(February 2026 Blog) Tight supply, growing demand fuel Melbourne’s rising market
Melbourne’s property market is entering 2026 with both challenges and opportunities for buyers. From rising home prices and record rents to fierce competition at the entry level, the city’s housing landscape is being shaped by tight supply, investor activity and long-term population growth. Understanding these trends is essential for anyone looking to buy, invest or even rent in Melbourne this year.
Melbourne’s population is projected to reach 9.1 million by 2065-66
Victoria is set to be Australia’s fastest-growing state over the next decade, with Melbourne's population projected to reach 9.1 million by 2065-66, according to the Centre for Population.
Driven primarily by overseas migration, the state is expected to see average annual growth of 1.4% through to 2028, trailing only Western Australia.
This sustained population growth creates a key point of pressure: more people need somewhere to live. While the city currently sees a small net outflow of residents to regional areas, the sheer volume of international arrivals ensures that the demand for housing remains high.
For buyers, this means competition is unlikely to ease anytime soon. Limited supply in desirable suburbs, combined with a steadily growing population, will continue to put upward pressure on prices and keep the rental market tight.
Melbourne is currently a landlord’s market, especially for units
The immediate impact of this population surge is felt most acutely in the rental market. For the first time since 2012, Domain data found that the median asking rent for units has hit $580 per week, catching up to house rents.
Units tend to respond faster to market dynamics than houses. They're quicker to turn over, quicker for landlords to adjust pricing, and quicker to readvertise. Meanwhile, houses tend to be stickier, often occupied by families or share-housing arrangements with less mobility.
A combination of low vacancy rates (1.6%) and this growing demand for inner-middle ring units has created a landlord’s market. For investors, this could make unit acquisitions particularly attractive, further tightening the market.
However, this rental pressure is encouraging more Victorians to consider homeownership, creating more competition at the entry level of the property market.
Fierce competition at the entry level
This transition from renting to buying has created a clash of buyer types at the entry level. We are seeing a defining feature of the 2026 market: first home buyers going head-to-head with investors for the same $600,000 to $900,000 properties.
Nationally, investors account for roughly 41% of mortgage demand, well above the typical one-third, according to Cotality. While first home buyers can access schemes such as the 5% Deposit Scheme and Help to Buy, price growth has moved faster than borrowing power. Cotality data shows borrowing capacity lifted by only about $55,000 during 2025’s rate cutting cycle, while housing values rose by around $68,000 over the same period.
The outlook has become more challenging again after the Reserve Bank of Australia lifted interest rates at its first meeting of 2026. First home buyers are now facing a double squeeze, with higher borrowing costs layered on top of ongoing price growth driven by strong investor demand.
Property prices set to increase in 2026
Despite the RBA’s decision to raise rates, Melbourne property prices are forecast to grow 5-7% in 2026, according to PropTrack. That places Melbourne among the more modest performers nationally, with Brisbane and Perth tipped for stronger growth of 7–10%, largely driven by acute supply shortages.
Melbourne’s more subdued outlook may offer a silver lining for buyers. Rather than sharp, boom-style surges, the market appears to be settling into a steadier phase. This typically reflects a balance between stretched affordability and underlying demand, which can reduce the risk of abrupt price swings in either direction.
That said, opportunities still exist, particularly across outer and middle-ring suburbs. Competition has not disappeared, and success increasingly depends on well-timed, informed decision-making.
The bottom line
The link between these four trends is clear: record population growth is driving demand for both buyers and renters. Supply has not kept up, which will continue to put upward pressure on prices, despite a rate hike. Whether you are a first home buyer looking for a foot in the door or an investor looking for reliable yields, the Melbourne market remains a robust, long-term option.
As an expert buyer’s 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.