RPM Melbourne Apartments and Townhomes Market Report - August 2025
MELBOURNE APARTMENTS & TOWNHOMES MARKET REPORT
AUGUST 2025
RPM Group is proudly celebrating our 30th anniversary - a testament to three decades of collaboration, research, and growth. What began as a local endeavour has evolved into a national presence, delivering research, data, and insights across Australia’s eastern states.
For three decades, RPM Group has been a trusted partner to greenfield developers and the broader property industry. We’ve earned a reputation for providing clear and reliable market research that helps our partners make more informed decisions. Today, we are excited to extend this same level of expertise to Melbourne’s infill apartment and townhome sector.
Executive Summary
Luke Kelly
National Managing Director of Built Form
luke@rpmgrp.com.au
Melbourne’s unit market is regaining its pace in 2025, with middle ring growth, strong demand, and renewed buyer confidence leading recovery.
After a few difficult years marked by rising construction costs, stalled feasibilities, and nervous buyers, conditions are starting to improve for Melbourne’s medium and high density property sector. Three rate cuts this year, stronger lending appetite, and steady migration are putting some momentum back into the market.
Victoria added more than 132,000 new residents in 2024, claiming almost a third of Australia’s population growth. The state’s population has now surpassed seven million, driven by overseas migration, a lift in natural increase, and fewer people leaving for other states. This level of growth is driving demand for housing, from rentals to first homes and investment properties.
Finance activity also shows confidence reigniting. First home buyers are at their most active in nearly three years, making up more than 40% of new owner occupier loans in Q2 – this is the highest level since early 2021. Investors are back too, with lending at its highest point since 2022. Relative affordability compared to Sydney and Brisbane has also piqued the interest for many interstate investors.
We're also witnessing Melbourne’s unit market finding its feet. Prices rose 1.3% in Q2, outpacing detached houses, although a sizeable price gap between the two persists. Supply remains tight but developers are adjusting, and banks are more open to supporting off the plan projects. As ANZ’s Daniel Gradwell highlights on this issue’s Q&A, the shift to lower presale requirements and greater collaboration with private lenders are reshaping the financing landscape. This flexibility is helping more projects stack up.
On the rental side, vacancies remain scarce. The middle ring vacancy rate is holding at around 2.5%, well below the long term average. Even with rent growth easing, levels remain close to record highs. Pressure on the tightly held middle ring is particularly strong, with vacancies now tracking close to inner city levels (2.6%).
Approvals remain soft, especially for apartments, though there are signs of improvements. More supportive lending standards and a clearer pathway for financing should help. Townhomes will need to take on a bigger role, filling the ‘missing middle’ between detached houses and high rise towers.
The challenges haven’t all disappeared. Construction costs are creeping higher again, and labour shortages remain a key hurdle, but compared to where the sector stood 9-12 months ago, the path forward is certainly brighter.
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Note: Throughout this report, a 'unit' refers to all dwellings that are not a detached home. Inner ring: 0-10km radius around Melbourne CBD. Middle ring: 10-20km radius around Melbourne CBD. Outer ring: 20km+ radius around Melbourne CBD, including the Mornington Peninsula.
Whats Inside
Despite higher unemployment, Victoria accounted for a quarter of employment growth nationally over the past year.
ANZ Associate Director of Property, Daniel Gradwell, shares his take on the lending environment, presales, and boutique development projects.
First home buyer activity hit a near three year high in Q2, making up 42% of all new owner occupier loans.
Townhome and apartment approvals remain subdued, but changes to presale requirements and rate cuts are expected to boost feasibility and confidence.
Construction costs rebound in Q2 2025, but easing tender price growth points to a more stable outlook for builders.
The ‘missing middle’ is set to play a key role as Melbourne’s apartment and townhome sector stabilises and development activity returns.
Middle ring rental stock continues to be tightly held, showing strong demand for established, well-connected suburbs.
Note: this report presents and analyses the most recent data available as of August 2025.
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Dollar per sqm rates
Upcoming competition and supply Sales rates
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of price points
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General Manager Research, Data & Insights
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Laurence
Michael Staedler
Distribution
Activity levels by market, product & developer
Product mix
Market Fundamentals
Australian Economic Indicators
Despite higher unemployment, Victoria accounted for a quarter of employment growth nationally over the past year.
