The deceiving truth about Melbourne's sliding dwelling value—And the opportunity it presents

Why Melbourne's Median Dwelling Prices Are Lower Than Other Capital Cities

Melbourne has recently made headlines for falling behind other major Australian cities in terms of median dwelling prices. Surprisingly, its median price now ranks below Brisbane, Adelaide, and even Perth. But does this mean Melbourne’s property market is truly underperforming? A closer look reveals that these figures can be misleading and don’t tell the whole story.

Melbourne’s Unique Housing Composition

The first thing to clarify is that "median dwelling prices" include both houses and units (apartments). In Melbourne, this difference plays a significant role in shaping the overall median. The city has a much higher proportion of apartments compared to Brisbane, Adelaide, and Perth. For example, around 33% of Melbourne’s housing stock consists of apartments, compared to just 25% in Brisbane, and only 16% in Adelaide and Perth.

Since apartments typically have lower price points than houses, they pull down the overall median value. As of September 2024, Melbourne’s median dwelling value was $776,000, ranking sixth among Australia's eight capital cities. This is not because Melbourne’s housing market is in decline, but because the city’s property market is more diverse in terms of housing types, especially apartments that are more affordable for first-time buyers and investors.

Comparison With Other Cities

Looking at the figures, Brisbane’s median dwelling value stands at $875,040, Adelaide at $790,789, and Perth at $785,250. In contrast, Sydney remains the most expensive city, with a median value of $1.18 million. But Melbourne’s figures are weighed down by the large number of units, which are priced lower than stand-alone houses.

When comparing houses alone, Melbourne’s prices are still among the highest in Australia. For example, Melbourne’s house prices remain well over $900,000, placing them significantly ahead of Brisbane, Adelaide, and Perth. The dominance of lower-priced apartments in Melbourne is the real reason behind the lower overall median figure.

The Role of New Dwelling Supply

Another key factor influencing Melbourne's median dwelling prices is the surge in new dwelling approvals, particularly for apartments in the city center and inner suburbs. This increase in apartment construction has led to a larger supply of multi-unit dwellings, contributing to lower average prices. Meanwhile, cities like Perth and Adelaide have seen slower growth in apartment developments, meaning their dwelling values are more heavily influenced by house prices.

For investors, this abundance of affordable apartments in Melbourne represents a unique opportunity to enter the property market at a lower cost. As international students, young professionals, and new migrants return post-pandemic, demand for apartments is expected to rise, potentially pushing prices up over the long term.

Why Melbourne Remains a Strong Opportunity

Despite Melbourne’s recent slower growth, it remains a high-value market, particularly for house buyers. In fact, slower growth periods in real estate often create excellent buying opportunities, and Melbourne is no exception. The city was hit hard by the pandemic, with extended lockdowns and closed borders temporarily reducing demand for both rental and residential properties. However, this trend is reversing, and Melbourne’s population is projected to grow significantly in the coming years, largely driven by migration.

According to research by SQM, Melbourne's population is expected to grow by 1.7% annually over the next five years. Much of this growth will be centered around the inner-city, where the availability of more affordable apartments can accommodate new residents. This increase in demand could lead to price gains, especially in areas where apartment prices have remained subdued.

Affordability and Long-Term Growth

One of Melbourne’s key strengths right now is its relative affordability compared to other capital cities. While Brisbane and Perth have seen rapid price surges over the last couple of years, Melbourne offers a more stable, long-term growth trajectory. Property experts emphasize that Melbourne’s proven track record of capital growth, supported by its diverse economy and strong population base, presents a lower risk for buyers compared to cities experiencing short-term booms.

The city’s world-class educational institutions, strong job market, and high livability rank continue to make Melbourne a desirable place to live. These factors, along with its infrastructure investments like the Metro Tunnel and the West Gate Tunnel, are likely to support property value growth in the future.

Rising Rental Yields and Investor Opportunities

Melbourne’s rental market has also tightened significantly. Vacancy rates, which spiked during the pandemic, have now fallen to record lows. As of mid-2024, vacancy rates in Melbourne are hovering around 1%, with rental prices increasing by 10% over the past 12 months. This is good news for investors, as rising rental yields present a compelling opportunity to generate income in addition to capital growth.

For buyers seeking a balance between affordability and yield, Melbourne offers a favorable environment, particularly in the apartment sector where prices are still lower than those in Sydney or Brisbane.

Conclusion: A Market with Long-Term Promise

While Melbourne’s median dwelling prices may currently be lower than Brisbane, Adelaide, and Perth, this is largely due to the city’s diverse housing stock, especially its high proportion of apartments. In reality, Melbourne remains one of Australia’s most expensive markets for houses and offers excellent opportunities for investors, particularly those looking at the more affordable apartment segment.

As Melbourne's population grows and demand for housing rises, the city is well-positioned for a recovery. Its strong economic fundamentals, infrastructure development, and attractive lifestyle make it a market with long-term potential. For buyers, now may be the perfect time to take advantage of Melbourne’s relative affordability before prices begin to rise again.