RPM Melbourne Apartments & Townhomes Market Report - May 2025
MELBOURNE APARTMENTS & TOWNHOMES MARKET REPORT
MAY 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
• Population growth, overseas migration, and rising loan commitments are supporting long-term housing demand.
• Vacancy rates are low but rental growth is easing in line with inflation.
• Construction confidence is improving and a rise in apartment approvals suggests growing momentum.
• Both unit and house values have recorded a strong start to the year.
Melbourne’s market fundamentals are continuing to improve, driven by a strong pickup in population growth through the back of 2024. Victoria accounted for around one third of the nation’s total growth, led largely by overseas migration. This return of steady inflows has translated to an uplift in unit prices across all areas, even as the market works through some short-term uncertainty.
Both unit and house prices have appreciated in the first quarter of 2025, representing a strong start to the year with unit values increasing strongly in the inner and outer rings. Lending activity is also trending upward. The number of new housing loan commitments is rising, with owner occupiers leading the charge and, somewhat unexpectedly, investors also returning to the market. The uptick in investor activity is notable given Victoria’s challenging tax and levy environment. Together, these shifts suggest a stabilising market with firmer foundations heading into the second half of the year.
Rental conditions remain tight. Melbourne's vacancy rate has remained level at 2.5% as of the most recent quarter, but is still well below comfortable levels. For renters, however, there’s a small silver lining – rental price growth has started to ease, moving in line with broader inflation trends. While this won’t solve supply shortages overnight, it may help to cool some of the intense pressures felt across the market.
Construction cost escalation has slowed. Input costs rose by just 0.6% over the quarter, while output prices for unit construction lifted by 0.8%. That’s a sharp moderation compared to previous quarters, offering some welcome relief to developers and builders.
Lower cost escalation has coincided with a noticeable shift in activity. The number of apartment dwellings approved in the most recent quarter jumped 27% on the previous quarter and is 22% higher than the same time last year. That said, challenges remain: high residual stock and elevated delivery costs continue to weigh on viability. Still, if interest rate cuts materialise as expected, we may see further confidence return – particularly for well-positioned, value-aligned projects.
For more information, please visit: www.rpmgrp.com.au
Our Research Consultancy Services create bespoke reports crafted to your specifications, translating rich data into in-depth analysis. For a bespoke report, email the team at: contactus@rpmgrp.com.au
Note: Throughout this report, a 'unit' refers to all dwellings that are not a detached home.
Whats Inside
A Data Driven, Holistic Approach to Property
RPM’s Research, Data & Insights division provides in-depth analysis on current local and overseas economic and property market conditions. The team consists of economists, property experts, and GIS analysts that provide real-time market intelligence, and analytical and strategic advice.
Our knowledge and expertise are an invaluable resource for RPM’s developer clients, empowering them to make intelligent, informed, and strategic decisions when evaluating residential developments and investment opportunities.
Our data and analysis help clients maximise their marketing efforts and achieve sales targets on their projects.
We collate and analyse data on Australia’s medium and high-density markets, providing insights on past and present product and pricing, as well as upcoming supply.
This comprehensive understanding of the different markets forms the foundation of our in-depth reports and bespoke analysis.
Your dedicated research team:
Andrew Raponi
Senior Research Manager
Research, Data & Insights
Laurence Rao
Research Manager - VIC
Research, Data & Insights
Michael Staedler General Manager
Research, Data & Insights
Dollar per sqm rates
Upcoming competition and supply
Sales rates
Distribution of price points
Activity levels by market, product & developer
Product mix
This rich data helps our team and clients to better understand:
Market Fundamentals
Australian Economic Indicators
Victoria
Population Growth in Victoria
Population growth rebounds, with both overseas and a resumption of interstate migration driven by Victoria's relative affordability.
Victoria’s population growth is back on track, adding 34,243 net new residents over Q3 2024. This marks a strong rebound from the softer numbers recorded in June 2024, largely thanks to renewed strength in overseas migration.
While international arrivals remain the main driver, natural increase has also ticked up – now sitting just above the long-term average.
Importantly, Victoria appears to have reversed the trend of people moving interstate. Net interstate migration has turned positive again, with affordability playing a key role. Melbourne’s relative housing value, combined with its status as Australia’s largest city and Victoria being the second-most populous state, is helping attract and retain residents.
Victoria now accounts for roughly 30% of the nation’s total population growth – reinforcing its position as a critical market for short- and mediumterm development activity.
Population Change Components
Source:
Buyer Cohorts
Owner Occupiers
Owner occupier activity is gaining momentum, with first home buyers leading the charge.
In Q4 2024, the state recorded 10,334 new first home buyer loan commitments – accounting for 41% of the total 25,271 new owner occupier loans. This marks the highest level of owner occupier lending activity in almost three years and signals growing confidence returning to the market.
