Melbourne’s failure to launch

Today we were presented with REA’s latest economic data by their Property Economist, Anne Flaherty. 

There were several key takeaways, but the woolly mammoth in the room was Melbourne’s gross underperformance in property price growth compared to literally everywhere else in Australia in recent years. 

Median house price growth since March 2020:

Adelaide – 73.2%

Brisbane – 72.2%

Perth – 72.2%

Sydney – 38.2%

ACT – 36.1%

Hobart – 34.4%

Darwin – 27.6%

Melbourne – 15.8%

Source: REA

In other words, Brisbane, Perth, and Adelaide have seen almost five times the price growth of Melbourne since COVID. 

Even regional Victoria has outperformed Melbourne, with the ‘rest of VIC’ having seen 39% price growth since March 2020. 

Rather than playing the blame game as to why Melbourne property has failed to launch since COVID while the rest of Australia has seen exceptional growth, let’s look at the opportunity… 

Melbourne has become relatively far more affordable than many other capital cities.

The median house price in Brisbane and Adelaide is now higher than Melbourne, which is quite remarkable when you consider that Melbourne was ranked as the most liveable city in the world for seven years running and has a population two-to-three times larger, and growing at a more rapid rate. 

We are the headquarters of some of the largest (mining) companies in the world, host world class sporting events annually, and are an “international” city in the truest sense. 

When I lived in America, everyone I came across had heard of Melbourne (“Mel-Born”). You cannot say the same for Brisbane, Adelaide or Perth. 

At some point Melbourne property is going to start looking very attractive to both the local market (first home buyers, investors, upgraders) and those further afield (interstate buyers, interstate and foreign investors, ex pats). 

Buying is beginning to make more sense than renting.

Rental affordability in Melbourne has never been worse, with rents growing 10-12% over the last 12 months, while property prices have gone backwards by 1.6% over the same period (REA). 

We have already noticed a substantial increase in demand for first home properties, such as the older style two- and three-bedroom apartments and villa units in the $700,000 – $1,200,000 range. 

It appears that many are sick of renting and have decided to get on the property ladder, even if this means starting at a lower rung, given that large apartments are still far more affordable than small houses. 

Victoria is growing at a staggering pace. 

Victoria has the highest forecast population growth of all states, with a predicted 11% growth (660,000 people) over the next five years. 

Where are all these people going to live? Sure, most will rent, but some will buy.

Match this with a paltry pipeline of new supply, with new dwelling approvals lacklustre, and both construction costs and the average duration from approval to completion at historical highs. There is just no way that supply will be able to keep up with demand. 

Hence, opportunity. 

Throw in a handful of rate cuts and we might finally have enough fuel to launch…. We sure have some catching up to do.

Feature Property: 9-11 Lewes Drive, Glen Iris