How Melbourne’s housing affordability actually improved over four years

Housing affordability has modestly improved for Melbourne home buyers to its best level in four years, but it remains a challenge to save a deposit and service a mortgage.

Melbourne’s median dwelling value fell to 7.1 times the median income by June 2024, the ANZ/CoreLogic Housing Affordability Report for the June quarter, released on Friday, showed.

Melbourne’s weak property market has made it easier for buyers to achieve success, but prices are still unaffordable. Credit: Luis Enrique Ascui

This mark has inched down from a ratio of 7.2 in June 2023 and a peak of 8.2 in late 2017, which came at the end of a sustained property boom.

But it remains high by historical standards, as dwellings cost only 5.1 times incomes in 2001.

The modest improvement for buyers comes as Melbourne’s housing market has stalled this year, and the rise in home sellers compared to potential buyers has pushed home values lower. At the same time, wages have been edging higher, which has put prospective buyers in a better position.

CoreLogic head of Australian research Eliza Owen said Melbourne home values peaked in 2022, then fell when interest rates started rising, and have not rebounded as much as in other large capital cities.

Weak internal migration trends had reduced the pool of buyers, she said, even though Victoria had built more homes over the past two decades than other states, such as NSW, at about 1.1 million and 884,000 respectively, she said.

Over the past year, Melburnians have listed about 100,000 homes for sale but only purchased 87,000.

“You’ve got a surplus of stock in the purchasing market which is weighing on values because buyers can bring asking prices down,” Owen said.

She said the Victorian government’s land tax increase had also reduced demand from investors. Growth in housing finance from investor buyers is lower in Victoria than it is nationally.

But Owen warned that more was needed to improve affordability.

It would still take Melbourne’s median household 9.5 years to save a deposit for Melbourne’s median dwelling, the report found. Meanwhile, it would take 45.2 per cent of a Melbourne household income to service a mortgage, when households are considered to be in mortgage stress if they pay more than 30 per cent of incomes on housing costs.

Renters also face bleak affordability rates, as they pay 28.2 per cent of their incomes to afford the city’s median rent, up from 26.1 per cent a year earlier.

“If you’re only relying on a cyclical downturn to see an improvement in affordability you aren’t necessarily creating more affordable housing for the people that need it the most,” Owen said.

“The biggest price declines have been at the high end of the Melbourne market where obviously you may not need affordability to improve.

“It’s an improvement, but it’s not enough to substantially boost homeownership or make housing more accessible to those who really need it. That doesn’t come from a downturn in values and a mismatch of supply and demand, that comes from a very deliberate strategy to create more social and affordable housing and implement housing policy that sustainably brings values down.”

ANZ economist Madeline Dunk said Melbourne’s labour market had been strong this year and people were working more hours, which had helped improve affordability for potential home buyers.

“It’s still a challenge for people to purchase a home, there’s no doubt about it, but the good news is for people living in Melbourne or thinking about moving to Melbourne, it’s a little more achievable than, say, Sydney,” Dunk said.

“If I’m a young person thinking about whether I take a job in Melbourne or Sydney, the fact it’s a lot easier to purchase a property in Melbourne would be a contributing factor.”