Melbourne Housing Market Insights: March 2023


The Urban Developer’s latest Melbourne housing market insights reveal that Melbourne home values enjoyed a rare postive month in March, but the concern among property experts is that the Victorian capital is merely in the eye of the storm.

This resource, updated periodically, will collate and examine the economic levers pushing and pulling Melbourne’s housing market.

Combining market research, rolling indices and expert market opinion, this evolving hub will act as a pulse check for those wanting to take a closer look at the movements across the market.

Melbourne median property prices % change


^Source: Corelogic - March 2023

Melbourne home values are the closest to pre-Covid levels among the capital cities, with only a 0.6 per cent buffer (up from a 0.03 per cent buffer a month ago), CoreLogic data for March 2023 shows.

Melbourne home prices enjoyed a rare positive return last month, up 0.6 per cent in March, equal to the national gain, which was the first month-on-month positive return since April 2022.

Sydney rose 1.4 per cent for March but Brisbane managed only 0.1 per cent.

SQM Research said Melbourne residential property listings jumped 9.6 per cent in March.

Meanwhile, CoreLogic said in their latest Hedonic Home Value Index report that despite positive housing market trends, caution was advised due to multiple headwinds.

These included delayed impacts of higher interest rates on existing borrowers, weaker economic activity affecting consumer sentiment, rising unemployment amid looser labor markets, tight credit conditions, and potential oversupply without increased demand.

However, several factors could partially offset these challenges, such as a potential peak in cash rates, record high net overseas migration boosting demand, and tight labor markets providing a safety net against mortgage defaults.

The Guardian reported that the Melbourne suburbs with the biggest declines in apartment prices were clustered in the inner-east and west.

They included Caulfield East ($499,448, down 20.1 per cent), Essendon ($555,170, -19.8 per cent), Travancore ($343,542, -19.3 per cent), Moonee Ponds ($566,267, -18.6 per cent), Hawthorn ($568,901, -18.5 per cent), Caulfield ($749,923, -18.3 per cent), Essendon North ($445,850, -17.5 per cent), Caulfield North ($658,164, -17 per cent).

▲ Construction at the corner of Flinders and Spencer streets, Melbourne. Image Credit: Marisa Wikramanayake


Melbourne’s housing market: policy updates and trends

Three Melbourne projects to provide 200-plus affordable homes

Melbourne is getting more affordable housing with three apartment projects delivering over 200 homes as part of a larger program to provide 316 homes across four locations.

The NHFIC, HousingFirst, CoPP, and the Victorian State Government fund the program at a cost of $90.4 million for the first three projects.

Victoria’s building process hinders development, say builders

A report by economist Anna Cronin in 2019 recommended short and medium-term improvements to Victoria’s building approvals process.

However, nearly three years on, developers and builders are still leaving deals and building in other states due to a shortage of qualified planners, varying levels of expertise within local government, and questions over the authorities' powers.

The report made 27 recommendations to overcome the delays, including expanding the workforce, streamlining the process, and improving planning resources for councils.

Victoria’s space industry set for boost

Lockheed Martin has been announced as the preferred bidder for the JP9102 project, the first major space program in Australia designed for the Australian Defence Force, with satellite communication solutions for the ADF.

The winning of this contract could lead to Victoria's space industry receiving an influx of investment, creating jobs and positioning the state as an engineering and technology hub for the military satellite communications solution.

The project will create more than 200 jobs in the advanced space industry and contribute significantly to ensuring Victoria’s space economy grows sustainably.

Melbourne Council seeks to prevent budgeting for penalties

The City of Melbourne is set to increase penalties for building works-related breaches of local laws, amending two local laws to bring the definition of penalty units in line with the Local Government Act 2020.

The council found the current maximum limit of 20 penalty units was “too low to be a meaningful deterrent for larger projects”, noting that companies were building the cost of non-compliance into their business costs.

While other penalties will undergo a slight decrease or remain the same, changes to penalties for construction offences are forthcoming.

