Is It Worth Buying A Home In Melbourne?

Melbourne has been a magnet for homebuyers and investors alike, thanks to its vibrant arts scene, world-class sporting events and multicultural community.

Living in Melbourne brings many advantages. It offers top-tier amenities and a thriving economy. But with shifting market conditions and affordability concerns, many buyers are questioning whether buying a house in Melbourne is wise financially.

Can you navigate the competitive market? Will your property appreciate in value? Is this the right time to buy? Well, the answer depends on your financial position, risk appetite, and long-term goals.

There are several other crucial factors to consider as well, from market trends to government policies that could influence your decision. This article breaks down what you need to know to make an informed choice about buying a house in Melbourne.

Melbourne's Housing Market

As one of Australia’s largest cities, Melbourne is a hub for employment and culture and has a lifestyle appeal. Naturally, migration has been heavy and it is a major factor in shaping Melbourne’s property market.

As the population increases, so does the demand for housing, both for ownership and rental purposes.

Melbourne’s housing market did experience a slight decline in high costs following the Reserve Bank of Australia’s (RBA) recent interest-rate cut, mirroring trends seen across other Australian cities. And while this rate cut’s impact is still unfolding, it has provided reduced repayments for many borrowers.

Property prices in certain Melbourne suburbs have had a notable downturn, however, Domain’s January report states that Melbourne’s vacancy rate fell to 0.9%, just 0.1 percentage points off its record low. This drop is the first monthly decrease since September and was driven by rental stock sitting at an all-time low for the month of January.

Suburbs with the biggest declines include Toorak, which recorded a staggering 26.4% drop, as well as South Yarra and Clifton Hill, where values have fallen by more than 14%. Armadale also had a double-digit decline, with property prices slipping by 12.4%.

While this downward shift may concern existing homeowners, prospective buyers may view it as a rare opportunity to enter the market in previously unattainable suburbs.

The rental market in Melbourne tells a different story.

Australian Brokers’ latest findings show Melbourne currently has the highest rental vacancy rate in Australia. While this may suggest an easing of rental pressures, the reality is more complex. Despite the increase in vacant properties, overall supply remains tight, meaning rental prices are still elevated.

For renters, this dynamic presents ongoing challenges in securing affordable accommodation; landlords may find themselves needing to adjust pricing strategies or offer incentives to attract tenants.

Factors Influencing Melbourne’s Housing Market

Interest Rates

The RBA’s recent decision to decrease interest rates has created a bit of uncertainty, as not all lenders have passed it on.

This has resulted in mixed signals in the market, with many mortgage holders benefiting from the rate cut with reduced repayments, while others haven’t received the relief.

So, if you have a mortgage in Melbourne, do reach out to your mortgage brokers to find out whether your lender has passed on the rate cut or not.

Population Growth

The Australian Bureau of Statistics projects Melbourne’s population to reach 8 million by 2050, driven largely by international migration. This growing population is the primary component in an increasing demand for housing for both ownership and rentals.

While government policies and infrastructure projects do aim to accommodate this growth, supply constraints are omnipresent. Future market stability will depend on how well Melbourne manages its expanding population to ensure there is adequate housing to meet demand and avoid exacerbating affordability issues.

Economic Conditions

The overall economic health of Melbourne directly influences the property market. Economic growth fosters job creation, wage increases, and consumer confidence – all of which drive housing demand.

On the other hand, economic downturns, rising unemployment, or inflationary pressures can slow the market, as buyers become cautious. Policy decisions, such as tax incentives for investors or first-home buyer grants, shape the market positively.

Melbourne’s economy is also affected by global and domestic uncertainties, making its property market even more prone to economic shifts. This means it is essential for buyers and investors to stay informed about broader financial conditions.

Housing Supply And Cost

Housing supply remains a critical factor influencing Melbourne’s market dynamics. A shortage of new developments leads to higher property prices and rental costs, while an oversupply can result in stagnation or price drops.

Urban planning, zoning regulations, and construction costs all affect how quickly new housing becomes available. Government initiatives, such as incentives for developers and streamlined approval processes, aim to address supply issues.

Housing supply also influences the cost of houses in Melbourne. The median house price in the city is about $950,000 to $1 million. Certain premium suburbs can far exceed this figure. While lower than Sydney’s median, this still places Melbourne among the least affordable cities in Australia.

The high cost of housing affects first-time homebuyers, renters, and those looking to upgrade, creating a ripple effect throughout the city’s economy.

School Zones

School zones have a visible effect on property values. Homes in sought-after school areas command premium prices. Families often prioritise proximity to top-ranking schools, meaning suburbs with high-performing schools receive increased buyer interest, which pushes the prices above median levels. Rental demand is also strong in these zones.

