Melbourne’s property market is showing signs of steady improvement, supported by a strong surge in population growth through late 2024. Victoria accounted for about one third of Australia’s total population increase, largely driven by overseas migration. This steady inflow is lifting unit prices across the city, despite some short-term uncertainty. 

Price Growth and Lending Activity Pick Up 

Both unit and house prices rose in the first quarter of 2025, marking a robust start to the year. Unit values gained traction in both inner and outer suburbs. Lending activity is also on the rise, with new housing loan commitments increasing. Owner occupiers remain the main drivers, but investors are also re-entering the market—a surprising development given Victoria’s relatively tough tax and levy environment. These trends suggest a market that’s stabilising with firmer foundations as we move into the second half of the year. 

Tight Rental Conditions Begin to Ease 

Rental conditions in Melbourne remain tight, with vacancy rates steady at 2.5%, well below what’s considered comfortable. However, rental price growth is starting to slow and align more closely with overall inflation. While this won’t fix supply shortages immediately, it could help ease some of the rental market pressures experienced recently. 

Construction Costs and Approvals Shift 

Good news for developers: construction cost escalation has slowed considerably. Input costs rose just 0.6% last quarter, and output prices for unit construction increased by 0.8%, a sharp moderation from previous quarters. This easing coincides with a notable jump in apartment approvals—a 27% increase quarter-on-quarter, and 22% higher than the same period last year. Despite this, challenges remain with high residual stock and elevated delivery costs impacting project viability. If interest rate cuts come through as expected, confidence may return, especially for projects that align with current market values. 

This article references findings from our May 2025 Melbourne Apartments & Townhomes Market Report. Read the full report here.