Public housing estate in Melbourne’s north-west completed

A new $104-million public housing estate in Melbourne’s north-west has been completed.

The development at Dunlop Avenue, Ascot Vale, consists of 200 accessible apartments with one, two, and three-bedroom layouts, and replaces 80 walk-ups.

The project has a 5-star Green Star rating and a 7-star NatHERS average rating, as well as a minimum Silver rating from Livable Housing Australia.

What the experts are saying about Melbourne’s housing market

Tim Lawless
Head of Research

“The areas recording the largest declines don’t necessarily indicate where mortgage stress is more elevated.

“While there will be some examples of stress, in many cases these same areas arguably overshot fair value through the recent upswing and have moved through a correction.”

“However, through the recent downturn, it has been the outer fringe housing markets that seem to have held their value better relative to more expensive markets.

“Whether this is simply a lagged effect is yet to be seen.”

Nicola Powell
Chief of Research and Economics

“The current population stats show net overseas migration is at a record high.

“When you’ve got the largest proportion being on temporary visas, they’re going to want to rent.

“The suburbs in Melbourne that are seeing the greatest increase are all in central Melbourne.

"They’re in those suburbs that are likely to have a high level of demand that’s coming from overseas.”

Shane Oliver
Chief Economist
AMP Capital

“I think it’s a bit of a false dawn, a dead cat bounce.

"Some bargain hunters are taking advantage of lower prices, and listings are low [which is supporting the market] … but headwinds from higher interest rates are still to come, especially as more people roll off their fixed rates.”

Louis Christopher

Managing Director
SQM Research

“We are at the end of a planned process by the RBA and other central bankers.

“No central banker goes on pause with the plan to lift rates one month thereafter.

“They won’t lift rates unless they get a really nasty surprise on the upside of inflation.”

Melbourne auction clearance rates

WeekClearance rateAuctions/SoldTotal sales
Ending 4 March 202367%729 / 485$363,583,176
Ending 11 March 202368%222 / 150$113,055,250
Ending 18 March 202363%832 / 526   $410,931,916
Ending 25 March 202368%906 / 619    $488,478,247

^Source: Domain - March 2023

In March, Melbourne’s property market swung up, as clearance rates saw the steepest monthly increase among capital cities, reversing a year-long trend of declines, according to the Domain’s Auction Report for March 2023.

This improvement showed sellers were adjusting their prices to meet buyers’ expectations in the face of rising interest rates and strained mortgage affordability, Doman said.

Clearance rates across the combined capitals increased again in March, reaching the highest level since February 2022.

This upward trend had continued for the first time in 14 months.

Over the past few months, the improvement in clearance rates could motivate more sellers to participate in the market, potentially increasing auction volumes, Domain said.

Melbourne’s strong performance had led to a positive shift in its annual growth rate for the first time in seven months.

Auction volumes across the combined capitals had risen for the second straight month, albeit still lower year-on-year.

Melbourne’s auction activity has increased in line with Sydney, Brisbane, and Adelaide.

For the combined capitals, the proportion of properties sold before auction day had also risen for the second consecutive month, indicating sellers’ were willing to accept offers before auction day due to subdued demand.

This trend could change as the prospect of an interest rate pause and a lower cash rate in the future may uplift market sentiment, Domain said.

In terms of property types, Melbourne’s house clearance rate reached a 23-month high, outperforming other capitals.

Affordability, perceived value, and lower borrowing capacity have contributed to unit clearance rates consistently outperforming houses across the combined capitals.

Melbourne, along with Sydney, witnessed a significant monthly increase in the median auction price for houses. If this trend persisted, it could signal a recovery for the city’s property market. Domain said.

However, median auction prices for houses had declined annually across all capital cities, in line with wider market decreases over the past year.

Melbourne residential rental vacancy rate

CityVacancy rateMonthly % changeVacanciesNet change

^Source: SQM Research - March 2023. Monthly change calculated from vacancy numbers

Domain data reveals Melbourne’s vacancy rate at a record low of 0.8 per cent, compared to Sydney’s 0.9 per cent.

