Why Melbourne's property market is suddenly so appealing

Potential homebuyers may be best placed to set their sights on Melbourne, with new data revealing Australia’s largest city recorded significantly less growth than other capitals since the pandemic began.

Figures from CoreLogic show that house values rose by just 1.6 percent between March 2020 and May 2023 compared with a stronger 16.5 percent gain in Sydney prices and a whopping 45.2 percent surge in Adelaide.

The increases have started to close the value gaps between Melbourne and the smaller capitals such as Brisbane, Adelaide and Perth, said CoreLogic Asia Pacific research director Tim Lawless.

“Every capital city other than Canberra – the country’s second most expensive capital for houses – has significantly closed the house value gap to Melbourne,” he said. “At the onset of COVID, Brisbane houses were 47 percent cheaper than Melbourne. That affordability gap has closed to just 15 percent.

“Melbourne was 85 percent more expensive than Adelaide at the start of COVID but the gap has narrowed to just 29 percent and in Perth, where the gap was 88 percent, Melbourne house values are now 50 percent higher.”

Like most Australian capitals, Melbourne’s values fell at the start of COVID. During 2020, values declined by -6.7 percent according to CoreLogic, followed by substantial growth of 20.6 percent. This preceded another decline of -11.7 percent, with the market finding the floor in February this year. Since then, prices have grown 1.7 percent to May this year.

Melbourne is consistently ranked Australia’s most liveable city and was last year named the third most liveable city in the world by the Economist Intelligence Unit’s Global 2022 Liveability Index.

Mr Lawless said the latest data would likely make Melbourne a more attractive option for homebuyers and investors.

“With housing affordability remaining stretched, this improvement in Melbourne’s value proposition could place Australia’s second largest city in a more competitive position to attract a greater share of housing market participants,” he said.

“The city’s advertised supply level is trending lower and is -13.4 percent below levels at the same time last year and -7.0 percent below the previous five-year average.

“Melbourne’s rental vacancy rate of 0.8 percent in May is also one of the lowest in the country and yet another potential factor supporting purchasing demand for those with the financial capacity to enter the market.”

By any traditional measure, Australia’s property market should be moving in sync. Instead, it is fragmenting.

New research from MaxCap, led by Head of Research Bruce Wan, paints a picture of a market no longer defined by national trends, but by sharp regional divergence, where performance gaps between cities are widening, and the smartest capital is moving accordingly.

At the top end of the ladder, Perth and southeast Queensland are surging ahead. At the other, Melbourne and Auckland are only just beginning to recover from recent downturns. And sitting squarely in the middle is Sydney, steady but constrained.

The takeaway is clear: the era of relying on headline markets is over.

The rise of the unexpected leaders

Brisbane and the broader southeast Queensland region have emerged as standout performers, driven by population growth, infrastructure investment and a sustained undersupply of housing.

According to the report, housing values in the region have continued to accelerate, supported by long-term tailwinds including the 2032 Olympic Games and a decade of relatively subdued price growth prior.

Perth is telling a similar story, albeit for different reasons. Once heavily tied to commodity cycles, the Western Australian capital is now benefiting from a broader base of economic drivers, including defence spending and sustained resource sector strength.

The result is a housing market that remains one of the strongest in the country, even as price growth begins to ease from its peak.

Sydney holds, but doesn’t lead

For Sydney, the story is more nuanced.

While prices continue to climb and the city remains Australia’s most expensive market, affordability constraints are clearly limiting its pace. Residential growth, while positive, lags behind smaller capitals, and commercial sectors are being held back by softer demand in key industries.

There are, however, signs of momentum building. New infrastructure, including the western Sydney Airport and expanded rail networks, is expected to unlock development opportunities and support future growth, particularly in emerging precincts.

Still, the report positions Sydney firmly in the “middle of the pack”, no longer the automatic frontrunner for investors.

Melbourne’s slow reset

Melbourne, once a consistent performer, has spent recent years recalibrating.

Extended lockdowns, combined with new state property taxes, have weighed heavily on investor sentiment and pricing, particularly across the commercial office sector. Residential values have also underperformed, though for different structural reasons.

Now, there are early signs of recovery.

Improved affordability, population growth and a stabilising economic backdrop are beginning to draw buyers back into the market, with both residential and commercial sectors showing tentative signs of improvement.

Auckland’s turning point

Across the Tasman, Auckland has faced its own challenges, particularly from an outflow of younger workers to Australia, which has dampened demand and stalled price growth.

But here too, the tide appears to be shifting.

A return to positive migration, lower interest rates and policy changes — including the easing of foreign buyer restrictions — are expected to support a gradual recovery, alongside renewed interest from offshore capital.

A market that rewards precision

If there is one unifying theme, it is this: broad-brush strategies no longer work.

MaxCap’s research highlights that the most compelling opportunities are increasingly found outside the traditional powerhouses of Sydney and Melbourne, requiring investors to take a more targeted, locally informed approach.

“Given these persistent performance gaps, there is plentiful scope for alpha returns, just by picking the right locations and market segments,” the report notes.

In other words, success in this market is no longer about being in property — it is about being in the right property, in the right place, at the right time.

And increasingly, that place may not be where you expect.

Why Melbourne’s property market is suddenly so appealing

Australia’s most liveable city just became a little more attractive

New research shows a widening divide across Australia and New Zealand’s property markets, with investors increasingly forced to look beyond traditional strongholds to find real returns.