The Urban Developer’s latest Melbourne housing market insights reveals that rents are beginning to skyrocket as available listings get vacuumed up.

This resource, updated periodically, will collate and examine the economic levers pushing and pulling Melbourne’s housing market.

Combining market research, rolling indices and expert market opinion, this evolving hub will act as a pulse check for those wanting to take a closer look at the movements across the market.

Melbourne is fast becoming one of Australia’s auction market capital, despite property prices plateauing over the month of February.

The city’s property prices have remained unchanged following similar results in December, -0.1 per cent, and January, 0.2 per cent. 

Melbourne’s house prices have increased by 12.5 per cent in the past 12 months, with the median price now $800,000, following a peak-to-trough fall in values of -5.6 per cent at the onset of the pandemic—between April and September 2020.

Melbourne’s monthly rate of growth has continued to lose momentum since peaking in March 2021, when dwelling prices reached a monthly growth rate of 2.4 per cent—the fastest four-week increase the city has experienced in more than three decades.

Across February, dwelling prices slowed from a record 0.2 per cent gain in January pulled down by slightly subdued house price growth.

According to Corelogic, property values remained unchanged in February, providing sellers with a gross yield of 2.8 per cent.

The average house in Melbourne is now selling for $998,000—after puncturing the $1-million median in January only to retreat by an average of $4000 over the month of February. 

A typical unit in Melbourne is now selling for $626,000 after a gain of 0.1 per cent, or $2000, over the recent four weeks.

A typical Melbourne house is now about $139,000 more expensive when compared to 12 months ago, while units have experienced a gain of $87,000.

A number of Melbourne suburbs have now hit the million-dollar median with Maribyrnong, in the west, edging above a seven-figure median in February along with Altona and Keilor.

In the east, Wantirna reached $1.05 million, Montmorency hit $1.09 million while in the southeast, Oakleigh East rose to $1.03 million, Dingley Village was $1.02 million and Frankston South hit $1.1 million.

Two suburbs felt price pains with South Yarra prices dropping by -5.2 per cent to $2.16 million and Toorak suffering a -4.7 per cent loss to $4.35 million with the premium end of the market more susceptible to plunging prices.

Apartments in Melbourne’s Box Hill experienced a -5 per cent slump.

Melbourne’s housing market: policy updates and trends

Building approvals fast-tracked in planning overhaul

Major reform of Victoria’s planning system aimed at speeding up building approvals and cutting red tape will be announced on Friday.

New legislation to provide faster assessment of major developments— cutting up to six months off planning permit applications—will form part of the reforms. Changes to residential design guidelines will make it simpler and quicker for Victorians to build new homes.

Victoria on cusp of approving Windfall Property Tax

The Victorian government looks set this week to pass its controversial Windfall Gains Tax—a 50 per cent levy on the extra value created from rezoning a piece of land.

The legislation, currently tabled in parliament, requires the “windfall gain” to be paid either when the land is sold or 30 years after the rezoning, whichever happens first.

Construction costs surge at fastest rate in 20 years

Residential construction cost increases are on the way to outpacing property price rises as Australia records the biggest cost increase since the introduction of the GST.

Construction costs increased 3.8 per cent in the September quarter and 7.1 per cent for the year, according to the Cordell Construction Cost Index, with the biggest increase in Queensland.

What the experts are saying about Melbourne’s housing market

Tim Lawless Head of Research Corelogic

“With rising global uncertainty and the potential for weaker consumer sentiment amidst tighter monetary policy settings, the downside risk for housing markets has become more pronounced in recent months.

“These markets are also increasingly impacted by worsening affordability constraints as housing prices consistently outpace incomes.

“However, demographic tailwinds, low inventory levels and ongoing demand for coastal or tree change housing options are continuing to support strong upwards price pressures across regional housing markets,” he said.

“The slower growth conditions in Australian housing values goes well beyond the rising expectation of interest rate hikes later this year.

Nicola Powell Chief of Research and Economics Domain

“Influencing the recovery in rents has been a combination of weaker investment activity and some investors selling, the resumption of short-term travel, a shift in tenants to more affordable inner-city rentals, and greater household formation. 

“Rental conditions are far from uniform, with tenants operating in a landlords’ market, further from the CBD and universities. 

“Now could be the opportune time to secure a deal in inner-city areas that have seen a significant drop in asking rent but still have elevated vacancies. 

