It’s been dubbed the world’s best city to live in, and for those eyeing a move, Melbourne might just offer an affordable opportunity. On Wednesday, Melbourne was named the best city in the world for 2026 by global lifestyle media brand Time Out. The city outshone renowned metropolises like London, New York, and Shanghai, thanks to its diversity, vibrancy, and cultural scene. Although the magazine’s editor described the rankings as an “attitudinal survey” and admitted the city isn’t perfect, locals continue to rate Melbourne highly.
Despite some criticism from economists and business groups, Melbourne’s housing affordability presents a different narrative. The Victorian capital’s median house value stands at $977,579, making it more affordable than all other major Australian cities except Hobart and Darwin. In contrast, Sydney, which ranked 21st on Time Out’s list, has seen its median house value soar to $1,607,046, followed by Brisbane at $1,175,981 and Perth at $1,032,032, according to Cotality’s Home Value Index for February.
Historical Context and Economic Factors
Melbourne’s current affordability is a stark contrast to its past. In 2016, when Melbourne was ranked as the second-best city globally, it was also Australia’s second most expensive city. However, several factors have since influenced its housing market. The state government has actively increased housing supply and imposed higher taxes on secondary homes, discouraging some property investors. Additionally, the COVID-19 pandemic and subsequent lockdowns led to a temporary population decline.
“The affordability story is a real positive one from Melbourne,” says Tim Lawless, head of research at Cotality. “Sydney has a median house value of $1.6 million, and Melbourne’s is just under $978,000 – that’s nearly a 40 percent gap.”
Lawless notes that this affordability gap is unprecedented in recent history, with Melbourne now ranking sixth in median housing values among Australian capital cities.
The Impact of Population and Policy
While Melbourne’s population is rebounding, with projections indicating that Victoria will outgrow other states over the next 25 years, the state’s high debt and taxes on property investors are often blamed for a slow housing market recovery. However, these factors have inadvertently made Melbourne more affordable for first-time home buyers. According to Australian Bureau of Statistics data, first home buyers accounted for nearly a third of owner-occupier lending in Victoria over the past year, surpassing the 10-year average and outpacing New South Wales.
“It is unprecedented in many ways that Melbourne would be so comparatively affordable relative to Sydney, let alone Perth, Adelaide, and Brisbane,” Lawless adds.
Victoria’s approach to housing supply has also been a key factor. The state has completed more dwellings than New South Wales, despite the latter having a larger population. This proactive stance is evident in the recent release of drafts for 60 proposed activity centers, primarily around public transport hubs in inner and middle Melbourne suburbs.
Rental Market and Investor Impact
Melbourne also leads the nation in rental affordability. Despite record-high rents across Australian capitals, Melbourne’s median rent for houses is the lowest at $580 per week. In contrast, Sydney commands $800, while Perth, Darwin, and Canberra each have median rents of $700.
“Rents in Melbourne, while still painfully high historically speaking, are significantly lower than in other states,” says Ashleigh Chang, an associate in Grattan’s Housing and Economic Security Program.
Victoria’s controversial investor tax regime has contributed to this affordability. Since mid-2023, 23,000 landlords have exited the market following investor tax hikes, a trend analysts believe has benefited home buyers. Independent economist Saul Eslake notes that while these taxes were initially intended as a revenue measure, they have inadvertently improved housing affordability.
“Victoria needed to raise more revenue or cut spending given the financial hole it is in – they were not intended as a housing policy measure,” Eslake explains. “But they’ve had the effect of discouraging investment in Victoria by property investors, and I would say that’s a good thing.”
Future Prospects and Policy Recommendations
Looking ahead, Melbourne’s success in housing affordability hinges on continued attention to supply. Ashleigh Chang highlights the importance of reforms that have increased housing availability, such as the townhouse code allowing multi-story townhouses in most zones. She advocates for more townhouse apartments in middle suburbs close to jobs and transport, not just on the urban fringe.
As Melbourne continues to evolve, its blend of cultural vibrancy and relative affordability makes it a compelling choice for new residents. The city’s ability to maintain this balance will be crucial in sustaining its position as the world’s best city to live in.
