• Melbourne’s median house price marginally increased in the September 2024 quarter, but remains 1.4% lower than prices recorded 12 months ago;
• Currently there are 63,700 dwellings under construction across Victoria, 11% lower than the activity recorded 12 months ago, largely impacted by the slowdown of high-density apartment development;
• Housing finance commitments have increased across all categories over the past 12 months in Victoria with first home buyer levels 13% higher than last year.

Residential Market Summary

In order to encourage supply, the Victorian state government has recently announced two policies that aim to give developers an incentive to build with stamp duty savings for off-the-plan sales and greater density allowed across 50 new activity centres. Reflecting the tight levels of new supply, the vacancy rate for Melbourne residential property remained remains below the 10-year average, with the current level sitting at 2.4%. Melbourne’s median house price marginally increased in the September 2024 quarter, however, continues to be outperformed by their interstate counterparts.

Prices

According to the REIV, Melbourne’s median house price marginally increased in the September 2024 quarter, however, continues to be outperformed by their interstate counterparts. As at September 2024, Melbourne’s median house price was $916,000 according to the REIV, having increased by 0.1% over the quarter, but remains 1.4% lower than prices recorded 12 months ago. Similarly, Melbourne median unit prices increased over the third quarter of 2024, increasing to $628,000, up 0.2% in the quarter. Like the detached housing market, as at September 2024, the Melbourne median unit price remains lower than levels recorded 12 month ago with current levels 0.9% lower than those recorded in September 2024. Currently, median prices of both Melbourne houses and units remain significantly below their peak levels with median house prices 19% lower and median unit prices 9% below their peak. Outside of Melbourne, the median Victorian Regional house price remained the same over the September 2024 quarter at $601,500 – 4% below the peak of 2022. The median Victorian Regional unit price increased by 0.7% to $418,000, and also remains below the levels recorded two years 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 elevated interest rate environment.

Melbourne Dwelling Prices

Supply

In order to encourage supply, the Victorian state government has recently announced two policies that aim to give developers an incentive to build. Firstly, stamp duty will be reduced from October 21 2024 and be in place for 12 months and available for off-the-plan units, townhouses and apartments for properties at any price point. Secondly, to encourage more density around railway and tram lines, the government has identified 50 new activity centres where the planning process for multi-storey residential dwellings will streamlined to fast track development. According to the ABS, there are currently 63,700 dwellings under construction across Victoria, 11% lower than the activity recorded 12 months ago, largely impacted by the slowdown of high-density apartment development. In contrast, while the number of detached houses currently under construction in Victoria is above its 10-year average, levels have fallen by 19% over the past year. The level of new dwellings completed in Victoria in 2024, is likely to be the lowest level in 10 years with commencements continuing to ease. The decline in the pipeline of housing stock is further evidenced by decreasing level of approved dwellings in Victoria with current levels 14% lower than the 10-year average.

Victorian Housing Loan Finance

Demand

Victoria’s population is growing at close to record levels, increasing by over 183,000 over the 12 months to March 2024, the highest level of any Australian state. Victoria’s population growth was driven by overseas migrants with the state having attracted people moving from other states for the first time since 2020. Total annual Victorian housing finance commitments continue to recover having steadily increased through the year and now sit 13% above the 10-year average in August 2024 with $86.2 billion financed. Monthly finance commitments have increased across all categories over the past 12 months. Non-first home buyer owner occupier finance levels have increased by 4% compared to the previous year; with first home buyers also active with their levels 13% higher than last year. Investors now account for 32% of total housing finance commitments in Victoria, compared to their share 27% 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 August 2024, the vacancy rate for Melbourne residential property remained steady since the start of the year at 2.3% 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 vacancy rates holding steady over the past 12 months. The vacancy rate of the Inner (4-10km) region recorded the tightest rate at 1.4%, down from 1.7% at the start of the year. The Middle Melbourne region holds the highest vacancy rate at 2.9% while the vacancy rate of the Outer region sits at 1.6%. 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 close to 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 August 2024, the weekly median rent for houses in metropolitan Melbourne increased to $580 per week, up from $550 per week a year earlier. Across Melbourne, rents for houses located in the Outer region increased the most, increasing by 10%, with rents in the Middle region increasing by 9% and the rents in the Inner precinct rising by 7%. Rents for Melbourne units recorded even stronger rises having increased by 10% 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 June 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 August 2024. The vacancy rate for Regional Victoria remains very tight at 2.1%, slightly lower than the metropolitan average of 2.4%.

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