Key Takeaways
- Melbourne’s housing market has cooled due to new taxes, making it more affordable for first-time buyers
- The growth rate of investment lending in Melbourne remains below the national average
- The number of active rental bonds in Victoria has decreased, indicating a shrinking rental pool
- First-home ownership in Melbourne has increased, with almost 70,000 new owners in the past two years
- Experts warn that higher taxes may lead to a reduction in new housing supply and decreased investor confidence
Introduction to Melbourne’s Housing Market
Melbourne’s housing market has experienced a significant shift in recent years, with new taxes introduced in 2023 contributing to a cooling of the market. According to Eliza Owen, head of research at Cotality, the taxes have eased competition for homes, making it more affordable for first-time buyers. While investment lending has risen since 2023, the growth rate remains significantly below the national average. This trend is a positive outcome for first-time buyers, but it also raises concerns about the potential reduction in new housing supply due to reduced feasibility for new construction.
The Impact of Taxes on the Rental Market
The introduction of new taxes has also had an impact on the rental market in Melbourne. Victorian rental bond data shows that active bonds fell from 678,885 in June 2023 to 655,625 by June 2025. This decrease in active bonds signifies a shrinking rental pool, which could lead to increased competition and higher rents for renters. However, vacancy rates have remained relatively stable over the past year, suggesting that the impact of the taxes on the rental market has been minimal. Despite this, experts warn that the reduction in investor activity could lead to a decrease in new housing supply, ultimately affecting renters.
The Rise of First-Home Ownership
In contrast to the rental market, first-home ownership in Melbourne has increased significantly. According to ABS home loan data, there were almost 70,000 first-time home owners in Victoria in the two years to September 2025. This increase in first-home ownership is attributed to the reduced competition from investors, making it easier for first-time buyers to enter the market. Grattan Institute economist Brendan Coates notes that the direct impact of taxes on Melbourne prices is probably minimal, but they have given first-home buyers an advantage by reducing the number of investors in the market.
The Role of Land Tax Increases
The introduction of land tax increases has been a contentious issue, with some experts arguing that it will hamper supply and others claiming it will have a minimal impact. Coates believes that land tax increases will not significantly affect supply, but higher surcharges on foreign investors may make major apartment projects less viable. The latest Real Estate Institute of Australia affordability report shows that housing affordability in Victoria has continued to improve, with mortgage repayments now accounting for 43.4% of household income, down from 44.4% in the June 2025 quarter.
The Property Industry’s Response
The property industry has warned of a looming supply cliff, arguing that higher taxes are compounding the impact of high construction costs. The phrase "anywhere but Melbourne" has become a mantra for developers who claim that high government charges are making apartment developments unfeasible. Opposition Leader Jess Wilson has criticized the Labor government’s property taxes, saying they have nothing to do with affordability and are a desperate attempt to pay for waste and reckless spending. Property Council Victoria chief executive Cath Evans has also warned that the real impact of higher investment property taxes will ultimately be felt by renters, as investors are pushed out of the market, leading to a reduction in rental supply and increased rents.
The Future of Melbourne’s Housing Market
The future of Melbourne’s housing market remains uncertain, with experts warning of a potential reduction in new housing supply and decreased investor confidence. The state government has argued that the best way to improve affordability is to build more homes, and Victoria is currently building and approving more homes than any other state. However, the property industry is calling for a reduction in taxes and red tape to make the state a competitive investment destination once more. As the housing market continues to evolve, it is essential to monitor the impact of taxes and other factors on affordability and supply to ensure that the market remains accessible to all buyers and renters.