As Melbourne’s housing market shows signs of recovery in 2025, with rising median dwelling prices and increased buyer confidence boosted by lower interest rates, InvestorKit has delved into how the city’s rapid homebuilding pace is influencing this trend.
The analysis focuses on whether the high construction levels are leading to an oversupply that could impact the strengthening property values, aiming to understand the nuanced effects of construction activity on Melbourne's evolving property market dynamics.
Melbourne has recently seen its first month-on-month rise in median dwelling prices in 10 months, a 0.4% increase as of February. This development comes amid a broader recovery expected in the coming years, but concerns linger about potential oversupply due to significant new developments in the city’s southeast, north, and west.
The InvestorKit analysis employed the “building approval rate” to quantify homebuilding activity.
This rate measures the number of new house-building approvals against the total house count in an area, offering insight into the pace of development relative to existing housing stock.
The analysis categorised SA3 regions into two groups for comparison: Group A, which has seen intense development over the past decade, and Group B, consisting of adjacent, more established regions.
Contrary to common beliefs, the findings indicated no definitive pattern where one group consistently outperforms the other.
In fact, “No clear pattern shows either group outperformed the other,” InvestorKit’s Junge Ma (pictured) said, suggesting that factors beyond mere construction volume influence property value growth.
Delving deeper, the analysis at the suburb level within high-activity areas like Casey – South reveals significant variations.
Some suburbs, despite high building rates, have exhibited substantial growth over the past five years. For instance, “Casey – South, despite its high building approval rates, has championed the growth rate over the five years,” Ma said.
This challenges the assumption that high construction automatically leads to suppressed property values.
The InvestorKit analysis highlighted the volatility introduced by high construction rates, especially in the short term. However, over the long haul, property values tend to stabilise, balancing out the initial fluctuations caused by rapid development.
“It seems that whilst the housing supply has been high, demand has been equally high to absorb the supply,” Ma said.
For more details, read the InvestorKit blog.
