Melbourne Is Undersupplied. Badly.

I’m not trying to sensationalize this. But Melbourne is in a serious housing shortage right now. As of May 2025, Melbourne is facing a significant housing supply crunch.

- New housing approvals have declined sharply,
- construction activity is at its lowest level in over a decade, and
- rising costs are forcing developers to pause or delay projects.

This slowdown is tightening the housing market further.

Why Is Supply So Tight?

Since the COVID-19 pandemic, building costs have surged by 30–40%, squeezing developer margins and causing many projects to become financially unviable.

According to the latest ABS data, total dwelling approvals dropped 8.8% to 15,220 in March 2025, with private sector unit approvals down nearly 19% year-on-year. This means fewer new homes are entering the market, especially high-density apartments, which are critical to maintaining housing affordability in Melbourne.

Dwellings Approved (March 2025 key figures)

Source: https://www.abs.gov.au/statistics/industry/building-and-construction/building-approvals-australia/latest-release

Despite the Victorian government’s ambitious plan to add over 300,000 new homes by 2051 - focused on fast-tracking development around 50 train and tram zones - the current pace of construction remains slow. The shortage of cranes in the skyline today signals fewer apartments will be completed in the next two to three years.

Demand Remains Strong

Demand for homes close to public transport, jobs, and services continues to climb, driven by population growth and migration. This widening gap between supply and demand is pushing up both property prices and rents.

Interest Rate Cuts Are Likely Imminent

The Reserve Bank of Australia has held the cash rate steady at 4.10%, but with inflation easing, markets expect rate cuts to begin as soon as May 2025. Rates could fall to around 3.10% by the end of the year, marking the first cuts in years.

In anticipation, banks have started lowering fixed mortgage rates, and once official cuts occur, more buyers are likely to enter the market, intensifying competition and driving prices higher.

Rental Market Remains Highly Competitive

Melbourne’s rental market is one of the tightest in Australia. Median rents climbed to $575 per week by March 2025, a 3.6% increase in the quarter alone. Vacancy rates remain low at approximately 1.5%, reflecting strong demand and limited supply.

Unit Rental Price (March 2025 Quarter)

In sought-after suburbs like Southbank, Box Hill, and Footscray, gross rental yields range from 5% to 5.7%, outperforming many Sydney locations. This makes Melbourne attractive for investors, especially those who purchased in the past couple of years and are now enjoying robust rental returns.

While new caps on international students have eased some pressure in shared accommodation, demand for traditional rentals continues to surge, fueled by migration and population growth. Investors who entered the market in the past year or two are seeing robust returns. If you buy now, the rental income could carry a large portion of your mortgage.

Government Incentives and Market Stability

Following the recent federal election, Prime Minister Anthony Albanese’s government continues to prioritize boosting housing supply without increasing taxes on investors. One key incentive is the 12-month stamp duty concession on off-the-plan apartments, units, and townhouses, which began on October 21, 2024, and will expire on October 21, 2025.

This concession removes previous price caps and eligibility restrictions, allowing buyers of properties over $1 million to save significantly on stamp duty.

This limited-time offer presents a rare opportunity to reduce upfront costs and enter Melbourne’s undersupplied market before the concession ends.

My Honest Take? 

I’ve been doing this for almost two decades. I’ve seen markets rise, dip, pause, and roar back. Melbourne right now? It’s poised for increased activity.

Think about it:

- Undersupplied market.

- Rentals shooting up.

- Interest rate cuts likely.

- Stamp duty relief.

- Political stability.

- International demand.

You don’t need all of these working in your favor to make a good investment - but we have them all right now.

If you wait six months, you’ll be paying more, competing with more buyers, and possibly losing out on valuable stamp duty savings.

Save big on stamp duty before the concession ends on October 21, 2025. Melbourne’s property market is tight, and this is your chance to get a great deal.

Message us now.