Melbourne’s Unit Market: Why Investor Supply is Cooling Prices and What It Means for Buyers
A surprising trend is unfolding in Melbourne’s property market: despite rising rents, unit prices are stagnating, and in some areas, falling. This isn’t a blanket downturn, but a localized effect driven by a surge in investor-grade apartments, creating a competitive landscape where buyers – particularly first-home owners – may find unexpected opportunities. But this shift also raises questions about the future viability of new developments and the quality standards within them.
The Investor-Driven Unit Glut
Recent data reveals a market heavily influenced by unit supply, particularly in suburban areas. According to Quantify Strategic Insights head of data and insights, Angie Zigomanis, much of the new construction caters to investors rather than owner-occupiers. This has led to concentrated pockets of supply, putting downward pressure on prices. “When you do see high levels of supply in concentrated areas it can have an impact on pricing,” Zigomanis explains. The core issue isn’t a lack of demand, but an oversupply of a specific type of property – units geared towards rental income.
This dynamic is further complicated by rising mortgage interest rates. While rents are increasing, the higher cost of borrowing is eroding potential returns for investors. As Zigomanis points out, “rising rents haven’t really improved the investor equation for them.” This means investors may be more willing to accept lower offers to offload properties, creating a more favorable environment for buyers.
Competition and Quality Concerns
The abundance of similar units within new developments is intensifying competition among sellers. Buyers are often faced with a multitude of choices, diminishing the bargaining power of individual vendors. “There might be circumstances where that [owner] is more desperate to sell than you,” notes Zigomanis, highlighting the potential for price negotiation.
However, the focus on quantity over quality is also a growing concern. Recent years have seen reports of building defects and quality issues in some apartment complexes, making potential buyers wary. Larger homes with functional layouts are proving to be more resilient in the resale market, suggesting that quality and design are increasingly important factors for long-term value.
The Impact on New Developments
The current weakness in unit pricing poses a significant challenge to the feasibility of new residential projects. Buyers are understandably hesitant to pay a substantial premium for a brand-new apartment when comparable, slightly older units are available at a lower price point. “You’re not going to see many projects get off the ground [yet],” Zigomanis predicts, anticipating a slowdown in new construction until the market dynamics shift.
A Shift Towards Medium-Density and Innovative Solutions
Fortunately, the future of Melbourne’s housing supply isn’t solely reliant on high-rise unit towers. New plans are prioritizing medium-density developments near transport hubs, a move that aligns with a growing demand for more liveable and connected communities. This approach, coupled with a focus on quality and innovative building methods like modular housing, could help address affordability challenges and create more desirable homes.
Demand Still Outstrips Supply – For Now
While increased supply is moderating price growth in some areas, the underlying demand for housing in Melbourne remains strong. William Buck chief economist Besa Deda emphasizes that the relationship between supply and demand is crucial. “If a suburb is more dense, it’s possible that there’s more supply than demand for those particular suburbs,” she explains. However, she also anticipates that demand will continue to rise, fueled by factors such as falling interest rates, improving wages, and population growth.
Deda believes that the extra supply will help alleviate some of the pressure, but ultimately, “demand is still running much hotter than supply and we can’t add to supply quickly enough.” This suggests that while the current unit glut may offer temporary relief, the long-term outlook for Melbourne’s property market remains positive, particularly for well-designed, high-quality homes.
The current market conditions present a unique opportunity for first-home buyers, especially with the expanded First Home Guarantee Scheme offering access to purchases with a low 5% deposit. However, careful due diligence and a focus on quality are paramount. What are your predictions for Melbourne’s unit market in the next 12-18 months? Share your thoughts in the comments below!
