Over the past 40 years, Melbourne has consistently stood out as one of Australia’s most resilient property markets.

After a boom during 2020 and 2021, where property prices surged by 15.8%, the market experienced a correction, with values falling by 7.9% from their peak in March 2022 to the trough in January 2023.

While 2023 marked a turning point for Melbourne’s housing market, its recovery has been more gradual compared to other major cities. However, Melbourne’s downturn in 2022 was also less pronounced, positioning the city for steadier growth moving forward.

Looking ahead, 2025 is expected to bring stronger property value and rental increases. The completion of new dwellings in Victoria is projected to hit a decade-low in 2024, with the number of approved dwellings 15% below the 10-year average.

Outside Melbourne, regional property markets in Victoria are showing softer conditions, with prices either stabilizing or declining.

Despite recent underperformance, Melbourne’s property market has consistently delivered robust long-term results. The city’s population growth, fueled by increasing immigration, is creating significant demand. With vacancy rates remaining below average, Melbourne’s residential rental market has seen strong growth, with rates climbing over 9% for both houses and units in the past year.

This combination of limited supply and growing demand sets the stage for a dynamic 2025 in Melbourne’s property market.

Melbourne’s Population Growth and Housing Market

Melbourne is home to 5.8 million people, while Victoria’s overall population sits at 6.8 million. Over the year to June 2023, Victoria recorded the largest population increase in the country. This growth has been driven by a steady influx of interstate and international arrivals, coupled with fewer Victorians leaving the state compared to other regions.

Population growth is expected to remain strong, with the Victorian government projecting Melbourne’s population to reach 8 million by 2050, and the state’s population to grow to 10 million.

To accommodate this growth, Melbourne will require an estimated 1.5 million additional dwellings over the next three decades. This demand is expected to be met by 530,000 detached houses, 480,000 apartments, and 560,000 townhouses. While this signals long-term property price growth and economic strength—beneficial for investors—it also highlights challenges for the city’s infrastructure.

Infrastructure Under Strain

Melbourne’s public transport system and roads are already struggling to keep pace with growing demand, resulting in overcrowding, delays, and increased congestion. To combat this, the Victorian government is investing heavily in infrastructure projects:

• The Metro Tunnel: A new underground rail line through the CBD.
• The Suburban Rail Loop: An orbital rail line connecting Melbourne’s suburbs.

These projects aim to ease pressure on the transport system, providing relief to commuters while supporting the city’s rapid expansion. Additionally, the government is prioritizing sustainable infrastructure and developing new suburban areas to manage the impending population boom.

Housing Supply Challenges

Despite ambitious plans outlined in the Victorian Government’s Housing Statement to deliver 800,000 new dwellings over the next decade, construction activity has slowed. The Australian Bureau of Statistics reports that 68,100 dwellings are currently under construction across Victoria—6% fewer than last year. This decline is attributed to rising construction costs, which have increased by up to 40% since COVID, and higher financing expenses.

High-density apartment construction, in particular, has slowed significantly. As a result, 2024 is projected to see the lowest number of dwelling completions in Victoria in a decade. With new housing commencements at their lowest levels since 2014, supply is unlikely to meet the growing demand in the near term.

This combination of strong population growth and constrained housing supply underscores the challenges and opportunities in Melbourne’s property market, positioning it as a city with both significant investment potential and complex infrastructure demands.