Victoria's first home buyer numbers are well ahead of New South Wales (7,008) and Queensland (6,105), highlighting Melbourne’s relative affordability and strong appeal to entry-level buyers.
First Home Buyer Loans
10,334
+9% vs. Q3 2024 | +3% vs. Q4 2023
First Home Buyer New Loan Commitments (monthly)
Subsequent Home Buyers
+6% vs. Q3 2024 | +7% vs. Q4 2023
16,785 Q4 2024 Q4
Investors
Investor confidence returns as the market finds its feet.
While first home buyers may be driving much of the momentum, investors remain a significant force in Victoria’s residential market. In Q4 2024, investors accounted for 31% of new loan commitments, with 11,278 loans –well above levels recorded in the same quarter one and two years ago.
Despite earlier slowdowns caused by state taxes and levies, investor confidence appears to have stabilised. These policy changes have now been in place for over a year, and the market has largely adjusted. Investors who stayed the course have regained their footing, with fewer signs of disruption from legislative uncertainty.
The current uptick in investor activity seems to be market driven, underpinned by Melbourne’s relative affordability.
With unit prices sitting comfortably below those in Brisbane, investors are recognising value at a perceived market low, particularly in well-located, high-rent-yield areas.
Meanwhile, foreign investment continues to slide. Just 1,123 residential real estate proposals were approved in the latest data, although activity remains strongest from China, Hong Kong, Vietnam, and India. Taiwan has seen a slight pullback.
Looking ahead, international investment is likely to fall further, with a temporary two-year ban now in effect on the purchase of established dwellings. The ban applies to foreign individuals, as well as temporary residents and foreign owned companies.
Greater Melbourne Pricing, Rents, and Vacancies
Melbourne Unit Market
Steve Williams Sales Director Metro
stevew@rpmgrp.com.au
Melbourne’s unit market has posted a small uplift in prices as of the first quarter of 2025, with median values climbing 0.9% overall to $629,000. Whilst modest, this increase was recorded across all of Melbourne’s areas, and comes on the back of an even larger recovery in overall house prices.
The latest results represent a small reverse of the cooling property market that began in 2021. Positively, unit values have risen across all areas in Melbourne, and particularly so in the outer ring (+2.2%), and inner ring (+1.5%) over the quarter. A more modest increase was seen in middle-ring units, appreciating by 0.5% but nevertheless contributes to a wider recovery.
Whilst this first quarter has posted some welcome results, the current trajectory remains unclear. The market and wider economic conditions appear to be at a cusp – the effects of erratic changes in international trade has yet to flow through to the Australian economy, whilst on the domestic front the nation is heading into a federal election. The Reserve Bank’s upcoming meeting
Melbourne's unit prices show signs of recovery.
on the 19th-20th of May will be a key litmus test and indicator of how the central bank sees Australia’s medium-term future. Nevertheless, it is safe to say that rates will decrease, although by how much is the question. Whether lower borrowing costs can tip the balance and lift buyer confidence will be one of the key market indicators to watch.
Still, there are reasons for measured optimism. Melbourne's unit market still remains the most affordable it has been – not just since the pandemic, but also in comparison to other major cities like Sydney and Brisbane. That relative affordability could start to attract more interest, particularly as population growth continues to concentrate in Melbourne.
On the supply side, conditions remain somewhat subdued across both the inner and outer rings, which may support price stability in the near term. With Melbourne projected to absorb a significant share of Australia’s future population growth, units remain a critical piece of the longer-term housing puzzle.
Source: REIV and RPM Research, Data & Insights
Melbourne Unit Market by Region
Recovery can be seen across all areas, with strong movement in the inner and especially outer rings.
% Change Median Unit Prices - Overall and Region Unit Price Change by Region - Annualised Average Change
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.
Note: Units include all dwellings that are not detached homes.
Melbourne Property Value Relativity
House values have outpaced growth in unit values, with the gap between the two widening again.
Whilst Melbourne’s unit market has, over the past 3 years, been significantly more resilient than the house market, most recent March quarter 2025 data shows that houses have appreciated by 2.7% overall, compared to units which recorded a 0.9% appreciation. This has seen the value gap between the two asset types widening back up to 47% over the quarter, up from only 44% which was the closest this decade.
Whilst the gap has widened yet again, it is welcome in that it is driven by greater relative price growth in houses, rather than a fall in the absolute prices of units. Nevertheless, the current 47% value gap is well above the pre-pandemic gap of only 37%, suggesting that unit prices are still somewhat undervalued .
In practice, a combination of unit value growth and continued house price moderation is the most likely path back to historic norms.
Any continued widening of the value gap will again drive and shift buyer behaviour. It has been demonstrated that purchasers have, and likely will continue to shift to well-located and modern units in liveable areas as house affordability diminishes.