As a result, properties within desirable school zones tend to hold their value better during market downturns. For investors and homebuyers, school catchments remain a crucial consideration when assessing Melbourne’s real-estate market.

Safety

Melbourne is generally a safe city, with the most common crimes being assaults, burglaries, and thefts. The crime rate in Melbourne varies across suburbs, with inner-city areas typically experiencing a higher number.

For instance, Fitzroy, known for its vibrant nightlife, has a crime rate of 350.5 per 1000 people, as opposed to Ferny Creek (famous for its serenity) with a crime rate of 10.6 per 1000 people.

Other, similarly safe suburbs include St Andrews, Merricks, Kew, Balwyn, Point Leo and Shoreham. On the other hand, if you are planning to move to Melbourne, crime is much higher in suburbs such as Melbourne City, Carlton, Campbellfield and Maidstone, among others.

Government Policies And Their Impact On Melbourne Housing

Melbourne has seen many changes when it comes to land taxes and rental laws. These reforms affect property investors, landlords and tenants.​

Land Tax Reforms

As of January 1, 2025, Victoria has introduced notable changes to its land tax:

Lower Land-Tax Thresholds: The tax-free threshold for land tax has been reduced from $300,000 to $50,000. This adjustment means that many property investors who previously did not pay land tax may now be liable.

Vacant Residential Land Tax (VRLT) Expansion: The VRLT now applies statewide to residential properties left vacant for more than six months in the preceding calendar year.

The tax rate escalates based on consecutive years of vacancy:

• 1% of the property’s capital improved value in the first year

• 2% in the second

• 3% from the third year onward. ​

Short-Stay Accommodation Levy: A 7.5% levy has been introduced on properties used on short-term accommodation platforms like Airbnb. This levy applies to the total price, including cleaning fees, and is intended to encourage property owners to offer more long-term rentals.

Emergency Services Levy Adjustment: The government plans to impose a higher emergency services levy on landlords than on owner-occupiers, aiming to fund the state’s emergency services.

New Land-Tax Rates

Here are the current land tax rates of Victoria, from the state government:

Implications For Property Investors

These reforms increase the financial obligations of property investors. Lower land tax thresholds and expanded VRLT mean more investors will incur higher taxes, especially those with vacant properties or engaging in short-term rentals.​

The short-stay levy may deter investors from the short-term rental market, potentially increasing the availability of long-term rental properties.​ There is apprehension that increased taxes will be passed on to tenants through higher rents, hurting housing affordability. ​

Rental Reforms

The Victorian Government has also enhanced tenant protections. For instance, landlords are not allowed to evict tenants without a valid reason, which provides tenants with greater security.

Also, the notice period for tenants to vacate has increased from 60 to 90 days, allowing tenants more time to find alternative accommodation. The government has also banned all forms of rental bidding to ensure fair pricing. And to ensure proper safety, annual smoke detector checks are now mandatory for all residential rental properties.

Property Cost in Melbourne

The latest CoreLogic data shows the average property price in Melbourne sits at about $7900 per square metre.

However, prices vary with different locations. For instance, the cost per square metre for an apartment in Melbourne’s city centre differs from that of a suburban home in Richmond.

It is also worth mentioning that housing in Melbourne is about 27% more affordable than in Sydney. The city’s most expensive suburbs include Toorak, Brighton and Armadale, while the most affordable areas include Broadmeadows, Langwarrin and Dandenong.

Housing Trends

Australia remains one of the world’s most stable countries, with a Fragile States Index score of 22.7. The economy is projected to grow by 8.8% over the next five years, with an average annual GDP growth of 1.8%, the IMF states.

For property investors, this economic expansion is promising. As incomes rise, more people can afford homes, driving higher demand and price growth. Over the past five years, Australia’s GDP per capita has increased by 4.0%, signalling continued economic strength.

Looking ahead, these trends suggest Melbourne property prices may rise in 2025 and beyond.

So, if you are in the market for a house, check out our ultimate guide to buying a house.

Prices And Types of Houses

Here’s a price segment analysis for different budgets in Melbourne’s housing market as of 2025. The table outlines expected square metres of space and types of houses you can purchase in various budget ranges.

So, Is Buying A House In Melbourne Worth It?

Affordability remains a major concern and the recent market fluctuations have made it difficult for buyers. But with strong population growth and economic resilience, long-term investment prospects are positive.

If you’re an investor, Melbourne’s evolving rental market and land-tax reforms should factor into your decision. For homebuyers, considering factors like school zones, safety, and future growth potential will help ensure a smart purchase.

Timing the market perfectly is nearly impossible, making an informed decision based on data is what you can realistically control. Whether you’re looking for your dream home or a strategic investment, Melbourne’s property market continues to offer opportunities if you know where to look.