“Once international borders reopen, rental demand will spiral, particularly in Melbourne which has historically welcomed more overseas migrants.” 

Shane Oliver Chief Economist AMP Capital

“I think house prices will start to fall by the end of next year if we get rate hikes on top of further increases in fixed mortgage rates.

“We’re looking for two rate rises next year which will take the official rate to 0.5 per cent by the end of the year.

“In the grand scheme of things that’s relatively modest, but then we probably get more hikes as we go through 2023 and then ultimately combining that with higher fixed rates, then that will put downward pressure on prices.”

Louis Christopher Managing Director SQM Research

“Auction clearance rates are a momentum indicator. So while the absolute clearance percentage tells us something, it’s the direction which is just as important.

“I’ll be increasingly bullish on the market if I see clearance rates at 40 per cent and rising and I’ll be increasingly bearish if clearance rates are at 60 per cent, yet falling.”

Melbourne housing market forecasts

ANZ said it expects Melbourne’s house prices to lift by a further 7 per cent over the course of next year.

CBA forecasts Melbourne’s property prices to rise by 8 per cent in 2022, before dropping by -10 per cent in 2023.

NAB is currently forecasting house price growth of around 5 per cent for Australia’s capitals in 2022, with apartment price growth likely to be a bit more subdued in Melbourne.

Westpac is expecting Melbourne dwelling values to rise 8 per cent in 2022, before dipping by -6 per cent in 2023.

After soaring to new heights in 2021, Melbourne’s property values are tipped to keep climbing this year, but at a much slower rate as affordability constraints, rising mortgage rates and tighter lending standards ease buyer demand and price growth.

For the second year in a row, buyers and sellers have jumped back into the market earlier than usual with the number of homeowners listing their properties for sale across Melbourne even higher than it was at the same time last year.

More units than houses sold under the hammer in almost all major cities in February in another sign the housing boom is losing steam.

However, Melbourne was the only city to buck the trend, as house buying remained attractive due to more moderate house price growth at the same time it held the highest vacancy rate compared to other capitals.

Overall, supply is outstripping demand in Melbourne with the number of new listings is 21 per cent higher than it was at the same time last year, while views per listing have fallen by 5 per cent.

According to Domain, Melbourne suburbs with the biggest annual lift in new listings include Port Phillip, Moreland – North, Boroondara, Glen Eira and Darebin – South.

Melbourne’s premium suburbs have experienced the biggest drop off in views per listing, particularly in suburbs like Darebin-South, Brunswick-Coburg and Glen Eira.

Melbourne’s more affordable areas, where buyers are searching most intensely, included with Cardinia, Wyndham and Whittlesea-Wallan—all recording the highest number of views per listing in February.

Real Estate Institute of Victoria figures revealed that a total of 115 postcodes scored new price benchmarks across 2021.

These included inner-city hubs such as Fitzroy North, Brighton East and Thornbury, to the metropolitan outposts of Koo Wee Rup North, Bunyip and Mambourin.

Suburban locales north, east, south and west of the CBD were swept up in the price hike as low stock and high demand pushed prices sky high.

Benchmarks were also smashed in outer suburban areas, including Hoppers Crossing in the city’s west.

Melbourne’s rental market is expected to continue to become more balanced this year, as is the sales market.

Melbourne’s vacancy rate was 3.2 per cent in January, down from the 4.4 per cent recorded at the same time in 2021.

Melbourne rent prices for houses increased 3.8 per cent over the past 12 months as the city suffered through and then slowly emerged from protracted lockdowns.

Comparatively over the same period, house prices in Sydney have edged up 14.5 per cent and units 7.4 per cent, while in Brisbane house rents are up 16.5 per cent and units 5.4 per cent for the year.

At the turn of the year, Melbourne was very much a tenants market for the near future given vacancy rates remain considerably higher when compared to other capitals across the nation.

According to SQM Research, vacancy rates in parts of the inner city peaked at 18 per cent at the height of the pandemic in 2020.

However, listings were now down 80-odd per cent around parts of the CBD, Southbank and Docklands compared to at the peak of the downturn.

Some rentals had been sold to owner-occupiers, taking them out of the rental market, while others were being put on short-term holiday rental websites like Airbnb.

Rents are expected to rise and vacancy rates fall further once international borders reopen but the rental market will not see the same boom as the sales market due to the glut of apartments.