Source: Australian Bureau of Statistics (Gross State Product expressed as FY24 vs FY23. Employment growth expressed as change over 12 months to June 2025. Unemployment rates expressed as June 2025 vs. June 2024)
Finance and Feasibility
ANZ Associate Director of Property, Daniel Gradwell, shares his take on the lending environment, presales, and boutique development projects.
What is the lending appetite for medium to high density developments?
There is strong appetite. Some of the changes in presales are a large part of that story, so I’ll start there.
Previously, we were at 100% presales, largely APRAdriven. But increasingly, ANZ and other financiers have been able to demonstrate, and help APRA get more comfortable with, lower presales. Now, we’re typically in the 50% to 70% range. This flexibility helps with feasibility and timing certainty.
We still want evidence of continuing demand and sales, so we know the project hasn’t stalled, but it all ties back to a genuine desire across the banks to support housing supply and affordability.
That has helped reshape the outlook, which is much more positive than it was 12 months ago.
How are mezzanine and private credit interacting with major
banks right now?
The volume of competition in the market across major banks and non-bank financiers is huge. It makes life more challenging for the banks but is really good news for developers.
In terms of mezzanine finance, we’re seeing more collaboration between private credit and the major banks than we’ve had in years. There are quite a few examples where mezzanine finance took the initial stage of a development, even with low to zero presales. Once the risk profile improved, a major bank stepped in with better terms to see it through to completion.
That model has always existed, but it's much more prevalent today. It's great for competition and beneficial for the industry overall.
Sentiment on debt availability has improved significantly over the past year. This aligns with what we’re seeing at ANZ.
How does the resale market affect new apartment developments?
Construction costs have increased so quickly that in many cases existing stock costs less than building new.
That’s why presales remain really important. As the lender, we want to see that buyers are willing to pay a premium for brand new products. And a lot of people do want brand new products; amongst other things, they get warranty, a contemporary design, and that ‘new and shiny’ appeal.
If there is a large volume of cheaper stock available, that’s considered one of the key risks. The way to mitigate that is through demonstrated presales. They're critical for getting comfort around demand and pricing.
Finance and Feasibility
Has there been a shift toward boutique apartments?
Absolutely, yes. From an ANZ perspective, a lot of what we’ve done over the past five years falls into that boutique, luxury category catering to owner occupiers and downsizers. People often sell their family homes in middle-ring suburbs and buy with cash when downsizing. The feasibilities for these kinds of projects stack up.
If density is the answer, we need to offer more options and flexibility in housing choice. We build so many one-bedroom apartments and not so many threebedders. That’s because three-bedroom apartments only work financially if they’re a higher end product. Mid to low level finishes don’t stack up.
Has there been a similar shift towards townhomes?
Townhome approvals have gradually increased from about 12% ten years ago to around 18% now. This fluctuates month to month, but the overall direction is clear.
I think that’s a really positive story that often gets missed. Townhomes are a key part of the missing middle: between CBD high rises and detached greenfield houses. This missing segment matters.
This shift has been unfolding over the last decade or so and should continue – especially if we want to give people housing options that suit different life stages.
Are there concerns around private lenders funding risky projects?
Yes, this has been pretty topical for us. Much of the concern comes from overseas. Domestically, we’re not seeing signs of stress in private credit, which is good.
But we watch it carefully. In downturns, private credit can be more ‘flighty’. Whereas ANZ and other major banks pride ourselves on sticking through full cycles.
We work with private lenders more than ever. In the commercial space, they often fund early stages then hand over to a major bank once presales hit their mark.
They have played a key part in maintaining market stability, especially when interest rates rose and ICR ratios tightened on the property Investment side. For contrast, New Zealand (with less private credit) experienced a harder hit.
So yes, while risks exist, private lenders have played a valuable role here.
Finance and Feasibility
Is NSW's new presale guarantee the solution for prefinance approval hurdles, and could this work in VIC?
I would say it’s somewhere between a solution and a Band-Aid.
It’s a good tool for this stage of the cycle. We've spoken a lot about presales; anything that shores up certainty for developers is helpful. The status quo hasn’t been working perfectly, so trying something new seems sensible.
So far, it looks positive.
