The surprise city that’s one of Australia’s most affordable to buy in

In the middle of a
housing
crisis, you’d think property prices would be soaring in the city that has consistently been judged
Australia’s
most liveable, right?
Wrong – and by some distance.
Melbourne
was the nation’s second most expensive property market for a long time, trailing Sydney but with a hefty buffer between it and third place.
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Now it’s fallen into sixth, with CoreLogic data released earlier this week showing housing is more affordable in Melbourne than any other capital city aside from Hobart and Darwin.
So why is finding somewhere to live cheaper in the Victorian capital than not just Sydney but also Brisbane, Perth and Adelaide?
There’s no single answer, but part of the equation is supply.
“There is also a lot of new supply in Melbourne, though these figures are down on previous years,” Swinburne urban planning expert Dr Stephen Glackin told 9news.com.au.
“While building is down in Melbourne, a lot of the buildings in development over the last few years have come online, providing more options.”
That’s evident in the ABS’s national construction figures. 
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While Victoria is the second most populous state, it’s drastically out-built the rest of the country, its 825,000 homes completed since 2010 over 100,000 more than next-best New South Wales.
The number of properties available for sale in Melbourne has also soared in comparison to the other major cities.
“If we look at total listings in Melbourne, they’re generally running about 25 per cent above average levels compared to the last five years,” Commonwealth Bank senior economist Belinda Allen told 9news.com.au.
“In Sydney, it’s about flat, whereas in Adelaide, Brisbane and Perth, the available properties to purchase are sitting 40 to 50 per cent below average.”
The taxman is holding another piece of the puzzle.
“Investors are not buying houses anywhere near as rapidly as what you’re seeing in other states,” Allen said. 
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“Investor lending in Victoria is only up about 9 per cent over the past year, whereas elsewhere it’s running at about 30 per cent, so a lot less investors are interested in Victoria at the moment, and that’s because we have an increased tax burden.”
Last year, in an attempt to address the state’s huge COVID-era debt, Victorian Treasurer Tim Pallas unveiled a new 10-year tax on investment properties.
The general land tax-free threshold for second (and third and fourth and so on) homes was cut from $300,000 to $50,000, and taxpayers slugged with a flat $975 rate plus 0.1 per cent of the value of their land above $300,000.
That came into effect on January 1. Two months later, Melbourne started a run of home price drops that is yet to stop.
Its median dwelling price now sits at about $776,000, just behind Perth (785,250) and Adelaide (790,789), and well shy of Sydney ($1.18 million) and Brisbane ($875,040).
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In some ways, it’s a reflection of Victoria’s wider financial troubles, where state debt is forecast to climb towards $200 billion in the coming years.
“It’s really just not the housing market where we’re seeing is different,” Allen said. 
“We are seeing it in other economic indicators in Victoria – the Victorian economy is at odds with what you’re seeing in other states. 
“There’s just a broader issue going on that’s hard to pinpoint.”
At the same time, the city-wide median home price doesn’t tell the full story.
“Melbourne is so big that it has many submarkets,” Glackin said. 
“If you dig into it you will find that higher value areas, or possibly areas with better CBD access, have dropped, but middle and outer areas may actually have gone up. 
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“This occurs in Perth during mining ups and downs where higher value places drop in a downturn, but middle-value housing goes up.”
Melbourne’s median price is also slightly skewed by its high share of apartments – about a third of all dwellings there are units, while Adelaide and Perth are closer to 15 per cent.
Despite that, the lull isn’t likely to last too much longer. 
Commonwealth Bank predicts Melbourne prices will be back on the rise, up 4 per cent next year on the back of forecast interest rate relief – although the picture in Victoria will still be far rosier for buyers than in many other capitals.
“When we think about what’s going to drive property prices through the later stages of this year and into next year, it gets back to what historically has been one of the biggest factors driving home prices: interest rates,” Allen said. 
“If we do get that interest rate relief, it should support home prices generally, because we do see lending rise, and then that pushes home prices higher as well. 
“But we still don’t have Melbourne rising anywhere near as fast as, say, Brisbane, Adelaide and Perth, just because of the supply challenges in those capital cities.”