Australia’s economic outlook is uncertain, with monetary policy currently at a crossroads. Regardless of changes to the cash rate, strong demand will continue to place pressure on dwindling supply.  

Rental vacancies, while fluctuating in the short term, have generally decreased in certain areas like the inner ring, suggesting limited potential for significant reductions in unit rents. 

Melbourne’s dwelling supply pipeline has continued to contract, with townhome and apartment approvals at near-decade lows. This will likely result in low commencement and completion numbers over the medium term.  

Structural reforms are progressing slowly, with both potential positives (such as shifting planning decisions away from local governments) and negatives (such as possible increases in levies on infill development). 

Reducing immigration is the immediate measure to alleviate market pressure. Although this will have future implications, the excessive post-Covid migration has contributed significantly to housing inflation.  

The 2024-25 Federal Budget forecasts a decrease in net overseas migration from around 530,000 to approximately 260,000, though the full impact will take time to manifest.  

On a positive note, construction cost pressures are expected to ease slightly this year and remain stable from 2025 onwards. The low townhome and apartment construction pipeline and the state government’s infrastructure spending plans may help reduce pressure on construction labour, potentially offering some relief to builders in the medium term.  

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