But it’s only part of the solution. The Guarantee supports presales, but doesn’t solve labour shortages. Aside from elevated construction costs, labour availability is one of the massive headwinds the industry is facing.
I think Victoria will be watching this pretty closely, as I imagine all the state governments will. Victoria has already mirrored NSW with the Building Commissioner role. So, if this Guarantee works, and budgets allow, it could easily be adopted in some form here too.
Population Growth in Victoria
Victoria’s population surged past 7 million in 2024 with migration, natural increase, and easing interstate losses reinforcing housing demand.
Victoria added 25,248 new residents in Q4 2024, pushing the state’s population past seven million. Over the full year, the population grew by 132,572, accounting for 30% of Australia’s total increase.
Overseas migration remains the main driver of growth, though levels have eased significantly compared to 2022-23. Natural increase (births minus deaths) also contributed, rising to 35,272 in 2024. While higher than the previous two years, this remains below the long term average.
Interstate population losses have also eased. Rising housing costs in Brisbane and prices now roughly on par with Adelaide appear to have slowed the outflow from Victoria. While some movement to other states continues, net interstate losses are far below the peaks seen between 2020-2023.
Population Change Components
Source:
Buyer Cohorts
Owner Occupiers
First home buyer activity hit a near three year high in Q2, making up 42% of all new owner occupier loans.
Victoria recorded 10,188 new first home buyer owner occupier loan commitments in Q2 2025, representing 42% of all new owner occupier loans.
This marks a three year high for first home buyer activity, signalling growing confidence in the market as the effects of earlier interest rate cuts begin to take hold.
First Home Buyer Loans
10,188
+21% vs. last quarter | +1.3% vs Q2’24
First Home Buyer New Loan Commitments (Quarterly)
Subsequent Home Buyers
+17% vs. last quarter | +1% vs Q2’24
14,357 Q2 2025 Q2 2025
Investors
While first home buyer activity is gradually rising, investors remain the second largest group in Victoria’s residential market, accounting for 34% of all loans in Q2 2025. This represents 12,380 loan commitments, which is the highest level since Q2 2022.
Victoria’s relatively affordable property prices (compared to Sydney and Brisbane) now appear to outweigh the potential hurdles such as high taxes and levies. Investors are taking advantage of a quieter market and the impact of multiple cash rate cuts. Strong population growth, a key driver of housing demand, further reinforces Victoria’s appeal to investors.
12,380
since 2022.
Source: ABS Lending Indicators, Australian Government Treasury
Investor activity is surging with loan commitments hitting their highest level
Greater Melbourne Pricing, Rents, and Vacancies
Melbourne Unit Market
The unit market gained momentum in Q2, led by the middle ring, as prices rose and buyer confidence returned.
Melbourne's unit market continued to strengthen in Q2 2025, with median values rising 1.3% to $635,000. This marks the largest quarterly increase in median prices since late 2023 and one of the few instances in recent years where unit price growth has outpaced houses.
Growth has been strongest in the middle ring, where prices climbed 2.6% to a median of $714,000. The inner ring also saw modest growth, up 0.3% to $595,000, building on gains from the previous quarter. Outer ring prices remained flat but are still at their highest level since late 2022.
The market is already responding to rate cuts, with confidence lifting in both unit and house markets as election uncertainty has settled, and Trump tariffs (set at 10% on Australian exports, among the lowest globally) are expected to have only a modest impact on GDP. Melbourne’s relative affordability compared to Sydney, Brisbane, and now even Adelaide, is attracting buyers, while robust population growth provides a foundation for medium and long term demand.
On the supply side, conditions are improving after a period of subdued activity. Developers have spent nearly three years constantly adjusting to new market conditions, while financiers’ lending appetites have increased. This combination has created a more positive outlook than six to nine months ago. However, the gap between new and established unit prices remains a key challenge for absorption.
Melbourne Unit Market by Region
Melbourne's middle ring has been the main driver of unit price growth in Q2 2025.
Unit Prices - Overall and Region
Price Change by Region - Annualised Average Change
Note: Units include all dwellings that are not detached homes.
Melbourne Property Value Relativity
Melbourne's unit market presents a 46% price gap, giving budget conscious buyers and investors the opportunity to secure well located property at accessible prices.
