Why the Melbourne Property Market is Taking Longer to Bounce Back

Melbourne’s property market, once one of the most robust in Australia, has been slower to recover compared to other capital cities like Sydney and Brisbane. While the housing sector remains resilient, several factors are contributing to this delayed rebound. From economic challenges to shifting buyer preferences, here’s a closer look at why Melbourne's property market is taking longer to bounce back.

1. Impact of Prolonged Lockdowns

Melbourne experienced some of the longest and strictest COVID-19 lockdowns in the world. These extended restrictions put a temporary freeze on property transactions, construction projects, and market activity. While other cities bounced back quickly as restrictions eased, Melbourne’s prolonged lockdowns created a backlog of delayed listings and hesitant buyers. The city is still catching up from this period of inactivity.

2. Slow Population Growth

Population growth is a key driver of housing demand, and Melbourne has traditionally thrived due to its appeal to international migrants and interstate relocators. However, the pandemic caused a significant drop in both overseas migration and interstate migration to Victoria. While borders have reopened and migration has started to pick up, the slowdown in population growth has tempered demand for housing, particularly in inner-city areas where renters, students, and new arrivals typically reside.

3. Shift in Buyer Preferences

The pandemic shifted many people’s preferences when it comes to housing. With more individuals working from home, the demand for larger homes in suburban and regional areas has surged. Melbourne's inner-city apartment market, which was once a strong performer, has struggled with reduced demand as buyers prioritize space, lifestyle, and proximity to green areas over city living. This has led to a slower recovery in some parts of the market, particularly in central Melbourne.

4. Rising Interest Rates

The Reserve Bank of Australia’s decision to increase interest rates has affected buyer sentiment across the country, but Melbourne has been particularly sensitive to these changes. Higher interest rates reduce borrowing capacity, which has made it more challenging for first-home buyers and investors to enter the market. As a result, some buyers have been forced to hold off on purchasing, waiting for more favorable lending conditions. The cooling effect of rising rates has been especially pronounced in Melbourne, where property prices were already high.

5. Oversupply in the Apartment Market

Melbourne’s apartment market, particularly in the CBD and surrounding areas, has faced challenges due to an oversupply of properties. Prior to the pandemic, a construction boom saw the rise of numerous high-rise developments aimed at investors and international students. However, with reduced migration and many students still studying remotely, the demand for these properties has not yet recovered. The oversupply has led to longer listing times, price reductions, and a slow recovery in this sector.

6. Economic Uncertainty

Broader economic factors, such as inflation and global financial instability, have made many potential buyers cautious. Concerns over rising living costs, energy prices, and the uncertainty of future interest rate increases are making buyers more conservative in their approach. While Melbourne’s economy is gradually improving, these economic pressures have slowed down the confidence required for a more rapid property market recovery.

7. Increased Supply in Suburban Markets

As more people move away from the inner city in favor of suburban or regional living, many Melbourne suburbs have seen an increase in property listings. This shift has created more supply, reducing the competitive pressure on buyers in suburban markets. With more options available, buyers can afford to take their time, contributing to longer transaction times and fewer bidding wars.

8. Recovery of the Rental Market

Melbourne’s rental market was significantly impacted during the pandemic, especially in the inner-city apartment sector, where vacancy rates soared. However, as international students and workers gradually return, the rental market is beginning to recover. This slow but steady revival is essential for the overall property market, as it will bring back investor interest. Until the rental market fully stabilizes, though, Melbourne’s property market recovery will likely remain uneven.

Looking Ahead: What Will Drive Melbourne’s Recovery?

While Melbourne’s property market is taking longer to bounce back, there are positive signs on the horizon. The return of overseas migration, particularly students and skilled workers, will help fuel demand for inner-city properties. Additionally, as the economy continues to stabilize and interest rates plateau, buyer confidence is likely to improve.

Government incentives, such as grants for first-home buyers and stamp duty concessions, may also help accelerate the market’s recovery, encouraging more buyers to enter the market. For sellers, it’s important to remain patient and work with experienced agents who understand the evolving market dynamics.

Conclusion

The Melbourne property market’s slower recovery can be attributed to a mix of economic, social, and market-specific factors. While there are challenges ahead, the long-term outlook remains positive. As demand for housing returns and migration increases, Melbourne will eventually regain its position as one of Australia’s strongest property markets. For now, though, both buyers and sellers will need to navigate the market with care, staying informed and adapting to the changes as they come.