Melbourne property market predictions

June 2, 2023

What does the Melbourne property market have in store for the rest of 2023?

What does the Melbourne property market have in store for the rest of 2023?

Before answering this question, it is worth mentioning that although the past is no guarantee of the future, it can provide a very important understanding of the current situation and likely future direction, especially considering that the property market traditionally moves in rather slow cycles.

As the second half of 2023 begins, there are a few key factors at play that will likely influence the progression of the Melbourne housing market over the short – medium term as discussed below.

Why is there a housing shortage in Australia?

There has been a chronic undersupply of property in Australia over the last decade. According to Corelogic (a research company that provides consumer information, analytics, and intelligence on property) building approvals for both houses and units are well below the 10-year long term average. This means that we are experiencing a property deficit, which is likely to continue.

There are also fewer houses for sale, and those that are, are taking longer to sell due to consumer fears about high interest rates. The high interest rates have cut borrowing capacity by approximately 30%, hence favouring the more affordable lower & middle parts of the market.

The Reserve Bank of Australia (RBA), Federal Treasurer and most respected economists have publicly stated that they believe inflation has peaked and that interest rate hikes will almost stop and start coming down soon.

In addition, the banking regulator, APRA, is under pressure to reduce the 3% buffer interest rate loading that banks use to calculate loan serviceability down to only 1%, as future interest rises are unlikely. This would allow more people to borrow and to borrow more.

All of this has begun to fuel the early buyers who have been waiting for more certainty before committing to a big purchase like a house. Therefore, despite the current high interest rates and borrowing restrictions, the property market is already showing signs of growth.

Rental price increases

This housing undersupply has been putting significant pressure on rental vacancy rates, which in a balanced market typically hovers between 2.5 to 3.5%. This has caused rental prices to jump by over 20% in capital cities across Australia since the beginning of the COVID-19 pandemic in 2020 This has attracted investors away from the other investments like shares and into the property market due to the prospect of a higher return on investment.

Employment rate

Australia’s unemployment rate is still near a 50-year low. This means that the majority of Australians are very secure in their jobs and both consumer spending and consumer confidence are relatively strong, despite the current high interest rates. As a result, people are confident that they can service a mortgage (albeit with some belt tightening on non-essentials) but have chosen to wait until interest rates have stabilised or started to decline before purchasing a property.

Household formations

According to RBA figures, “household formations” across Australia (or the formation of a new household) have surged by 120,000 since the pandemic started – despite the country’s borders being shut for some time. Key drivers of this include:

  • People wanting to live alone.
  • The reduced need to live close to the city due to being able to work from home.
  • The increased want for a better lifestyle by having more space and a backyard.

Many economists have dubbed this surge of new households as the “great spreading out” or the “first wave” that soaked up many available rentals.

Government policies for home ownership

The Australian government has also been urged to make up for the loss in immigration during the pandemic by increasing migration over the next few years to help fill jobs and boost Australia’s economy. This has resulted in another growth in immigration, which is considered to be the “second wave”.

Australia has had many decades of uninterrupted economic growth, fuelled primarily by immigration and the country’s policy surrounding this. This policy allows skilled migrants to move to Australia if they possess a “required skill”, which includes anything from cooking to specialised medical and engineering as examples. These skills are all in current demand across Australia and offer well paid employment opportunities, generally allowing migrants to move to Australia and start earning straight away. Data shows that after a period of renting, these migrants will buy a home, with the majority eventually settling in Melbourne (due to Sydney’s congestion and high cost of living).

By some estimates, this could see between 800,000 to 1 million new immigrants moving to Australia over the next few years – all of whom will need somewhere to live. This surge in immigration, coupled with internal migration and births has recently made Melbourne Australia’s largest city once again.

The Federal Government is now also taking active steps to make home ownership accessible to a larger number of people. For example, they have announced an expansion of the Home Guarantee Scheme (HGS), allowing those on lower incomes and non-related friends to buy a property together with a 5% deposit and no Lenders Mortgage Insurance (LMI). This expansion also extends to those who have previously owned a home, but have not owned one in the last 10 years, and single parents who can now enter the market with a 2% deposit and no LMI. Permanent residents have been included in the Scheme as well, as opposed to just Australian citizens.

Cost of building supplies

Figures have shown that the cost of building a house has risen by approximately 24% since the start of the COVID-19 pandemic, largely due to the scarcity of materials and trades. And according to Resimax Group’s Tick Homes, whilst the supply of materials coming back into the market may bring the build time of houses back to normal timeframes, the price increase for materials, approvals and trades will likely not come down.

Property market growth

When considering the drivers of supply and demand together, it is evident that the Melbourne property market will be in for some strong and sustained growth over the next few years. And with the WFH trend set to continue, “lifestyle” properties are set to see sustained and significant growth. This includes properties that provide great lifestyle benefits such as extra rooms, private backyards in friendly communities with great amenity including easy access to sport, schools, shopping and work. Eynesbury, a Resimax masterplanned development with a long list of features and amenities, including a future commercial centre and a resort style hotel and day spa, is an ideal candidate for lifestyle living and maximised long term property growth. Get in touch to find out more about investing in this fantastic community.


Disclaimer: This article is for general information purposes only and should not be taken as advice. Always seek professional advice from suitably qualified professionals familiar with your situation and goals.


Steven Molnar is Head of Research and Education for Resimax group. With over 25+ years in property and finance in Australia and internationally.