Is Melbourne in a housing crisis? The capital city’s housing market has been a topic of concern for several years, with many experts suggesting that the city is indeed in the midst of a housing crisis.
The issue has been compounded by a shortage of affordable housing, skyrocketing rent prices, and an increase in homelessness.
The housing crisis has affected a wide range of people, from first-time buyers struggling to get on the property ladder to renters who are being priced out of the market. The problem has become so severe that many people are now living in overcrowded or unsuitable accommodations, while others are forced to couch surf or sleep rough.
In this article, we will explore the extent of Melbourne’s housing crisis and its impact on the city’s residents. We will examine the underlying causes of the crisis, including population growth, lack of affordable housing, and government policies.
We will also look at the various solutions that have been proposed, from increasing the supply of affordable housing to implementing rent control measures.
Analysis of Housing Affordability in Melbourne
Median house prices in Melbourne compared to average income levels
The current state of Melbourne’s housing market as of May 2023 shows a median home value of $755,871, indicating a slight monthly increase of 0.9% and a quarterly rise of 1.6%. However, there has been a 7.4% decrease in home prices year-on-year.
These figures suggest that while there is short-term growth in the housing market, the broader trend compared to the previous year shows a decline, prompting questions such as “Will house prices drop in 2024 Melbourne?“
According to a report by The Age, the people eligible for “affordable” homes can’t afford the homes. The report highlights the significant gap between the cost of affordable homes and the income levels of those who are eligible for them.
This creates a situation where many people are unable to access affordable housing, even though they meet the eligibility criteria.
Rent prices versus average wages
Renting has become increasingly unaffordable for many people in Melbourne. As of January 2023, the rental crisis in Australia has worsened, with low availability and the rising cost of rentals meaning many are struggling to find housing. The owner of a property management company says the rental crisis is the worst he has ever seen.
Rents finished 2022 at record-high levels and continued to surge amid cost of living chaos and returning migration. One individual was told his rent would go up by more than 22% at the end of his lease agreement.
Historical perspective on housing affordability
The City of Melbourne has urged the state government to reconsider its 2019 housing pitch, which was part of the council’s 2030 Affordable Housing Strategy. The report found that Melbourne was in the midst of an affordability crisis as a result of a rapidly growing population, rents increasing faster than wages, and insufficient investment in social and affordable housing for decades.
Throughout the 21st century, there has been a consensus that housing affordability is a major issue in Australia, most evidently in the country’s two largest cities, Sydney and Melbourne.
“According to a report by Sage Journals, the Reserve Bank of Australia (RBA) identified that housing affordability is a significant challenge for the Australian economy. The report highlights the need for local governments to address the challenges associated with affordable housing.“
In conclusion, Melbourne is facing a severe housing affordability crisis. Rising house prices, rent increases, and stagnant wages have made it difficult for many people to access affordable housing. The demand for rental properties has increased, leading to a highly competitive rental market.
The lack of affordable housing has also contributed to rising levels of rental stress and homelessness. It is crucial for local governments to invest in social and affordable housing to address the challenges associated with housing affordability.
Supply Versus Demand in Melbourne Real Estate
Melbourne’s housing market has been experiencing a supply versus demand imbalance for several years now. This section will examine the key factors contributing to this issue.
Statistics on Melbourne’s population growth
Melbourne’s population has been increasing rapidly over the past few years, with an estimated 6,055,588 people in 2023. This population growth has put a significant strain on the city’s housing market, leading to a shortage of available properties.
Building rates and new housing developments
Despite the high demand for housing in Melbourne, building rates have been slow to keep up. According to the National Housing Finance and Investment Corporation, Australia is facing a decade-long housing supply crunch, with fresh demand set to outpace supply, putting upward pressure on prices and raising concerns about houses for sale in Melbourne.
What is the Victorian Government Doing About the Housing Crisis?
The Victorian Government has implemented several policies aimed at addressing the housing crisis in Melbourne. These include initiatives to increase the supply of affordable housing, such as the HomesVic program, which provides assistance to first-time buyers looking to purchase a home.
The government has also introduced planning reforms to streamline the development process and make it easier for developers to build new housing.
Despite these efforts, the housing crisis in Melbourne is far from over, and much more needs to be done to address the issue. The government and private sector must work together to increase the supply of affordable housing and ensure that the city’s growing population has access to safe and secure housing.
The Impact of Economic Factors on Melbourne Property
Interest rates and their effect on mortgage repayments
Interest rates play a crucial role in the housing market, affecting both buyers and sellers. When interest rates are low, buyers can afford to borrow more money and can purchase more expensive homes.
Conversely, when interest rates are high, buyers may not be able to afford the same size mortgage, which can lead to a decrease in demand for housing. Additionally, higher interest rates can lead to higher mortgage repayments, which may cause some homeowners to default on their loans.
Employment rates and economic stability
Employment rates and economic stability are also important factors that can impact the housing market. When employment rates are high, people have more money to spend on housing, which can drive up demand and prices.
