Melbourne’s typical home is now worth less than it was five years ago

It’s cheaper to buy a home in Melbourne today than it was five years ago, as high interest rates and a flurry of building activity in the outer suburbs push values down.Melbourne’s median home value is 1.6 per cent lower than it was five years ago, at $797,354, after falling again in July, Cotality data shows. Since 2021, Melbourne’s property market has faced numerous headwinds, including interest rate rises, a series of land and investor tax changes and global economic uncertainty.It has also built more houses than any other state, largely due to its greenfield capacity, which has further put downward pressure on prices – albeit Victoria is still behind on the state government’s housing targets.Cotality head of research Gerard Burg says that while many factors have contributed to the softened Melbourne market, its origins can be traced to Melbourne’s long period in lockdown, when Australia experienced “quite a spectacular growth in dwelling values outside Melbourne over 2021 to 2022 as people were looking for more space in their housing”.“From a demand perspective, obviously there’s been that period of migration out of Melbourne during the worst of the lockdown period,” Burg says. “That had an impact particularly on the demand for property that put a bit of a lid on how far values could grow.”In March 2022, Melbourne’s median dwelling value reached an all-time peak of $843,355, only to fall again due to Victoria building more houses than other states.“What gets overlooked [is] the success in construction in Victoria over that period as well,” Burg says.“About one-third of all construction between the start of 2020 and the end of 2025 was in Victoria ... In terms of the composition over that period, about 62 per cent of all homes completed during that period were standalone houses, and 38 per cent were units.”But while Victoria is leading the nation with builds, it is building fewer homes today than before its 2023 housing statement, casting doubt on the pledge to deliver 800,000 properties over the next decade.Melbourne homes are worth less today than five years ago, new data shows. Chris HopkinsKPMG urban economist Terry Rawnsley says that unlike Sydney, which is limited by geography, Melbourne’s ability to stretch suburbs further out has enabled it to build more affordable housing.“If you compare with somewhere like Sydney, you’ve got a greenfield market that operates better, provides more affordable land to the market, more affordable options, and a housing outlet for people to move into,” Rawnsley says.“Those new houses set the price benchmark as well for the market in some ways because people always have an option of buying something new if they have to, whereas in Sydney, that becomes a lot more limited.”Between June 2020 and June 2025, there were 245,000 dwellings approved in Melbourne against population growth of 567,000 people, ABS data shows. Sydney, in contrast, has approved 183,000 dwellings against population growth of 455,000.“When you look at the population growth ... Melbourne’s done a quarter of a million properties,” Rawnsley says. “If you put 2.6 people, the average, into those properties, you could accommodate about 637,000 people.“But our population growth over that five-year period has been more like 567,000. So, we’re fitting people in.”While greenfield builds have accounted for much of the success, Rawnsley warns that the model is not a long-term solution, and infrastructure in these areas is still trying to catch up.Rawnsley says the Victorian government’s activity centre programs will help offer development certainty, targeting pent-up demand for smaller housing in highly sought-after medium-density areas.Angie Zigomanis, Quantify Strategic Insights head of data and insights, says economic and government conditions have also added to Melbourne’s softer market.“From a property owner and investor point of view, there was the introduction of higher state land taxes for investors, [and] a whole lot of regulations around tenancy protections that might have discouraged some investors,” he says.“Maybe all those things together with Victoria’s substandard economic performance relative to the other states has dampened some of the animal spirits that are out there elsewhere.”Three interest rate rises this year have also pushed prices down, especially in Melbourne and Sydney, which Zigomanis says benefited from pre-COVID and immediate post-COVID bumps in prices.“Melbourne and Sydney have done worse because when interest rates went up, those markets were hit harder,” he says. “The other markets – Brisbane, Adelaide and Perth – which hadn’t had that pre-COVID and immediate COVID rises were allowed to keep going. So part of it is just a cyclical timing issue.”With a higher interest rate environment and rising unemployment, Zigomanis says it looks like the Melbourne market will remain soft for a while.“All those things are obviously affecting sentiment on top of the government malaise that’s already there,” he says.More:Victoria residential propertyProperty marketProperty pricesSalesHousing slumpMelbourne house pricesProperty listingsFrom our partners