In Q2 2025, unit prices in Melbourne grew 1.3%, outpacing house price growth of 0.4%. Despite this, the price gap between the two asset types remains significant at 46%, only slightly down from 47% in Q1 2025 and largely unchanged since mid-2023.
Melbourne's unit market has shown greater resilience than houses over the medium term, yet the gap remains well above the 37% pre-pandemic average. For buyers, this sustained discount presents a compelling opportunity, particularly for budget conscious buyers and investors seeking value. Units are currently undervalued relative to houses, allowing entry into well located areas at a more accessible price point.
It's important to note that median unit prices reflect the broader market. Established units continue to sell at considerably lower price points than new builds, slowing the absorption of new supply and reinforcing the price gap. For new developments to capture demand, they must clearly align design, location, and liveability to attract buyers who are recognising the relative value of units.
Note: Units include all dwellings that are not detached homes.
$1,200,000
$1,100,000
$1,000,000
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
Source: REIV and RPM Research, Data & Insights
Melbourne Median House Price vs. Median Unit Price
Vacancy Rates and Rental Stock
Melbourne’s rental market remains tight, with a 2.5% vacancy rate as of June 2025, unchanged from March. Overall, vacancies have hovered between 2.4-2.5% since late 2024, well below the long term average of 3.0%.
The inner ring has seen a slight rise in vacancies over the year, from 2.2% in June 2024 to 2.6% in 2025. The outer ring shows a similar trend, increasing from 1.5% to 2.0% over the same period; the first time outer ring vacancies have reached 2.0% since January 2022.
By contrast, the middle ring continues to tighten, with vacancies falling 0.2% over the year to 2.5%, reflecting strong ongoing demand for established, well-connected suburbs.
Despite small rises in some areas, Melbourne’s rental market remains firmly in favour of landlords.
Source: REIV & RPM Research, Data & Insights
Source: REIV & RPM Research, Data & Insights
Metro Melbourne Vacancy Rates
Vacancy Rates by Region
Middle ring rental stock continues to be tightly held, showing strong demand for established, well-connected suburbs.
Total Rental Bonds
Melbourne’s rental pool continues to shrink, with bonds falling for six straight quarters despite steady vacancy rates and growing demand.
Rental bonds across Melbourne fell 1.3% in Q4 2024, the sixth consecutive quarterly decline. Since bonds lodged with the RTBA effectively track the number of dwellings occupied as rentals, this trend confirms that the city’s rental stock is shrinking.
Vacancy rates have remained steady over the same period; rather than reflecting an easing in demand, the data shows that the overall pool of rental dwellings has been shrinking.
This contraction comes at a time when Victoria’s population has just passed seven million and migration continues to underpin demand. With fewer properties being occupied as rentals, and fewer being available to rent, renters are now competing for a diminishing share of stock.
Change in Number of Rental Bonds Held
Quarterly Change Annual Change
Source: Department of Families, Fairness, and Housing
Unit and Apartment Rents - Melbourne by Region
Source: REIV & RPM Research, Data & Insights
Inner ring: 0-10km radius around Melbourne CBD. Middle ring: 10-20km radius around Melbourne CBD. Outer ring: 20km+ radius around Melbourne CBD, including the Mornington Peninsula.
Unit and Apartment Rents - Melbourne by Region
Greater Melbourne Dwelling Supply
Building Approvals - Greater Melbourne
Townhome and apartment approvals remain subdued, but changes to presale requirements and rate cuts are expected to boost feasibility and confidence.
The pace of townhome approvals across Greater Melbourne remains relatively low. In Q2 2025, only 2,293 townhomes were approved, slightly higher than the 2,043 approved in the previous quarter but noticeably below last year's figures. This highlights a stagnation in middle ring townhome developments despite continued demand.
Apartment approvals saw a sharper decline, with just 1,781 dwellings approved in Q2 2025. This is a sharp 56% drop from the previous quarter and marks the second lowest quarterly figure since early 2023. While year on year totals remain supported by stronger approvals between Q3 2024 and Q1 2025, the weak Q2 figures signal a potential softening ahead.
