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The major city has recently dropped from second most expensive capital to sixth. Is it an outlier of the Australian market or at the forefront of a widespread shift?
Gary Brinkworth, CEO of property valuation and advisory group Herron Todd White, asked this question in the firm’s latest property market update looking at the market fluctuations that have taken place over the month of October.
Observing that the change in Melbourne’s market occurred over a short period of time – dropping from second highest capital in terms of value to sixth only in the space of the past year – Brinkworth said it is important to consider whether the city’s performance is “a lead indicator for other Australian markets”.
To dig into the question, he highlighted several factors that are behind Melbourne’s drop in the rankings.
Firstly, Brinkworth noted that contrary to what some might believe, “sales activity remains relatively robust in Melbourne. Its proportion of transaction volumes remains similar to those for Brisbane, Adelaide and Sydney. So, it isn’t inactivity that’s impacting prices”.
Rather, he said, the housing supply of the city is a major factor in what sets it apart.
“Recent reports indicate Melbourne has created more new housing in the past 10 years than other capitals, and that higher density as a proportion of all housing has increased, too. This would suggest demand for certain types of accommodation is being satisfied by supply, which would result in softer price movement,” he said.
Population growth of the city has also played a factor. New overseas arrivals make up a substantial proportion of the state’s incoming residents. However, international student caps set to take effect in 2025 may already be affecting accommodation needs in the city, and are certainly expected to have an impact next year.
Meanwhile, interstate migration to Victoria is currently flat. It’s a welcome change from the recent net outflow, but still at odds with some of the mid-sized capitals that have been benefitting from a solid influx of Australian movers in recent years.
Given these data points, Brinkworth said it’s unlikely that Melbourne’s property price will “quickly bounce back towards long-term relative norms compared to other capitals”.
“Instead, current information suggests Melbourne values will remain subdued with eventual gains over a much longer period than some might hope,” he said.
While Brinkworth believes that the factors at play are unique to Melbourne and therefore not a precursor to a widespread trend, he did venture to suggest that other capital cities might see their markets fall back to long-term average growth rates in the future, shifting away from some of the rapid growth experienced in the likes of Perth and Brisbane.
“Certainly, increased competition among lenders for business at a time when rate cuts are on the horizon might imply enquiry levels are softening, which doesn’t normally bode well for overall property market activity,” Brinkworth noted.
In Melbourne in particular, he urged patience, predicting that the long-term outlook for the city is stable for those prepared to wait it out.
“History shows that Australia’s capital city property markets do tend to return to a relative normalcy, but the Melbourne experience indicates the rebound will be relatively conservative and extended this time around,” he said.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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