While Melbourne’s house and apartment prices recorded strong growth over the year, hampered by pandemic restrictions, prices eased in the September quarter before recovering in the final quarter of 2021;

Over the year, the residential vacancy rate declined in the Inner (0-4km) precinct but increased in the Middle and Outer precincts;

Victorian housing finance commitments sit 62% above the 10-year average and reached all-time highs in November 2021 with $103 billion financed.

Residential Market Summary

The price differential between Melbourne house and apartment prices has now expanded to an all-time high which may see more solid price growth for apartments in the short term. Although prices rose over the year, looking ahead, the increased level of housing values coupled with low income growth will weigh on housing demand in time as housing affordability challenges dampen purchaser demand.

Prices

While Melbourne’s house and apartment prices recorded strong growth over the year, hampered by pandemic restrictions, prices eased in the September quarter before recovering in the final quarter of 2021. As at December 2021, Melbourne’s house prices increased by 17% to reach $915,000, nearing the all-time high of $920,000 recorded in June 2021. The rate of growth of Melbourne’s house prices over 2021 was its fastest annual growth rate since 2009. Melbourne apartment prices trended similar to house prices having dipped in the September quarter before finishing 2021 at near all-time highs. As at December 2021, Melbourne apartment prices increased over the year to $640,000. The price differential between Melbourne house and apartment prices has now expanded to an all-time high which may see more solid price growth for apartments in the short term. Although prices rose over the year, looking ahead, the increased level of housing values coupled with low income growth will weigh on housing demand in time as housing affordability challenges dampen purchaser demand.

Melbourne Delling Prices

Supply

According to the ABS, there are currently 66,400 dwellings under construction across Victoria having trended down since 2018. Although the current dwelling supply pipeline of Victoria is below the peak of March 2018, the number of dwellings currently under construction remain 12% above the 10-year average. The closure of Australia’s international borders is also expected to reduce demand for inner city rental housing given the likely lack of international students in the short term. A shift in preferences towards detached houses has also been weighing on demand for inner city apartments. While population growth slumped in Victoria over the past year as residents moved to other states, risks of oversupply are mitigated by the considerably smaller volume of higher-density inner city apartments due for completion in 2022 and 2023 relative to previous years. In the 12 months to November 2021, a total of 70,500 dwellings were approved in Victoria, its highest level since 2018. Reflecting the slowdown of the development of apartment developments, approvals for houses now account for 69% of all new dwellings approved, compared to 53% as at August 2018.

Demand

Despite Victoria’s population declining by more than 44,000 over the past 12 months, current total annual Victorian housing finance commitments sit 62% above the 10-year average and reached all-time highs in November 2021 with $103 billion financed. The elevated housing finance levels have been underpinned by owner occupiers which have increased by 49% over the past 12 months. Although first home buyers remain active in the market with current levels at 81% above their 10-year average, levels appear to have peaked with levels trending down through 2021. In contrast, investor finance continues to strengthen with levels increasing to 10-year highs as at November 2021. Over the past year, investor finance has increased by 57%, reaching $27.5 billion of commitments. Indeed, investors now account for 29% of total housing finance commitments in Victoria, compared to their share of 22% a year ago. Looking ahead, with the federal treasurer endorsing tighter credit policies for home lending, the volume of housing finance is likely to temper.

Victorian Housing Loan Finance

Vacancy

According to the REIV, as at November 2021, the vacancy rate for Melbourne residential property has fell to 5.0%, down from its peak of 6.5% of March 2021, however remains well above its 10-year average of 2.9%. While vacancy rates have trended down since peaking in mid-2021, vacancy in the Middle region has steadily risen, to now an all-time high. Over the year to November 2021, the residential vacancy rate declined to 5.0% in the Inner (0-4km) precinct but increased to 7.9% in the Middle precinct and 2.1% in the Outer precinct. Looking ahead, Urban Property Australia projects that the vacancy rate for the metropolitan Melbourne area will remain above the long-term average for the short term, particularly in the Inner precincts given Victoria’s population growth will be muted for the medium term, constrained by the closure of Australia’s international borders affecting the international student market.

Rents

Emulating the vacancy trends, according to the REIV, metropolitan residential rents across most of the precincts are showing signs of recovering having fallen through 2020. Over the year to November 2021, the weekly median rent for houses in metropolitan Melbourne declined to $490 per week, up from $500 per week a year earlier. In contrast, the weekly median rent for units has rose to $413 per week, up from $400 per week a year earlier. Looking forward, Urban Property expects that residential rents will gradually increase as the broader economy continues to improve following the shock of the pandemic, however increases will be constrained with Victoria’s population adversely impacted as a result of people leaving the state.

Copyright © 2022 by Urban Property Australia All rights reserved. No part of this publication may be reproduced in any form, by microfilm, xerography, electronically or otherwise, or incorporated into any information retrieval system, without the written permission of the copyright owner.