Will Melbourne’s Apartment Market Boom in 2026?

As we progress through 2025, Melbourne’s apartment market is poised for notable developments influenced by economic shifts, demographic trends, and policy changes.

After a decade of subdued performance, current forecasts suggest a potential resurgence in the sector.

Recent Market Performance

In the past few years, Melbourne’s property market has experienced challenges. Factors such as stringent government policies introduced by the Andrews government, tenant-friendly reforms, extended COVID-19 lockdowns, and elevated taxes have deterred investors, leading to a stagnation in property prices.

While cities like Brisbane, Adelaide, and Perth saw substantial home price growth, Melbourne lagged behind.

Forecasted Growth

Several analyses project an optimistic outlook for Melbourne’s apartment market:

• KPMG’s Residential Property Market Outlook forecasts a 4.7% increase in unit prices for 2025, followed by a 7.1% rise in 2026. This anticipated growth is attributed to ongoing affordability constraints, making apartments a more viable option for many buyers.
• ANZ Bank predicts capital city housing prices will rise 2.7% in 2025, then speed up to 4.1% in 2026, with Melbourne leading at 4.9% due to its relative affordability.
• CBRE forecasts a 25% rent hike by 2029, with two-bedroom units topping $600 weekly in 90% of Aussie precincts as demand outpaces supply.

Source: Core Logic.

Factors Driving the Market

Several key elements are expected to influence Melbourne’s apartment market in 2025-2026:

Population Growth and Migration: With Australia’s borders reopened, Melbourne is experiencing a surge in migration, positioning it as a top destination for overseas migrants. This influx is increasing housing demand, particularly in the apartment sector, as new residents seek affordable housing options.

Rental Market Dynamics: The rental market is under significant pressure, with affordability reaching record lows. Only 36% of advertised rentals are affordable for middle-income households, and a mere 2% for lower-income households. This scarcity is driving more individuals toward purchasing apartments as a cost-effective alternative to renting.

Interest Rate Trends: Economists anticipate potential interest rate cuts in the latter half of 2025 as inflation eases. Such reductions could enhance borrowing capacity, making apartment purchases more accessible and attractive to both first-time buyers and investors.

Government Initiatives: The federal government’s “Help to Buy” program, expected to launch in mid-2025, aims to assist first-time buyers with larger deposits and more accessible loan terms, facilitating their entry into the property market.

Challenges and Considerations

Despite the positive outlook, certain challenges persist:

• Supply Constraints: While there has been a surge in new dwelling approvals, the construction industry continues to grapple with a backlog of projects. This lag may result in supply shortages, exerting upward pressure on apartment prices.

• Affordability Issues: The rapid increase in property prices, coupled with wage stagnation, could exacerbate affordability concerns, particularly for lower-income households.

• Infrastructure Strain: Melbourne’s infrastructure, especially public transport and road networks, may struggle to keep pace with the growing population, potentially impacting the desirability of certain areas.

Investment Opportunities

For investors, the evolving market presents several prospects:

• Established Apartments: Older-style apartments with lower strata levies and minimal strata issues are expected to perform well, offering stable returns.

• Family-Friendly Homes and Townhouses: Investments in these property types, especially in premium locations, are likely to yield favourable outcomes.

• Emerging Suburbs: Areas undergoing infrastructure development and urban renewal may offer growth potential as they become more attractive to buyers and renters.

Check out our article on buying an apartment in Melbourne.  

Melbourne’s apartment market in 2025 – 2026 is on the cusp of a significant upturn, driven by demographic shifts, policy initiatives, and economic factors.

While challenges like supply constraints and affordability persist, the overall sentiment leans toward a revitalized market.

Prospective buyers and investors should conduct thorough research and consider long-term trends to capitalize on the emerging opportunities in Melbourne’s apartment sector.