Key takeaways
- Written March 2024, when Melbourne values were down 4.2% while the national market rose 1% — the divergence that has since widened.
- Rents were rising sharply against falling values, which lifts yields but signals weak buyer demand rather than strength.
- Melbourne house values were down 1.2% year-on-year to June 2026, median near A$948,000 — the growth projected here did not arrive.
- The rental crisis was real and persists — vacancy reached 1.1% in October 2025, the tightest in fifteen years.
- Rising rents with flat prices is a genuine buyer's market for an income investor, and a poor one for anyone needing capital growth.
Melbourne rents are high and vacancy is tight. That is true, and it is a reason to look at Melbourne. It is not a reason to hurry, and the two get conflated constantly.
A rental shortage is good for your yield. It has done nothing for prices — Melbourne house values fell 1.2% and units 0.2% over the year to June. Both things are true at once, and understanding why is the difference between buying well and buying on a headline.
Where the rental market actually is
Melbourne vacancy was 0.9% in early 2024 and around 1.1% in October 2025. Historically that is very tight — a balanced market sits nearer 3%.
But the direction matters more than the level. Citywide rent growth was roughly 3.8% in 2025, after a 19.6% spike in 2023. And views per rental listing have been falling year on year since mid-2023, which is the earliest signal that demand is cooling while the vacancy figure still looks dramatic.
So: tight, still tight, no longer tightening. Underwrite your numbers on today's rent, not on another year of increases.
Why tight rents have not lifted prices
Renters and buyers are different people. A new arrival needs somewhere to live immediately — around six in ten rent — and that lands straight on the rental market. But they do not buy for years, and many never do.
What sets purchase prices is borrowing capacity, and that is governed by interest rates. The cash rate is 4.35%, and cuts are not expected before 2027. Higher rates mean smaller loans, which caps prices regardless of how many people are looking for a rental.
This is why "rental crisis" and "flat prices" appear in the same market without contradiction.
What that means for you
The yield case is reasonable. Inner-Melbourne apartments run around 4–5% gross. A new, well-located apartment near transport or a university should lease quickly.
Gross is not net. Take off owners corporation fees, council rates, management at 6–8%, insurance, land tax, and — as a foreign owner — the absentee owner surcharge. What reaches you is materially less than the headline.
Flat prices are not automatically bad. You are buying without froth, and the rent starts immediately. But treat it as a long hold. If you need the property worth more in 2029, that is a forecast nobody can give you honestly.
The costs that decide this, for a foreign buyer
- 8% foreign purchaser duty on top of ~5.5% general stamp duty — about A$108,000 on an A$800,000 apartment
- Absentee owner land tax surcharge, every year you hold it
- FIRB application fee, scaling with price
- New dwellings only until 30 June 2029
Over a short hold, those move your return far more than a 1% market shift either way.
Where the rental tightness is real, and where it is average
City-wide vacancy figures hide enormous variation. Southbank and Docklands carry a lot of investor-owned stock competing for the same tenants. Suburbs near the universities, or with genuinely good transport, behave differently.
Ask for vacancy and rent evidence for the specific postcode and the specific configuration — not the Melbourne average — and ask what else is completing nearby in the same window. A 300-unit building finishing two streets away in your settlement year is the thing that will hurt your rent.
Who should act on this
You should look if you want income rather than growth, if you are ABSD-blocked in Singapore, or if a child is starting study in Melbourne and you would otherwise pay A$130,000–180,000 in rent over their degree.
You should wait if your case depends on rents continuing to climb at 2023 rates, or on prices recovering by a particular date.
What I would check first
- Vacancy and achieved rents in that postcode, for that configuration
- New supply completing nearby in your settlement window
- Net yield after every cost, including the Victorian surcharges
- Whether the building's owners corporation permits short stays, if that was ever the plan
If you want the real numbers
Tell me your budget and whether this is income, a base, or somewhere family will live. I will send comparable achieved rents for that specific area, what is completing nearby, and a net yield after every Victorian surcharge.
If the numbers do not work, I will show you why rather than point at the vacancy rate.