Melbourne's Housing Challenge: Affordability, Supply, and the Rental Crisis

Melbourne's housing market, long regarded as more affordable than Sydney's while sharing the lifestyle advantages that have sustained the 'World's Most Liveable City' ranking that the Economist Intelligence Unit has awarded Melbourne more than any other city, is confronting the affordability pressures that population growth, constrained supply, and the investment demand that the city's economic fundamentals create have generated. The median house price in Melbourne has reached levels that make the first home buyer's path to ownership increasingly difficult without family wealth support or the concessions that government programs provide, and the rental market's vacancy rate and rent growth have created the rental affordability crisis that is changing the lived experience of housing access in a city whose liveability reputation has historically rested partly on the affordable access to high-quality urban amenity.

The rental crisis, with the vacancy rate across inner Melbourne approaching historic lows and the rent growth over the past three years exceeding the income growth of the working population that rents, is the housing challenge that the current residents are experiencing most acutely. The combination of the population growth from interstate migration and international arrivals as overseas migration resumed post-pandemic, the limited new rental supply as investors responded to the regulatory environment and the rental yield compression, and the interest rate environment that reduced the household formation rate of potential buyers, has tightened the rental market to the degree that competitive rental applications with multiple bidders above the advertised rent are the experience of the Melbourne renter in the most sought-after areas.

The Victorian government's housing policy response, including the Housing Statement commitments to the rezoning of the activity centres and the development of the government-owned land for housing, provides the supply-side intervention that the planning system can deploy to increase the housing production that the population demands. The 'missing middle' housing, the medium-density townhouses and the apartment buildings of three to six storeys that fit between the detached house and the high-rise tower in the housing typology hierarchy, is the product that the activity centre rezoning and the gentle densification of the established suburbs that the planning reform enables should produce in the locations where the infrastructure and the amenity can support it.

The social housing program, the public housing estates of Carlton, Flemington, and Collingwood that the Victorian government is progressively redeveloping through the public housing renewal program that replaces the aging towers with the mixed-tenure developments, represents the most complex and most consequential housing policy intervention that Melbourne's housing system requires for the residents whose needs the market cannot serve. The tower redevelopments' replacement of the concentrated disadvantage of the existing estates with the social mix and the improved built form of the renewal projects provides the public housing improvement alongside the social inclusion rationale.

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