House rents in Melbourne have hit record highs, despite the Victorian capital’s economy enduring six pandemic induced lockdowns and international migrants kept out of the local market by closed borders.

​​Though house rents are at a record high in Melbourne, they were still the cheapest of the capitals around the country, with other cities—including Adelaide—outstripping the rise.

Investors selling their homes to owner-occupiers, the resumption of short-term travel and a shift in tenants to more affordable inner-city rentals had seen the rental market tighten across the city.

Asking rents for Melbourne’s inner-city apartments, such as those in the Docklands and Southbank, have jumped by more than 10 per cent in the past 12 months, pushed by demand from tenants priced out of the detached housing market.

Rental growth was particularly strong during the December quarter, with Southbank apartments posting a 3.8 per cent rise in median rent to $454, while Docklands lifted by 3.7 per cent to $471, making them among the country’s fastest-growing rental markets.

West Melbourne also made it to the top-performing list, with median unit rent climbing by 3.6 per cent, and Melbourne city by 3.5 per cent, during the same period.

The solid showing came as the Melbourne unit market outperformed all other capitals, posting a 1.6 per cent rise in rents over the same period.

Rents in the Victorian capital remain 5.5 per cent below the record highs of July 2019.

The construction industry has copped another blow with dwelling approvals plunging by a record 27.9 per cent in January to a 19-month low of 12,916 units.

The drop came as builders dealt with the fallout of the Probuild collapse and the slowing residential property market.

The fall in building approvals was the biggest monthly percentage decline since records began in July 1983. Council approvals to build private sector houses dropped 17.5 per cent in the month, the most since 2000.

Private sector dwellings excluding houses—primarily apartments—slumped by 43.6 per cent, the most in almost a decade.

The falls were pronounced in NSW, which was off by 25.9 per cent, and Victoria, that was hit with a 35.5 per cent fall. 

Queensland edged up slightly by 0.5 per cent, South Australia was down heavily by 29.2 per cent and Western Australia was hit with a 19.9 per cent drop

Commbank’s Stephen Wu said that the end of the HomeBuilder scheme had had a huge impact.

“The sharp fall in private sector house approvals means that they have now largely retraced back to pre‑HomeBuilder levels,” Wu said.

“Total applications under the HomeBuilder scheme have been highest in Victoria and Queensland.

“Treasury data show that $2.1 billion in grant payments have so far been made under the HomeBuilder program.”

Victoria’s average new owner-occupier loan size is currently the second largest in the country, behind NSW, at $606,000.

New mortgage lending to Victorian owner-occupiers recorded an outsized 16.7 per cent drop in September as lockdowns stymied activity in the state, and NAB economists have predicted a lift in housing activity into the end of the year as health restrictions ease.

According to the Australian Bureau of Statistics, weekly pay rose by 2.2 per cent nationally over the year to September and 0.6 per cent over the September quarter.

While wages have increased 81.7 per cent in the past 20 years, Australian home values have grown 193.1 per cent.

According to Roy Morgan, an estimated 584,000 mortgage holders, 15.8 per cent, are currently ‘at risk’ of ‘mortgage stress’ as of the September quarter.

Mortgage stress dropped to record lows during this period with fewer than 600,000 mortgage holders considered ‘at risk’ for the first time.

The level of mortgage stress is down on a year ago during Victoria’s long second lockdown when an estimated 668,000 mortgage holders, 18.3 per cent were considered ‘at risk’.

Victoria and New South Wales continue to feel the pandemic-fuelled drain losing thousands of residents in the first three months of the year as they moved to other parts of Australia, with Queensland emerging as the preferred destination.

The latest figures from the Australian Bureau of Statistics reveal Victoria suffered a net migration loss of almost 5000 people between January and March this year as departures outstripped arrivals.

There were 18,907 people who moved to Victoria during the three month period but 23,771 residents who left.

NSW experienced the next biggest fall in interstate migration, with 30,684 departures compared to 26,221 arrivals.

There were over 100,000 people who moved interstate during the first three months of the year, with Queensland gaining the most people; 7000, while Victoria lost the most closely followed by New South Wales.

Since the start of the pandemic, a net 22,651 people have left Melbourne for other parts of Victoria.

In total, Melbourne has lost a net 34,366 residents, including 3682 who have made the move to Brisbane.

In the March quarter, a net 8300 people left Greater Melbourne compared to 8500 in the final three months of 2020.

It was the second-largest quarterly drop in internal migration for Melbourne this century. 

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