Sydney has long been Australia’s most expensive city for homebuyers, but the price difference between Sydney and Melbourne has reached unprecedented levels.
PropTrack’s Eleonor Creagh (pictured above) said that as of August, Sydney’s median house price is 70% higher than Melbourne’s, with Melbourne homes now 41% cheaper – a $600,000 difference, marking the largest price gap in 20 years.
One significant factor behind Sydney’s rising premium is its constrained land supply.
Sydney’s natural features, including its harbor and surrounding national parks, limit the availability of developable land. In contrast, Melbourne has seen a higher rate of new home completions per capita.
Over the past decade, Victoria averaged 9.5 new dwellings per 1,000 residents per year, compared to just seven in New South Wales, PropTrack reported.
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A recent report by The Centre for International Economics (CIE) also highlighted Sydney’s higher construction costs. Red tape, taxes, and other fees make building new homes in Sydney more expensive, with 50% of these costs tied to such charges, compared to 37% in Melbourne.
“Waterfront properties and international appeal have kept Sydney’s market strong,” Creagh said.
Melbourne has lagged behind other cities since the COVID-19 pandemic, losing population and experiencing less dramatic price increases than other Australian capitals.
Since March 2020, Melbourne has been the weakest performing capital, with house prices still 4.7% below their peak. The city has even dropped to fourth place among Australia’s most expensive capitals, with Brisbane and Canberra surpassing it.
Several factors are contributing to Melbourne’s continued underperformance.
Higher land taxes for investment properties have made Melbourne less attractive to investors, while stock levels remain high. In July, Melbourne listings were the highest since November 2018, providing buyers with plenty of choices.
Looking ahead, Melbourne’s housing market is expected to remain subdued compared to Sydney, Creagh said.
The combination of a high inventory of homes and softer economic conditions may cause Melbourne prices to fall further. However, as Melbourne houses become more affordable, the price gap could eventually narrow.
While Sydney’s geographic limitations and global appeal may ensure it retains a price premium, the historic price swing may make Melbourne more appealing in the future.
“At some point, Melbourne may be seen as undervalued, given its current price levels relative to Sydney,” Creagh said.
Read the PropTrack report on LinkedIn.
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