However, developers still face a challenge in the form of established stock. Older units are trading at significantly lower square per metre rates than new builds, creating a pricing gap that slows the absorption of new supply. For new projects to stand out, clear value alignment – through design, location, and liveability – will be key.
$1,200,000
$1,100,000
$1,000,000
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
Note: Units include all dwellings that are not detached homes.
Source: REIV and RPM Research, Data & Insights
Melbourne Median House Price vs. Median Unit Price
Vacancy Rates and Rental Stock
Vacancy rates remain largely level at 2.5% and remain well below balance.
Melbourne’s rental market has largely remained level as of the first quarter of 2025, with vacancy rates remaining at 2.5% on the back of the end of the December quarter.
Vacancy rates have loosened somewhat in the inner ring, rising from 2.6% to 2.7% over the March quarter, but was balanced by contractions in the middle and outer rings down to 2.6% and 1.7% respectively. This continues to reflect the tight hold on stock in established and wellconnected suburbs.
Even with the quarterly rise, vacancy rates remain well below the long-term average of 3.0%, suggesting conditions are still far from balanced. Rental bond data for this quarter is yet to be released, but there’s little evidence to suggest a major shift in supply in the near term. Despite a modest uptick in investor activity, the increase in new investor loans hasn’t been strong enough to result in a meaningful lift in rental stock. With new dwelling supply still sluggish and migration remaining relatively high, this the mid 2% vacancy rate will likely continue for some time. Unless there is a significant acceleration in completions or a shift in investment-driven supply, vacancy rates will remain tight well into 2025.
Source: REIV & RPM Research, Data & Insights
Source: REIV & RPM Research, Data & Insights
Metro Melbourne Vacancy Rates
Vacancy Rates by Region
Unit and Apartment Rents - Melbourne by Region
Melbourne unit rents remain high, though growth is starting to ease.
Source: REIV & RPM Research, Data & Insights
Unit and Apartment Rents - Melbourne by Region
Despite inner ring vacancies now rising above the middle ring, rental growth over the quarter has been strongest in the former.
Inner and Middle Ring Apartment Settled Sales
Smaller, more affordable apartments continue to dominate the market.
Source: RP Data, collated and analysed by RPM Research, Data & Insights Note: Data is displayed for settled sales only.
Victorian Stamp Duty Concession
Stamp duty savings depend on the timing of OTP purchases.
For off-the-plan (OTP) apartment buyers, the Victorian stamp duty concession offers a significant financial advantage –but timing is everything.
Under the current concession, stamp duty is calculated based on the dutiable value of the property, which is reduced according to how much of the construction has been completed at the time of purchase. The earlier in the build timeline the contract is signed, the greater the savings.
Let’s consider a two-bedroom, two-bathroom apartment priced at $900,000 using the fixed percentage method of calculating the concession. If purchased when construction has not yet begun (0% complete), a buyer could save up to $40,500 in stamp duty,
As the project advances, the potential saving shrinks. To the buyer’s benefit, the percentage of construction completed is rounded down to the nearest 10%. So, even if construction is technically 59% complete, stamp duty is assessed as if only 50% were finished. In this case, the saving would still be a healthy $20,250.
Source: RPM Research, Data & Insights
Stamp Duty by Construction Progress (Hypothetical $900,000 Apartment)
Greater Melbourne Dwelling Supply
Building Approvals - Greater Melbourne
Apartment approvals surge but challenges still linger.
Melbourne’s apartment sector has shown signs of revival, even as developers continue to navigate a difficult delivery environment.
Apartment approvals rose strongly in Q4 2024, with 4,095 dwellings approved – up 27% from the previous quarter. This marks the strongest quarter since late 2022 and builds on a substantial recovery in Q3. On an annual basis, the rebound is even more evident: 9,351 apartment dwellings were approved in the year to December, a 19% increase on the previous 12 month period.
By contrast, the townhome sector continues to stagnate. Just 2,180 townhomes were approved across Greater Melbourne in Q4, down 12% year on year. Across the 2024 calendar year, townhome approvals were at their lowest level in more than a decade.
Despite the encouraging momentum for apartments, developers face persistent headwinds. Delivery costs – driven by rising development fees and broader inflationary pressures – remain a major constraint. Many projects still fail to stack up financially, even with price stability returning to parts of the market.
Stock levels also remain a concern. High levels of completed but unsold apartments – particularly in Footscray, the CBD/Southbank, and Box Hill – continue to suppress new project launches. This lingering residual stock poses a serious risk to absorption rates for any new product entering the market.
