Q2 2024 – Melbourne Housing Market

• The average house price in Melbourne fell in the June 2024 quarter, erasing the growth of the previous quarter. The price is now 2.6% lower than prices 12 months ago;
• The number of new homes completed in Victoria in 2024 is likely to be the lowest level in 10 years. The current number of homes approved in Victoria is 15% lower than the 10-year average.
• Thanks to a lower than average vacancy rate, rental prices for houses and apartments in Melbourne have increased by more than 9% over the past 12 months.

Summary of the housing market

Melbourne’s residential vacancy rate has fallen to 2.2% year-to-date, and remains below the 10-year average of 3.0%. Reflecting the low vacancy environment, metropolitan rents have increased across neighbourhoods over the past year. The median weekly rent for houses in metropolitan Melbourne increased by 9%, while residential rents in Melbourne increased even more at 10% year-to-date. Despite the low vacancy rate and strong rental growth, the pipeline of new housing stock continues to decline.

Prices

According to the REIV, the median house price in Melbourne fell in the June quarter 2024, losing the growth of the previous quarter. In June 2024, the median house price in Melbourne was $911,500 according to the REIV, a decrease of 1.5% in the quarter and 2.6% lower than prices recorded 12 months ago. Similarly, median unit prices in Melbourne fell in the second quarter of 2024, to $629,000, a decrease of 0.1% in the quarter. However, unlike the detached house market, the median unit price in Melbourne in June 2024 remains higher than 12 months ago, with current levels 0.2% higher than those recorded in June 2023. Currently, median prices of both houses and units in Melbourne are significantly below their peak levels, with median house prices 19% lower and median unit prices 9% below their peak. Outside Melbourne, the median house price in regional Victoria rose 0.2% in the June 2024 quarter to $601,500 – 4% below its 2022 peak. In contrast, the median unit price in regional Victoria fell 1.4% to $415,000 and remains below levels seen two years ago. While the housing shortage is putting pressure on prices, the outlook for values ​​remains subdued given continued cost of living pressures and high interest rates.

Delivery

Despite the Victorian Government’s ambition to build 800,000 homes in Victoria over the next decade, the number of homes under construction in Victoria has fallen over the past 12 months. According to the ABS, there are currently 68,100 homes under construction in Victoria, 6% lower than activity recorded 12 months ago, largely driven by the slowdown in high-density apartment development. While the number of detached homes currently under construction in Victoria is above the 10-year average, the number of apartments currently under construction is below the 10-year average and is 19% lower than the peaks seen in 2019. The level of new homes completed in Victoria in 2024 is likely to be the lowest level in 10 years. Looking ahead, with construction prices rising by 25% over the past three years and higher financing costs, the level of new supply is likely to continue to decline in the coming years, with starts falling to their lowest level since 2014. The decline in the housing supply pipeline is further evidenced by the declining level of housing approvals in Victoria, with current levels 15% below the 10-year average.

Ask

Victoria’s population is growing at near-record levels, increasing by more than 186,000 by 2023, the highest level of any Australian state. Victoria’s population growth has been driven by overseas migrants, with the state still losing people moving to other states (although it is the lowest level since 2020). While total annual residential property finance commitments in Victoria are 12% above the 10-year average in May 2024 with $85.9 billion financed, annual levels have declined over the year. Interestingly, monthly finance commitments across all categories have increased in recent months, but are still below levels seen 12 months ago. While annual finance commitments for homeowners have declined by 1% compared to the previous year, first home buyers remain active with their levels 10% higher than last year. Investors now account for 32% of total residential property finance commitments in Victoria, compared to their share of 27% three years ago. Looking ahead, Urban Property Australia expects strong rental growth and housing shortages to see investors increase their share of residential mortgages as affordability issues limit homeowner choice despite property tax increases.

Job offer

According to the REIV, Melbourne’s residential vacancy rate has fallen to 2.2% year-to-date in June 2024, and remains below the 10-year average of 3.0%. Current vacancy rates for all districts are now below their respective 10-year averages, with most residential areas in Melbourne remaining stable through the year to June 2024. The Outer Region’s vacancy rate recorded the highest rate at 1.5%, although it has increased through 2024 from 1.1% at the start of the year. The Middle Melbourne region has the highest vacancy rate at 2.7%, while the Inner Region’s vacancy rate is 2.2%. Looking ahead, Urban Property Australia predicts that the vacancy rate for the Melbourne metropolitan area will remain low with declining supply levels coupled with Melbourne’s population growth currently near record highs.

Rental prices

According to REIV, metropolitan housing rents in neighbourhoods have increased over the past year, driven by low vacancy rates. In the year to June 2024, the median weekly rent for homes in metropolitan Melbourne rose to $580 per week, up from $530 per week a year earlier. Across Melbourne, housing rents in the Outer region increased the most, by 10%, with rents in the Middle region increasing by 9% and rents in the Inner region increasing by 5%. Housing rents in Melbourne have seen even stronger increases, up 10% in the past year, with rents in all neighbourhoods increasing. Looking ahead, Urban Property expects housing rents to continue to rise, but growth rates will moderate as affordability pressures begin to impact tenants’ ability to absorb the significant growth seen in recent years.

Regional

Median prices appear to have stabilised across the regional Victoria market, with median prices for both houses and apartments generally holding steady since June 2022. In contrast to the performance of median prices in Regional Victoria, rental prices across the regional markets have remained resilient, with average weekly rental prices for both houses and apartments reaching record highs in June 2024. The vacancy rate for Regional Victoria remains very tight at 2.1%, slightly higher than the metropolitan average of 2.2%.

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