After several challenging years marked by rising construction costs, stalled feasibilities, and cautious buyers, Melbourne’s medium and high density property sector is beginning to turn a corner. Rate cuts, stronger lending appetite, and population growth are all putting momentum back into the market.

Population growth driving demand

Victoria added more than 132,000 new residents in 2024, accounting for nearly one third of Australia’s total population growth. The state’s population has now surpassed seven million, fuelled by overseas migration, a lift in natural increase, and fewer people relocating interstate.

This rapid growth is driving broad housing demand, from rentals to first homes and investment properties – supporting a more positive outlook for developers and investors.

Finance activity shows renewed confidence 

Lending data also highlights confidence returning. First home buyers are the most active they’ve been in almost three years, accounting for more than 40% of new owner occupier loans in Q2, marking the highest level since early 2021.

Investors are back in the market too, with lending at its strongest since 2022. Relative affordability compared to Sydney and Brisbane is drawing increased interstate interest.

Melbourne’s unit market is finding its feet

Unit prices in Melbourne rose 1.3% in Q2, outperforming detached houses. While the price gap between the two housing types remains sizeable, supply is still tight, and developers are adapting to meet demand.

Banks are showing greater openness to supporting off the plan projects, particularly as presale requirements ease and private lenders collaborate more closely with developers. As ANZ’s Daniel Gradwell noted in our Q&A, this financing flexibility is helping more projects stack up.

Rental market pressures persist

Vacancy rates remain historically low. In Melbourne’s middle ring, vacancies are holding at around 2.5%, well below the long term average and now tracking close to inner city levels (2.6%).

Even as rental growth slows slightly, rents remain near record highs. Middle ring locations in particular are experiencing softer demand, intensifying competition for limited stock.

Approvals and the role of townhomes 

While apartment approvals remain soft, there are early signs of improvement. More supportive lending standards and clearer financing pathways are expected to help drive a rebound.

Townhomes will play an increasingly important role, bridging the ‘missing middle’ between detached houses and high rise towers. This shift will be key to balancing affordability and supply in a fast growing city.

Challenges remain but the outlook is brighter 

The sector still faces hurdles. Construction costs are elevated and labour shortages remain a major barrier. However, compared with where the market was 9-12 months ago, conditions today suggest a much brighter path forward.

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