The type of home that’s holding the Melbourne property market back

Melbourne’s median dwelling value has fallen below those of Perth and Adelaide, because of the state’s weak property market and a higher-than-usual concentration of units in the Victorian capital, analysis shows.

Sydney, Brisbane, Adelaide and Perth all now have higher median dwelling values than Melbourne’s, according to CoreLogic data. The closest to Melbourne’s median value of $766,000 was Perth, at $785,000.

The median dwelling value is calculated by estimating the value of all properties in a region and includes both houses and units. It differs from median prices, which are derived from sales over a specific period of time.

Melbourne home values fell another 0.2 per cent in August, the CoreLogic Home Value Index released this week showed, and are 1 per cent lower than a year ago.

CoreLogic research director Tim Lawless said Melbourne’s slide down the value rankings of Australia’s cities had upended the hierarchy of the state capitals.

“Broadly, this is about Melbourne prices going backwards while other markets are going higher, so there’s that,” Lawless said. “These two markets [Perth and Adelaide] are booming at a time when Melbourne is moving through a downturn, which helps explain why there’s been a changing of the guard.”

Melbourne’s median house value is higher than the median house value in Perth and Adelaide, and the same is true of units, but Lawless said the make-up of the housing available in each city affected the final median value.

About a third of Melbourne homes were apartments, which weighed on the median value. Credit: Wayne Taylor

“Melbourne’s house dwelling value is still higher than Perth and Adelaide. But not by a lot,” he said. “There’s still a differential when you look at the underlying complements of housing. It’s really the composition of housing that has dragged Melbourne’s value down.”

Melbourne had about twice the proportion of units of the two smaller capitals.

“In Melbourne, a third of all housing stock is medium to high-density,” Lawless said. “Perth and Adelaide simply haven’t densified, hardly at all. They’ve moved from roughly 13 per cent of dwelling stock being multi-unit … to 16 per cent over the decade.”

Quantify Strategic Insights head of data and insights Angie Zigomanis said units tended to be smaller homes than houses, which would also weigh on the median.

“A big part of the apartment stock would be one-bedroom apartments … it’s concentrated towards one and two-bedroom dwellings, so you’re skewing the dwelling value towards those dwellings relative to Adelaide and Perth,” he said. “It’s probably also the type of stock that’s being offered as well.

“A three-bed unit will go for less than a three-bed house in the same area.”

Melbourne had so far managed to build more housing than most other Australian cities, which had also contributed to the lower medians, Lawless said.

“[Melbourne’s supply response] has been much healthier, which is a testament to the state for delivering supply. Higher supply levels have helped to keep a lid on affordability,” he said. “Some people see that as a real positive. If you’re a first home buyer this is a fantastic outcome.”

Barry Plant chief executive Lisa Pennell agreed it was a good time to buy for first home buyers.

“It’s a great opportunity for anyone looking for the long term,” she said. “It’s the perfect time to buy in Melbourne. You want to fish where no one else is fishing, so come here, it’s perfect.”

Lawless said the subdued prices were often said to be caused by increased taxes on investors, which he said had contributed but were not the only cause.

“I wouldn’t say investors are absent from Victoria,” he said. “We’ve seen a 9 per cent increase in the value of investor loans in Victoria, but that’s against 30 per cent nationally. It’s not going backwards, it’s not like they’re abandoning Victoria.”

Pennell said Victoria’s weak economy was contributing to the cheaper median value.

“It’s clear Victoria is not in a good state when compared to other states, economically,” she said. “Of course the median price will slip in that environment.”