Melbourne hasn’t just become more affordable than other major capitals, with wage growth likely to have outpaced home values — it’s likely also more affordable than itself five years ago. Picture: David Caird.
Australia’s next interest-rate cut has been tipped to end a bizarre property market trend that’s made Melbourne more affordable than most major capitals, and itself five years ago.
Real Estate Institute of Victoria figures released on Tuesday show the city’s $849,900 median house price at the start of the pandemic equated to about 8.6 years worth of wages at the city’s $98,852 average annual income, based on 2021 Census data.
A family on that same income today would take 9.23 years to cover the $912,300 typical home value recorded in March, 2025.
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But a household earning even $10,000 more a year than they were at the start of the pandemic in March, 2020, would have now cut that time down to 8.38 years.
AMP Capital chief economist Shane Oliver said it was likely wage growth would have been enough to price many families back into Melbourne’s property market as it had lagged the rest of the nation for the past five years.
“It’s certainly feasible that wages probably went up more than prices during the five years,” Mr Oliver said.
While noting all Aussie capitals were expensive, the economist said Melbourne’s relative affordability was now at the point where rising population combining with interest rate cuts ahead meant Melbourne would “outperform” in the next five years.
74 Maribyrnong Rd, Moonee Ponds, sold for just above Melbourne’s median price at $926,000 a few days ago.
AMP Capital economist Shane Oliver believes Melbourne’s time at the bottom of the nation’s real estate markets is coming to an end.
“There’s no rational reason now why someone in Melbourne would think about relocating to Brisbane, unless they are looking at the weather,” he said.
“But in time that will lead to a deterioration in its relative affordability.”
Westpac bank chief economist Luci Ellis said while the bank was only expecting modest growth for Melbourne across 2025, next year the city was tipped for an 8 per cent surge that would top the national average of 7 per cent.
“It has become significantly more affordable, in relative terms,” Ms Ellis said.
Both Mr Oliver and Ms Ellis said Victorian government property taxes left a question mark over how well Melbourne would perform in the coming years, as at present they were a deterrent for investors.
REIV interim chief executive Jacob Caine said despite a weak five-years growth, Melbourne’s fundamentals remained strong — and it was likely it would not only attract investors looking at its attractive prices, but even families looking to relocate from state capitals with pricier housing.
On a compact, 380sq m block, this 1/2 Norvel St, Blackburn, home is advertised for sale at $900,000-$990,000.
Westpac chief economist Luci Ellis said the one risk for Victoria’s home price recovery is hefty property taxes in Victoria. Picture: Jane Dempster/The Australian.
“We are still one of the most liveable cities in the world, especially if you can purchase your first home here where you might not be able to in another capital,” Mr Caine said.
“But given Melbourne is languishing compared to many interstate capitals over the past 12 months to five years, and with the addition of an interest-rate cut and more on the horizon we will start to see these prices trend up.”
Oxford Economics lead economist Maree Kilroy said while Melbourne families were today spending about 7 per cent more of their income on mortgages than they were during the pandemic, that figure was the lowest in the country — with Brisbane spending up by 23 per cent in the same time.
“So it is definitely less than all other major capital cities … but we expect it to be one of the outperformers in the coming year,” Ms Kilroy said.
And the growth already appears to be underway.
The REIV’s quarterly medians data released today show Melbourne’s median house price rose 0.4 per cent in the three months to June 30.
REIV chief executive Jacob Caine said Melbourne’s days of relatively improving affordability are now likely numbered.
21 Tonkin Ave, Coburg North, sold for $930,000 over the weekend and gives a sense of what Melbourne’s median price can buy.
Melton was the most affordable, despite an $11,000 (2.4 per cent) increase in that time to $496,500.
Toorak was the most expensive with a $4.249m median house price.
Melbourne’s typical unit value has also risen 1.3 per cent to $635,000 in that same timeline.
The REIV data shows regional Victoria performed better than Melbourne, with a 2.6 per cent uptick in the $620,000 median house price and the typical unit rising 3.1 per cent to $430,000.
REIA HOUSING AFFORDABILITY BY YEARS INCOME TO BUY
| City | Moving annual median sale price for houses | Years income to buy | ||||
| 2025 | 2024 | 2020 | 2025 | 2024 | 2020 | |
| Sydney | $1,661,900 | $1,580,500 | $1,103,500 | 15.39 | 14.63 | 10.22 |
| Melbourne | $912,300 | $923,800 | $849,900 | 9.23 | 9.35 | 8.6 |
| Brisbane | $894,600 | $805,700 | $538,100 | 9.3 | 8.38 | 5.6 |
| Adelaide | $822,900 | $726,300 | $481,800 | 10.22 | 9.02 | 5.99 |
| Perth | $773,800 | $630,000 | $476,200 | 7.98 | 6.5 | 4.91 |
| Hobart | $732,500 | $726,900 | $538,800 | 9.14 | 9.07 | 6.72 |
| Darwin | $559,100 | $569,100 | $472,500 | 4.87 | 4.95 | 4.11 |
| Canberra | $974,300 | $967,500 | $691,300 | 7.9 | 7.84 | 5.6 |
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