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How did Australia’s ‘most liveable’ capital become the most affordable city for renting a house?
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How did Australia’s ‘most liveable’ capital become the most affordable city for renting a house?

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As housing becomes increasingly less affordable in most Australian cities and regions, Melbourne has highlighted a number of data quirks that experts have linked to state government policies, with homes there now cheaper to rent than they were 12 months ago.
The cost of renting a house or unit in Australia’s combined capital cities has increased on average in the year leading up to December 2025, according to a new Domain report.
According to the report, the cost of renting a home in Melbourne fell by 1.7 percent over the year, the only decline of any housing type in any Australian city.

The fall in values ​​will bring mixed results for tenants, landlords and investors in Victoria, as the country struggles with a national shortage of new properties and low vacancy rates.

What has caused values ​​to drop?

The cost of renting a house in Melbourne has fallen by $10 a week in the 12 months to December 2025, saving renters $520 a year.
Yet homes became more expensive in the city, from an average of $550 per week in December 2024 to $580 a year later – comparable to house rents.

Unit prices in Melbourne are cheaper on average per week than Sydney ($750), Brisbane and Perth (both $650), Darwin ($598) and comparable to Canberra. Only Hobart and Adelaide have cheaper unit prices at $480 and $525 per week respectively.

Source: SBS news

Nicola Powell, Domain’s head of research and economics, told SBS News that housing supply in Melbourne was stronger than in other cities.

“I think the supply choice has been much better for tenants,” she said.
“And what that means from an asking rent perspective is that landlords have to be much more realistic about the price they’re asking for their home.”

Melbourne had the highest vacancy rate of all capital assets in December, at 1.6 percent.

More first home buyers, fewer investors

The policies of the federal and state governments have also made a difference.
Changes to state taxes affecting Victorians who own or want to buy investment properties have led to an increase in the fees paid by investment property owners.
Powell said these changes have led people to divest from investment properties in recent years and choose to invest in other states.
The investment share in Victoria is one of the lowest in the country.
“It amounts to just under 34 percent of loans funded to investors,” Powell said.

“NSW is at 46 per cent. So you can see there’s a huge difference in the investor participation rate.”

Research from the Property Council shows that investors are currently turning away from Melbourne due to its ‘harsh tax rates’, opting instead for states with lower property costs.
Andrew Lowcock, Victorian deputy director of the Property Council, told SBS News that Melbourne’s liveability has traditionally been supported by strong private investment in housing, infrastructure and amenities.
He said if rents are to remain low, investors must be kept on side.
“As that investment pipeline disappears, it becomes harder to deliver the homes that current and future Victorians need,” Lowcock said.

“If Victoria is to remain competitive, we must do more to encourage investment and create the conditions that encourage the building of more homes.”

National data

Powell predicted that the cost of renting in Melbourne would remain stable as the ‘affordability ceiling’ – the maximum a population can afford – is reached.
“We certainly don’t see any indication that rents are going to suddenly increase,” she said.
According to Domain’s December rental report, the most expensive homes per week in Australia are in Sydney, at $800.

This was followed by Darwin, Canberra and Perth, where renting a house cost an average of $700 per week.

A graph of the costs of renting a unit

Source: SBS news

The cost of renting a unit has increased across the board since December 2024.

Sydney has the highest average weekly rent at $750, followed by Brisbane and Perth at $650 respectively.
“The overall competition for rental properties is still quite strong, but I think affordability is increasingly limiting how far and how quickly rents can rise,” Powell said.

“We must remember that Australia still operates in a landlord market, meaning vacancy rates in every capital city are below two percent.”

How can cities be both livable and affordable?

When assessing Australian cities on metrics such as healthcare, education and infrastructure, Melbourne comes first, according to the Economist Intelligence Unit’s 2025 Global Liveability Index.

In 2025, Melbourne was ranked the fourth most liveable city in the world, followed by Sydney in sixth and Adelaide in ninth.

Kate Raynor, urban planning expert at the University of Melbourne’s Life Course Centre, explained why Melbourne scores so highly.
“Melbourne is doing very well for public spaces and public transport connectivity and safety in public spaces,” she told SBS News.
“There is less air pollution and it has historically been quite affordable.”
She explained that Melbourne has a diversity of housing types and densities, which helps improve affordability by making it easier for people to move up and down the property ladder.
In addition to its diverse housing stock, Victoria is approving more new homes than other Australian states, Raynor said.

According to 2025 Australian Bureau of Statistics data, Victoria was responsible for 5,215 new home approvals in November, out of 18,406 reported nationally. NSW followed with 4,848, while Queensland approved 4,558.

Does Melbourne offer classes for other cities?

The cost of living poses a challenge to livability, Raynor said, which can make it difficult for governments to strike a balance between a desirable area and cost-effectiveness.

“You want to build facilities and infrastructure, but at the same time you don’t want to drive people away with rising prices,” she said.

She said all cities, not just Melbourne, need to invest in more social and medium-density housing to continue to thrive and keep rents affordable.
“Invest in social housing because that is where the need is greatest, that is where the housing stress is the greatest, and that is the most obvious and direct route from someone at risk of homelessness or experiencing severe housing stress to housing stability,” she said.
With each new home comes the need for transportation infrastructure, she added, so people aren’t “locked” into the outer and developing suburbs.

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