Market sentiment, however, is showing signs of improvement. Developers continue to face high delivery costs and lingering stock, but financiers are displaying greater willingness to support new housing supply. APRA’s easing for presale requirements (down from 100% to 50-70%), alongside three interest rate cuts this year, is expected to boost project feasibility and buyer confidence.
A more balanced pipeline will require greater emphasis on townhomes. While inner city high rise projects remain the focus, townhomes are better geared to unlock supply in well connected, middle ring suburbs, helping to address Victoria's broader housing needs.
1,781 Dwellings
2,293 Dwellings
13,381
8,724
Source: ABS Building Approvals
Building Approvals - Greater Melbourne
Apartment and townhome approvals have eased from a historic peak, with apartments recording especially weak results in Q2 2025
Construction costs rebound in Q2 2025, but easing tender price growth points to a more stable outlook for builders.
Melbourne’s construction input costs rebounded in Q2 2025, rising 1.0% after a 0.2% decline in Q1. Increases in input costs in Melbourne were slightly above the national weighted average of 0.9%. This is the highest quarterly input cost inflation since Q2 2023, signalling that cost pressures may be returning.
The increase was driven by higher prices for cement, concrete products, and electrical equipment. Over the past year, Melbourne’s construction inputs have risen 2.1%, well above Sydney (+1.2%) and Brisbane (+0.8%), and equal to the highest annual cost growth among Australia’s capital cities.
Unit output costs (the price builders charge for a completed unit) rose 0.8% over the quarter, in line with the national average. On a yearly basis, unit output costs increased 2.4%, lower than NSW (+4.2%) and the national average (+3.0%). Despite this, with output costs outpacing some construction inputs, pressure remains on trades such as concreting and electrical, especially given competition from civil construction projects.
On a positive note, RLB’s annual tender price forecast indicates that Melbourne’s tender price index uplift has already begun to ease and is expected to continue softening over the next five years. While some cost pressures remain, this points to a period of relative stability ahead for builders.
Inputs and Outputs to Housing Construction
Melbourne Construction Inputs Victoria Other Residential Outputs
Source: ABS Producer Price Indexes
Outlook
Michael Staedler
General Manager
Research, Data & Insights
m.staedler@rpmgrp.com.au
The apartment and townhome sector has faced significant challenges over the past two to three years, with tight feasibilities and high levels of residual stock weighing on the market. However, three rate cuts this year, combined with renewed appetite from major financiers for residential development, have brightened the outlook.
The ‘missing middle’ is set to play a key role as Melbourne’s apartment and townhome sector stabilises and development activity returns.
Labour costs continue to rise, but overall unit dwelling output costs in Victoria remain below the national average and well under NSW levels. Improved access to finance and more stable construction costs are expected to rebuild confidence and support development activity over the medium term.
Rental growth has slowed since late 2024 and appears to be stabilising, reflecting median rents near record highs. Further increases may be constrained, even with ongoing migration, due to stretched affordability. Vacancy rates in Melbourne’s middle ring have fallen to levels comparable with the inner city, a notable shift from the historical 0.7-1.0% gap, highlighting strong demand for well-located dwellings.
Middle ring suburbs will therefore play a key role in addressing Victoria’s housing supply. While discussions have often centred on high rise developments in the CBD and select activity centres, these alone cannot meet the state’s needs. Townhomes and low rise apartments, often considered the key to unlocking the ‘missing middle’, are essential, and with stabilising market conditions, they are well positioned to support increased development activity in the medium term.
For more information, please visit: www.rpmgrp.com.au
For a detailed market analysis or a tailored report, email the team at: contactus@rpmgrp.com.au
Our Team
Research, Data & Insights
Michael Staedler
General Manager
Research, Data & Insights
m.staedler@rpmgrp.com.au
Andrew Raponi
Senior Research Manager
a.raponi@rpmgrp.com.au
Laurence Rao
Research Manager - VIC laurence@rpmgrp.com.au
Built Form
Luke Kelly
National Managing Director of Built Form luke@rpmgrp.com.au
Michael Vilar
General Manager of Medium Density michaelv@rpmgrp.com.au
Roger Murphy
Sales Director of Medium Density roger@rpmgrp.com.au
Tom Douglas
Sales Manager of Built Form tomd@rpmgrp.com.au
For detailed insights or custom reporting, contact the team: contactus@rpmgrp.com.au
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