13% compared to the previous 12 months. Interestingly, monthly finance commitments have increased across all categories in recent months but remain below levels recorded 12 months ago. Monthly owner occupier finance levels have increased by 15% over the year, led by first home buyers with their levels 28% higher than their 10-year average. Investors now account for 31% of total housing finance commitments in Victoria, compared to their share 24% three years ago. Looking ahead, with strong rental growth and a shortage of housing, Urban Property Australia expects that investors will grow their share of housing loans as affordability challenges restrict owner occupiers despite increases in land taxes.

Vacancy

According to the REIV, as at March 2024, the vacancy rate for Melbourne residential property decreased to 2.1% down from 2.4% six months ago and also remains below the 10-year average of 3.0%. All precincts’ current vacancy rates now sit below their respective 10-year averages; with most Melbourne’s residential precincts recording vacancy falls over the year to March 2024. The vacancy rate of the Outer region recorded the tightest rate at 1.2%, nearing decade-low rates. The Middle Melbourne region holds the highest vacancy rate at 2.7% while the vacancy rate of the Inner region sits at 2.2%. Looking ahead, Urban Property Australia projects that the vacancy rate for the metropolitan Melbourne area will remain low with falling supply levels coupled with population growth of Melbourne currently at record high levels.

Rents

Reflecting the tightening vacancy environment, according to the REIV, metropolitan residential rents across the precincts increased over the past year. Over the year to March 2024, the weekly median rent for houses in metropolitan Melbourne increased to $570 per week, up from $520 per week a year earlier. Across Melbourne, rents for houses located in the Middle region increased the most, increasing by 15%, with rents in the Outer region increasing by 13% and the rents in the Inner precinct rising by 8%. Rents for Melbourne units recorded even stronger rises having increased by 13.4% over the year with unit rents rising across all precincts. Looking forward, Urban Property expects that residential rents will continue to rise, however the growth rates will moderate as affordability pressures begin to impact capacity of renters to absorb the significant growth observed in recent years.

Regional

Median prices appear to have stabilised in the Victorian Regional market, with median prices of both houses and units have generally been stable since March 2022. In contrast to the performance of median prices in Regional Victoria, rental levels in the Regional markets have remained resilient with the average weekly rental levels for both houses and units sitting at all-time highs as at March 2024. The vacancy rate for Regional Victoria remains very tight at 2.2%, slightly higher than the metropolitan average of 2.1%.

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