• Melbourne’s median house price has now declined for seven consecutive quarters, however, remains above pre-pandemic levels;
• The number of dwellings under construction across Victoria has fallen over the past 12 months, with the level of new dwellings completed in Victoria in 2023 likely to be the lowest level in seven years;
• Reflecting the low vacancy environment, rental levels for both Melbourne houses and units increased by more than 10% over the past year and have now reached all-time highs.

Residential Market Summary

Melbourne’s median house price has now declined for seven consecutive quarters, from its peak recorded in December 2021. Despite the near two-year decline in values, Melbourne’s median house price remains above pre-pandemic levels. Whereas, Melbourne median unit prices have increased for the past two consecutive quarters, rising to their highest levels in 12 months. Despite the Melbourne residential vacancy sitting at 2.4% and Victoria’s population growing at record highs, the level of new dwellings completed in Victoria in 2023, is likely to be the lowest level in seven years.

Prices

According to the REIV, Melbourne’s median house price has now declined for seven consecutive quarters, from its peak recorded in December 2021. Despite the near two-year decline in values, Melbourne’s median house price remains above pre-pandemic levels. As at September 2023, Melbourne’s median house price was $933,500 according to the REIV, having declined by 0.2% over the quarter and down 5.8% over the year. In contrast, interestingly, Melbourne median unit prices have increased for the past two consecutive quarters, rising to $633,500 at September 2023, the highest level in 12 months, however still 1.7% lower than levels recorded a year prior. Although the rate of decreases of Melbourne’s median house price is slowing and recent increases of Melbourne’s median unit prices, the outlook for values remains less positive than mid-2023 with the November 2023 interest rate rise leading to almost half of Australia’s households in mortgage stress (households diverting at least 30% of their disposable income to service a mortgage).

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 70,100 dwellings under construction across Victoria, 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 20% down on the peaks of 2019. The level of new dwellings completed in Victoria in 2023, is likely to be the lowest level in seven years. Looking ahead, 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. The decline in the pipeline of housing stock is further evidenced by decreasing level of approved dwellings in Victoria with current levels 16% lower than the 10-year average.

Victorian Housing Loan Finance

Demand

With Australia’s borders reopen to overseas migrants, Victoria’s population is growing at record levels, increasing by over 160,000 over the past year. 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 9% above the 10-year average in September 2023 with $79.9 billion financed, levels have fallen by 25% over the past year. Monthly finance commitments have decreased across all categories compared to levels 12 months ago with both owner occupier and investor finance levels down 7%. Unsurprisingly, first home buyers’ levels have also decreased, having declined by 18% over the year. While investor financing volumes have fallen over the year, investors now account for 32% of total housing finance commitments in Victoria, compared to their share 25% three years ago. Looking ahead, with strong rental growth and a shortage of housing, Urban Property Australia expects that investors will continue to grow their share of housing loans.

Vacancy

According to the REIV, as at September 2023, the vacancy rate for Melbourne residential property has increased to 2.4% up from 2.1% six months ago, however remains below the 10-year average of 3.1%. All precincts’ current vacancy rates now sit below their respective 10-year averages with vacancy rates decreasing across all of Melbourne’s precincts over the year to September 2023. The vacancy rate of the Outer region recorded the tightest rate at 1.5%, albeit higher than its trough of 1.3% in March 2023. The Inner Melbourne region (0-10km) holds the highest vacancy rate at 2.5% while the vacancy rate of the Middle 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 low vacancy environment, according to the REIV, metropolitan residential rents across the precincts increased over the past year. Over the year to September 2023, the weekly median rent for houses in metropolitan Melbourne increased to $550 per week, up from $500 per week a year earlier. Across Melbourne, rents for houses located in the Inner region increased by 13.8%, with rents in the Middle region increasing by 12% and the rents in the Outer precinct rising by 13.3%. Rents for Melbourne units have also recorded strong rises having increased by 13.6% 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.

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