Melbourne, once the second-most expensive housing market in Australia, has seen its median house price dip from peak levels, opening the door for prospective homeowners yet raising questions about the sustainability of the trend. According to data released by real-estate firm Domain, the median house price in the Victorian capital is now about ten thousand dollars lower than its peak.
In 2021, the city’s median house price surged past A$1 million after a decade of annual increases averaging more than A$70 000. By the following year, prices began to retreat, marking a significant shift in the local housing landscape. While Melbourne’s housing market remains elevated at around A$1.083 million, it is now priced only marginally above the median house price in Adelaide. This improvement in affordability has been welcomed by first-home buyers, who now account for nearly three in ten home-loan approvals in Victoria—contrasting with a national downward trend in the share of first-home buyers.
A range of factors have converged to ease upward pressure on house prices in Melbourne. One major element has been regulatory reform aimed at curtailing investor activity. The Victorian government introduced increased land tax on investment properties—roughly A$1 300 a year on a property worth A$650 000—along with a levy targeting short-term rental platforms like Airbnb, and higher taxes on vacant properties and land. The effect: fewer property investors remained active in the market, meaning less competition for owner-occupiers. Indeed, investor activity in the state has declined relative to the national average.
At the same time, supply-side responses played a significant role in improving affordability. The state has consistently completed at least 55 000 new dwellings each year for a decade, placing Melbourne among the strongest home-building jurisdictions in the country. The abundance of new listings in the city helped counteract the price escalation seen elsewhere. The state treasurer noted the government’s commitment to “reforming planning, unlocking land for homes, and building a decade-long pipeline of new supply”.
Nevertheless, experts caution that the improved affordability may not persist indefinitely. Indicators suggest that property investors are gradually returning to the market in Melbourne, lured by comparatively lower prices than in “hotter” markets elsewhere. At the same time, some building approvals have declined in Victoria even as they rose strongly in New South Wales, South Australia and Queensland—potentially signalling a future slow-down in new supply. Additionally, falling interest rates and rising incomes could fuel renewed price growth, though Victoria’s heavier investment taxes may act as a brake on a rapid up-turn.
Economist Saul Eslake described Melbourne’s experience as validation for the notion that reducing tax incentives for property investors can help improve affordability for owner-occupiers. Yet he also warned that investor exit had already contributed to a decline in rental stock—from around 678 000 dwellings in metropolitan Victoria in September 2023 to about 655 000 by March. That reduction in available rentals may sow the seeds for a rental-crisis should demand recover.
In short, Melbourne’s housing market offers a rare example of a major capital city where affordability has measurably improved in recent years. A combination of increased supply and reduced investor competition helped achieve that outcome. But market dynamics remain vulnerable: a return of investor interest, tightening supply, and shifts in interest rates all have the potential to reverse the trend. While owner-occupiers may be enjoying better access now, the coming years will test whether the relative calm in Melbourne’s housing market is the start of a sustained era of affordability—or just a temporary pause before prices resume their previous climb.