The Victorian capital hit 1 per cent in January 2023, and the current rate is nearly three times lower than last year, according to Domain’s recent Rental Vacancy Rate Report.

Domain’s Chief of Research and Economics, Dr Nicola Powell, said she was not surprised Melbourne outperformed Sydney.

“Melbourne’s rental market was the most disrupted during the pandemic, with vacancy rates peaking at 5.6 per cent in December 2020,” she said.

“Since then, the rental recovery has been rapid. Demographic trends have made an impact with fewer residents per dwelling placing extra demand on available listings. This has been supported over the past year with an increase in remote and hybrid working habits calling for the need for more space in homes.

“Separate from this, we’ve also seen the rapid recovery in overseas migration, the increased quota to the permanent migration program, and the temporary visa holder has now fully recovered.”

Melbourne rent prices

TypeRentMonthly % changeAnnual % change

^Source: SQM Research - to the week ending April 4 2023

Melbourne house and unit rents increased for the sixth straight quarter, matching the 2007-08 growth record, Domain research found.

House rents recorded the fastest quarterly rise in six years and the highest annual increase since 2008.

Despite record highs, Melbourne remained the most affordable city for house rentals, as other capitals experienced larger growth.

Accelerating rents pushed house gross rental yields to a three-year peak.

Unit rents reached record highs with the city's steepest quarterly and annual growth.

The unit rental growth outpaced house rents for five consecutive quarters, narrowing the price gap to nearly a three-year low.

Rising rents led to all-time high gross rental unit yields.

CoreLogic’s Quarterly Rental Review said that the return of overseas migrants and international students, who typically choose to rent in Melbourne and Sydney, has narrowed the gap between Melbourne and the second most affordable rental capital, Adelaide, from $15 a week in December to $5 ar week in March.

CoreLogic also reported the rental yield for Melbourne rose 15 basis points to 3.4 per cent.

Brighton in the inner-south is Melbourne’s most expensive suburb to rent at $1294 on average for a house.

The most affordable is Melton South at $337 a week.

Victoria building approvals

DwellingApprovedMonthly % change
All dwellings421317.5%

^Source: Australian Bureau of Statistics - February 2023

In Victoria, dwelling approvals rose 8.5 per cent in February, led by an 11.3 per cent increase in private sector houses, according to the Australian Bureau of Statistics.

Despite this boost, the approval rate remains 13.6 per cent lower than in February 2022.

Private sector house approvals increased 10.3 per cent in Victoria, outpacing other states, while private dwellings excluding houses fell 9.5 per cent nationwide.

Overall, Australian dwelling approvals increased 4.0 per cent in February after a 27.1 per cent drop in January, due to government stimulus ending and interest rates rising. Tasmania, South Australia, and NSW also grew, while Queensland and Western Australia declined.

Total building approvals value rose 19.7 per cent, with residential building approvals increasing 7.7 per cent and non-residential approvals surging 39.8 per cent.

Meanwhile, new home building in Australia had dropped 27 per cent from its pre-pandemic high, leading to a constrained housing supply amidst increasing demand and reduced private investor purchasing, according to Nine Entertainment analysis of bureau statistics.

Quarterly home building starts fell to 45,489 by September 2021, compared to a pre-pandemic peak of 62,275 in March 2018.

Nine reported that the Australian federal Treasury was forecasting a 650,000 migrant increase over the next two years, while the National Housing Finance and Investment Corporation had lowered its new home production forecast to 138,100 annually until 2025.

With single-person households expected to grow significantly by 2032, local demand for housing will increase.

However, the detached housing sector is expected to remain subdued for 18 months.

To address housing shortages, large institutional investors are anticipated to play a more significant role in funding new housing stock, while retail investors' roles in developing new properties may diminish, Nine reported.

Victoria’s average new house cost has jumped $133,000 since 2021, potentially reaching $500,000 by year-end, it was reported.

The Australian Bureau of Statistics reported a decade-low of 2857 freestanding home approvals in February, while average build value rose to $469,262.


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