Interstate Migration Rebounding
One of the key drivers of Melbourne’s slower price growth has been weak interstate migration flows during the pandemic. Border closures and lockdowns severely hampered movement. Net interstate migration to Victoria fell for 10 consecutive quarters from early 2020 to late 2021.
However, the latest data to September 2022 shows interstate migration rebounding swiftly. Victoria recorded a net loss of just 484 people interstate during the quarter. With borders now reopened, Melbourne is again becoming an attractive destination for interstate relocations. As migration normalizes in coming quarters, this will provide a significant boost to housing demand.
Overseas Migration Nearing New Records
While interstate migration slowed during the pandemic, overseas migration is now surging to new highs. Australia welcomed a record 1 million new overseas migrants in the year to June 2022. With international students and skilled migrants returning in huge numbers, Melbourne is benefiting as Australia’s second largest city.
These new residents need places to live, which will continue to drive strong demand for property valuation Melbourne services. The city’s relatively affordable prices compared to Sydney also make it an attractive destination for new migrants.
Healthy Demographics Supporting Prices
In addition to improving migration, Melbourne has very healthy underlying demographic trends that support housing demand. Melbourne’s population growth averaged 2.1% per annum over the past decade – the highest among the capitals outside of Perth. A growing population base creates a structural tailwind for property valuation demand in Melbourne.
Melbourne also has advantageous demographics, with the largest share of residents aged 25 to 34 of any capital – the key household formation and home buying years. As this cohort enters their peak earning and purchasing years, they will continue gravitating towards Melbourne’s diverse lifestyle offerings and relative affordability.
Advertised Listings and Rental Vacancies at Multi-Year Lows
While price growth has been modest, data shows Melbourne’s housing supply and demand balance remains tight. The number of advertised listings was 13.4% below last year in May 2023, and 7% below the five-year average. With stock remain constrained, this places upwards pressure on prices.
At the same time, Melbourne’s rental vacancy rate was just 0.8% in May, among the lowest in the country. This indicates strong demand from renters above available rental supply. With yields high, investors are active in the market, further reducing overall housing stock available for owner-occupiers.
Value Discounts Attracting Buyers
Slow price growth means Melbourne has become much more affordable compared to other capitals. At the start of 2020, Melbourne home values were 19% cheaper than Sydney. Today that discount has blown out to 30%. Discounts to Brisbane, Adelaide and Perth have also grown substantially.
For both owner-occupiers and investors alike, these value discounts make Melbourne an attractive market to enter. Prices remain 54% cheaper than Sydney for houses and 40% for units. This will continue luring buyers to the city, despite weaker overall gains.
A Resilient Market Supported by Inherent Strengths
In summary, concerns about Melbourne’s slow price growth appear overblown. Interstate migration is rebounding, overseas migration is surging, supply remains constrained and valuations are attractive relative to other cities. These inherent strengths will continue supporting demand and prices.
While higher interest rates present headwinds for all capitals, large structural tailwinds remain in place across Melbourne. Value discounts also present opportunities for both first home buyers and investors alike. As migration recovers further in 2023, expect Melbourne’s housing market to continue outperforming its reputation for weak growth.
