Headwinds keeping demand subdued

• Melbourne’s overall housing market has slowed under the weight of higher interest rates more than most other Australian capitals. Nevertheless, apartments have held up better than houses, in part due to greater affordability.
• Apartment pre-sales, especially from investors, have remained muted. However, there is still solid demand for higher-end boutique developments aimed at owner-occupiers and particularly from downsizers.

New supply continues to fall

• Melbourne apartment supply has fallen for several years and 2024 completions will be particularly low. Supply levels will stay moderate over the next few years and a relatively high proportion of Inner Melbourne supply will be build-to-rent.
• Rental vacancy saw a seasonal rise mid-year to 1.5% in June 2024 (SQM Research) but had reached as low as 1% earlier in 2024.

Price growth lags

• Melbourne existing unit prices have grown a subdued 1.5% over the year to June 2024 (CoreLogic). While this has significantly lagged most other capitals, prices have grown moderately the past few months in contrast to detached house price falls.
• Melbourne rental growth has been strong the past few years, recovering from the impact of COVID-19, but like most markets the pace of growth has started to slow in recent months.

Outlook: More housing needed medium term

• Victoria has seen a rebound to unprecedented migration levels and more moderate housing supply levels are likely to see the market tighten over the next few years. As such, subdued market conditions are not likely to last long.
• Price and rental growth are likely to remain subdued over the next year, but over the medium term the expected growing demand/supply imbalance is likely to assert upward pressure again on both.