Conversely, when employment rates are low, people may not be able to afford to purchase or maintain their homes, which can lead to an increase in foreclosures and a decrease in demand for housing.
The role of investment properties in the housing market
Investment properties can also have an impact on the housing market. When there is a high demand for rental properties, investors may purchase homes to rent out, which can drive up housing prices.
“Investors may purchase homes to flip them for a profit, which can also contribute to rising prices. However, if there is an oversupply of rental properties, investors may struggle to find tenants, which can lead to a decrease in demand for housing.”
According to a recent report by NAB economists, a pandemic shift to smaller households has created a structural shortfall of 120,000 homes, exacerbating the housing crisis.
This reality is unlikely to change any time soon, which means that addressing the housing supply crisis is crucial for the overall Melbourne property market, as well as for individual property owners and buyers.
Is homelessness increasing in Melbourne?
Based on the latest release from the Australian Bureau of Statistics on Estimating Homelessness from the 2021 Census, there were 122,494 people estimated to be experiencing homelessness on Census night in 2021. This represents an increase of 6,067 people (5.2%) since the 2016 Census.
However, the rate of homelessness per 10,000 people has decreased to 48 from 50 in 2016.
Here are some key points from the data:
- There was an increase in both male and female homelessness, with males making up 55.9% and females 44.1% of the homeless population. The rate of homelessness for males decreased, while the rate for females increased.
- A significant portion of the homeless population was young, with 23.0% aged from 12 to 24 years.
- The majority of people experiencing homelessness were living in ‘severely’ crowded dwellings (39.1%), with a notable increase in people living in boarding houses (26.5% increase) and a decrease in those living in improvised dwellings, tents, or sleeping out (6.9% decrease).
This data suggests that while the overall rate of homelessness per population has slightly decreased, the actual number of people experiencing homelessness has increased, with particular demographics such as females and certain age groups seeing a rise in homelessness rates.
Is the Housing Crisis Going to Get Worse in Melbourne?
As policymakers and citizens grapple with the current state of affordability, attention turns to the future, asking pivotal questions such as “What will house prices be by 2030 in Melbourne?” This question is at the forefront of discussions for potential homebuyers, investors, and economic analysts alike.
Projections and trends offer insights into what can be expected, shaping strategies to manage or capitalize on future market conditions. It is within this context that both government policy and market forces will navigate the challenges and opportunities that lie ahead in Melbourne’s housing landscape.
Review of Recent Government Policies and Interventions
The Victorian Government has recognised the housing affordability crisis and is addressing it with a forward-looking plan.
“According to their official statement, they are targeting the construction of 800,000 new homes over the next decade (2024-2034), aiming to tackle the root problem of housing supply.”
This initiative is part of an Affordability Partnership with the construction industry to stimulate investment and build high-quality homes quickly in the places where people want to live.
Reforms in the planning system are being made to boost housing supply, clear approval backlogs, and give stakeholders clearer timelines, as per the government’s commitment.
Efforts to make building more homes easier, with a focus on excellent design standards and strategic location, are also being emphasised. The government is looking at building upwards in urban areas, not just expanding outwards, to better utilise space.
Renters are getting attention too, with the government closing cost-of-living loopholes, giving renters more certainty, and speeding up the resolution of tenancy disputes.
To address the social housing deficit, the government is launching what they describe as Australia’s largest urban renewal project on top of the Big Housing Build, to significantly increase the stock of affordable housing.
And to ensure that regional Victoria keeps pace, there’s a targeted plan to construct 425,600 of the 2.24 million homes needed by 2051 across the state’s regions, addressing the demand for housing beyond metropolitan Melbourne.
These comprehensive steps taken by the Victorian Government reflect a multifaceted approach to solving the housing crisis, with a clear focus on increasing the supply of affordable housing across the state.
Suggested reading: Explore the current state of the housing market in our feature: What is happening to property prices in Melbourne? – essential reading for potential buyers and sellers.
FAQ on ‘Is Melbourne in a Housing Crisis?’
What is driving Australia’s housing crisis?
The housing crisis in Australia is primarily attributed to the nation’s specific demographic demands and a lack of available residential land close to employment and services. The roles of interest rates and governmental subsidies for homebuyers are often considered less significant in this context.
What is the Victorian government doing about the housing crisis?
The Victorian government has outlined plans to expedite development approvals, reconstruct outdated social housing complexes, and make land available in established suburbs. These efforts aim to add 800,000 new homes over the coming decade.
Is homelessness increasing in Victoria?
There has been a noticeable increase in homelessness in Victoria, with the Australian Bureau of Statistics reporting 30,660 homeless people as of the August 2021 census, marking a 24% rise since 2016 and an increase nearly five times the national average.
How bad is the rental crisis in Melbourne?
Melbourne’s rental crisis is intensifying, with vacancy rates contributing to a significant increase in rental costs. Over the past year, the typical house’s rent increased by 8.7%, while unit rents saw a remarkable 17.1% rise, reflecting a substantial affordability challenge for renters in the capital.
