McGrath Report – Solid outlook for Melbourne as growth increases – John McGrath

Melbourne’s property market continued to gain momentum in 2025, after five years of sluggish growth. As of September 2024, the southern capital city shifted from being the second most expensive capital city market in 2020, to the third most affordable, according to Cotality’s Housing Affordability Report last month.

Cotality’s latest Home Value Index confirmed this position, with Melbourne’s median dwelling value now $823,495, following a 4.2% annual lift. Only Hobart and Darwin offer lower values of $703,340 and $578,871 respectively. And, in an unusual capital city outcome, Melbourne’s broad middle market, rather than its lower quarter, is experiencing the fastest value increase.

We discuss the city’s affordability, as well as its other attractions in our recently released McGrath Report 2026. These include a strong property supply, a fast-growing population, and a pipeline of infrastructure projects, that may contribute to a silver lining for the Melbourne property market.

The $15 billion, 9km Metro Tunnel, opened on November 30, and connects the city’s west and south east, while the $10 billion, 2.5km West Gate Tunnel is set to open this month. Another major project is the North East Link, due to open in 2028, and featuring 6.5km of twin tunnels, making it the longest road tunnel in Victoria. And, tunnelling for the immense Suburban Rail Loop (SRL) is due to start next year.

So, given these benefits, it’s no surprise that for the third consecutive year, Economist Intelligence named Melbourne one of the top five most liveable cities in the world in 2025. The city’s population certainly grew by 142,600 people during FY24, the highest of any capital centre, according to Australian Bureau of Statistics’ data released in March.

At the same time, the city’s recent population and property value growth follow several softer market years. Several factors contributed to this, including land tax changes, tighter rental laws, and strong supply.

The state’s rental market shrank by over 24,000 properties in 2024, as investors sold off their Victorian properties due to mounting costs. These costs include the state’s land tax free threshold being cut from $300,000 to $50,000 in 2024. No-fault evictions were also removed and stricter minimum rental standards were introduced. This year, Victoria also applied a new levy of 7.5% on total booking fees for short stay rentals.

But first home buyers have been happy to take the place of investors, with this group comprising 23.5% of all property purchasers in March 2025. This is higher than any other any other state or territory. Key to first home buyers’ growth are Victorian Government incentives, including stamp duty exemptions for new homes up to $600,000 and concessions for homes up to $750,000.

The Victorian Government’s focus on boosting housing stock has also given first home buyers, and others, more choice and helped take some steam out of the market. The first SRL stage will support over 70,000 new homes over 30 years. Another 50 activity centres are planned around metro train and tram stops, enabling 300,000 extra homes by 2051. And, under the National Housing Accord, Victoria is expected to outperform other states, with the government forecast to reach 98% of its target, based on its plan to build 306,000 homes by 2029.

As prices continue to recover and more projects are completed, Melbourne’s fundamentals remain strong, which bodes well for next year and beyond. So, irrespective of the winners and losers in the city’s property market during 2025, its outlook appears solid in the period ahead.

Check out my top suburb picks in Melbourne here.