How hated taxes helped make Melbourne a beacon of housing affordability
Investors have a saying: “Anywhere but Melbourne.” But that sentiment has had an upside for home buyers.
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Victoria’s controversial investor tax regime has helped Melbourne become one of Australia’s most affordable major housing markets, economists say, as first home ownership rises and price growth stalls.
The latest rental bond data reveals 23,000 landlords have exited the market since mid-2023, following the investor tax rises announced in the May 2023 state budget, a trend analysts say has helped home buyers.
Melbourne’s taxes on investors have helped dampen house price rises.Credit: Joe Armao
But the sell-off has also sparked warnings that tax settings are stifling new supply and will hamper affordability in years to come, as a combination of high costs and government charges stall new apartment projects.
Economist Saul Eslake said the Allan government’s increased taxes on investors – hated by industry – appeared to be having a dampening impact on rates of property investment.
“Which is really not necessarily a bad thing. Melbourne property prices haven’t gone up nearly as much as Sydney or Adelaide or Brisbane or Perth,” he said.
“One thing Victoria is actually getting right is housing affordability, even if it’s unintentional.”
While house prices in Sydney, Brisbane, Adelaide and Perth have surged since 2023, Melbourne’s values have stalled, allowing nearly 70,000 first-time buyers to enter the Victorian market in the past two years, according to ABS data.
The latest quarterly data from Domain shows Melbourne’s median house price was $1,083,043 – still below the December 2021 peak of $1.1 million.
Meanwhile, house prices have grown more than 80 per cent in Adelaide, Perth and Brisbane since 2020.
In an analysis paper, Cotality head of research Eliza Owen said that the new taxes had cooled Melbourne’s market, easing competition for homes.
Owen said that while investment lending had risen since 2023, the growth rate remained significantly below the national average.
She said that if investors exiting the market allowed renters to become first home buyers, it would ultimately be a good outcome, but she warned that Melbourne offered both lessons and warnings for the rest of the country.
“More subdued price growth and reduced investor activity has clearly increased affordability and made room for more first home buyer activity,” Owen said.