(August 2025 Blog) The investment case for Melbourne is strengthening
Melbourne’s property market is bouncing back, and savvy investors are seizing the window of opportunity.
After a quieter few years, 2025 is shaping up as a pivotal year for Melbourne real estate, driven by four converging trends: strong population growth, renewed construction momentum, still-high rents and a large pool of affordable investment suburbs.
Population growth is shaping demand
After a tumultuous few years during and directly after the pandemic, Victoria has reclaimed the top spot for population growth, accounting for 30% of the country’s net increase in 2024, according to the Australian Bureau of Statistics (ABS).
ABS estimates put Greater Melbourne’s population at 5,350,705 residents as of June 30, 2024. With more people requiring somewhere to live, demand in the city is high, which continues to put upward pressure on prices.
That growing demand is already translating into market movement. Off the back of a slow two years, Melbourne’s market is well into its recovery, with the median house price growing 1.6% in the 12 months to June 2025, according to PropTrack.
This resurgence is being felt across Melbourne’s property market, with almost 380 suburbs recording price growth in the June 2025 quarter.
Melbourne tops the list for most affordable investment suburbs
With demand surging and prices climbing across the city, Melbourne is shaping up as a solid investment market. PropTrack forecasts that the city’s median house price – currently sitting at $979,979 – could surpass $1 million by Christmas 2025 if growth continues at its current pace.
Despite this momentum, Melbourne still leads the country when it comes to affordable investment opportunities. According to PRD’s research, an “affordable” suburb is not measured just on price, but also livability factors like crime rates, new supply and access to amenities and infrastructure.
Based on this, PRD’s Smart Moves Capital Cities Edition: 1st Half 2025 found Melbourne has the highest number of affordable suburbs across all dwellings, totalling 151 within 20km of the CBD.
For investors, that presents a rare combination: rising capital growth and accessible price points.
Rents remain at record highs despite signs of easing growth
Rental market conditions are also strengthening Melbourne’s investment appeal. While the pace of growth has slowed, prices remain elevated, providing a solid foundation for yield-focused buyers.
Domain’s latest Rental Report shows that Melbourne’s house rents have stabilised but remain at record highs, while unit rents are still climbing, up 4.5% annually in June 2025. This shift is largely driven by affordability pressures, with many renters opting for smaller homes to manage cost-of-living challenges.
Zooming out, similar trends are playing out nationwide. House rents across the combined capitals have now remained stable for four consecutive quarters, the first time this has happened since 2019. But while this may signal a turning point in the rental cycle, rents remain significantly higher than pre-pandemic levels.
Unit rents, on the other hand, continue to rise across most cities, with annual growth outpacing houses in all capitals.
Competition for rentals remains very tight with vacancy rates still sitting below 2% nationally and as low as 0.3% in some markets.
What’s emerging is a recalibrated rental market: growth is easing, but affordability constraints are keeping pressure on demand in certain segments. Renters are increasingly opting for smaller homes, and investors who own in the right areas are still achieving strong returns.
Construction is picking up, but hitting housing targets still needs urgent action
While population growth and rental pressures continue to drive demand, the pace of new housing construction is struggling to keep up.
According to the ABS, Australia’s dwelling commencement numbers remain below the levels needed to meet long-term housing targets.
The National Housing Accord, which aims to facilitate the delivery of 1.2 million new homes between July 2025 and July 2029, would require quarterly dwelling commencements of around 60,000. But, since the start of the Accord in July 2025, the number has averaged closer to 44,000.
Rising construction costs, labour shortages and higher interest rates have all contributed to project delays and a slowdown in new housing supply.
While some improvements are expected as inflation eases and interest rates come down further, the gap between housing need and housing delivery is unlikely to close quickly.
For investors, this imbalance between supply and demand reinforces the case for long-term capital growth, particularly in areas with strong fundamentals like infrastructure access, employment hubs and limited new stock.
As an expert buyers agency, A Game Property Advisory can help you secure a quality property at a great price. Get in touch with Jim by calling 0422 446 170 or emailing jim@agameadvisory.com.au.