At the same time, private credit has emerged as a critical funding source for Melbourne’s apartment pipeline. According to APRA, the value of private credit has growth from $33 billion in 2016 to over $200 billion in 2025. While this surge has supported project delivery in an otherwise constrained lending environment, concerns have been raised by ASIC and industry analysts over the opacity and regulatory gaps in this sector.
Funding remains available but developers and financiers alike will need to tread carefully in 2025.
4,095
2,180
9,391
Source: REIV & RPM Research, Data & Insights
8,917
Medium and High Density Construction Outlook
Construction Costs
Construction Pricing Movement
Construction cost growth slows but pressures remain.
Construction cost escalation across Melbourne has begun to ease, offering some relief after several years of volatility.
Raw housing construction material inputs rose by 0.6% over Q4 2024, slightly above the 0.5% national average. While product pricing has remained relatively steady due to the softening demand –reflected in lower building approvals – input cost pressures are still filtering through. Increases this quarter were largely driven by rising energy and freight costs, particularly for materials like concrete, cement, and ceramic products.
Over the full year, Melbourne recorded a 1.8% increase in housing input costs – below the annual inflation rate of 2.4% to Q4 2024. This suggests a meaningful softening in construction-related inflation, especially compared to the sharp escalations seen earlier in the decade.
Output costs (the price a builder charges to deliver a completed unit) rose 0.8% over the quarter. While this represents a slight acceleration from Q3, it is still well below the steep quarterly increases seen in mid-2023. Labour costs remain the key driver, particularly in concrete and electrical trades, as civil infrastructure works across Victoria are expected to stretch labour availability and bulk materials supply well into the next decade.
Recent events (such as the challenges faced by Roberts Co Victoria, including those tied to Build–to-Rent projects) highlight the need for careful cost planning and delivery strategy. With slim margins and a still volatile supply environment, developers and builders alike will need to remain cautious.
Inputs and Outputs to Housing Construction
Victoria Other Residential Outputs Melbourne Construction Inputs
* Outputs for other housing construction represent the price of a completed dwelling handed over to a developer.
Source: ABS Producer Price Indexes
Outlook
Michael Staedler
General Manager
Research, Data & Insights
m.staedler@rpmgrp.com.au
Melbourne's medium and high density development sector continues to face entrenched challenges – chief among them are the persistently high levels of residual stock (completed but unsold dwellings) and elevated development costs that are challenging feasibility. These issues are now routine obstacles for developers and sales agents alike, spanning both the early and late stages of the development cycle.
The first signs of a stabilising market.
However, there are emerging signs that conditions may begin to stabilise.
For renters, the pace of rent increases has slowed significantly. While migration remains elevated and vacancy rates (particularly in outer suburbs) are still tight, rental growth for units has now moderated to levels roughly in line with inflation. This signals the beginning of some breathing room for renters after an extended period of sharp increases.
For buyers and investors, Melbourne’s relative affordability has been a key drawcard. Unit values now sit below those in Brisbane and are on par with Adelaide and Perth, offering strong value in a market with long-term growth fundamentals. Investor activity has picked up, with Victoria accounting for 31% of new investment loans in Q4 2024 (11,278 loans). Interestingly, this is happening alongside a wave of investor exits, driven by rising holding costs. But for every investor leaving the market, another appears to be entering, seeking opportunity in a market that’s approaching its cyclical low.
This resurgence in investor interest could play a key role in reducing residual stock, improving project feasibilities, and lifting pre-sales – which is a critical step in unlocking new supply pipelines.
Underlying demand drivers also remain solid. Migration is rebuilding, vacancy rates remain low and construction cost growth (while still present) is moderating. These fundamentals are already being reflected in the uptick in apartment approvals, even as townhome activity stays subdued. Finally, monetary policy is poised to shift. In response to global economic uncertainty, the RBA is widely expected to cut the cash rate multiple times over the remainder of 2025. This will lift borrowing capacity and improve affordability (particularly for unit buyers) and should provide a welcome boost to demand.
Taken together, the medium term outlook is cautiously optimistic. While challenges persist, the market appears to be rebalancing, and the path forward (though still narrow) is becoming more navigable.
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
Team
Research Manager - VIC laurence@rpmgrp.com.au 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
Built Form
Luke Kelly
National Managing Director of Built Form
luke@rpmgrp.com.au
Steve Williams Sales Director Metro stevew@rpmgrp.com.au
Callum Taylor
Channel Manager Metro
cal@rpmgrp.com.au
Callum will be focused exclusively on supporting our Metro Channel Agents, driving channel engagement across our Metro portfolio, including Arc Chappell in Wantirna South, Highett Common in Highett, Seddon SQ in Seddon, and more.
Introducing RPM Metro's dedicated Channel Manager
For detailed insights or custom reporting, contact the team: contactus@rpmgrp.com.au
Our latest reports are also available by scanning the QR code below.
