It’s been dubbed the world’s best city to live in, and for prospective home buyers, Melbourne might just offer an affordable opportunity to experience its celebrated lifestyle. On Wednesday, Melbourne was named the best city in the world for 2026 by global lifestyle media brand Time Out. The city was praised for its diversity, vibrant cultural scene, and liveliness, surpassing renowned global hotspots like London, New York, and Shanghai. Despite acknowledging that Melbourne isn’t perfect, the magazine’s editor noted that locals rate their city highly.
While some economists and business groups have scrutinized Melbourne, the data on housing affordability presents a different narrative. The median house value in Melbourne stands at $977,579, making it more affordable than most other Australian capitals. According to Cotality’s Home Value Index for February, only Hobart and Darwin have lower median house values. In contrast, Sydney, which ranked 21st on Time Out’s list, has seen its median house value surge to $1,607,046, followed by Brisbane at $1,175,981 and Perth at $1,032,032.
Housing Affordability: A Positive Story
Despite a median house price nearing a million dollars, Melbourne’s housing market is considered a success story for first-time buyers and livability. “The affordability story is a real positive one from Melbourne,” says Tim Lawless, head of research at Cotality. He highlights the significant gap between Melbourne and Sydney’s housing prices, noting a nearly 40 percent difference, a disparity not seen since their data collection began in 1980.
Historically, Melbourne was not always this affordable. In 2016, when it was ranked the second-best city globally, it was also Australia’s second most expensive city. However, several factors have contributed to its current affordability. The Victorian government has actively delivered new housing and increased taxes on secondary homes, discouraging some property investors. The 2020 pandemic and subsequent lockdowns also led to a population outflow, softening the housing market.
Population Dynamics and Economic Implications
As people return to Melbourne, the city’s population is projected to outgrow other Australian states and territories over the next 25 years, adding about 1.3 million people from 2021, according to property advisory firm Charter Keck Cramer. However, the state’s high debt burden and tax policies on property investors are often cited as factors preventing a strong housing market recovery.
“It is unprecedented in many ways that Melbourne would be so comparatively affordable relative to Sydney, let alone Perth, Adelaide, and Brisbane,” Lawless remarks. This affordability means buyers’ money stretches further, with Victoria leading the nation in first home buyer activity. Recent data shows that first home buyers accounted for almost a third of owner-occupier lending in Victoria in the year to September, surpassing the 10-year average and outpacing New South Wales.
Rental Market and Policy Impact
Melbourne also leads the country in rental affordability. While rents in all Australian capitals are at record highs, Melbourne’s median rent for houses is the lowest at $580 per week. In comparison, Sydney’s median asking rent for houses is $800, while Perth, Darwin, and Canberra each command $700.
“Rents in Melbourne, while still painfully high historically speaking, are still significantly lower than the other states,” says Ashleigh Chang, an associate in Grattan’s Housing and Economic Security Program. This trend is seen as a positive step for Melbourne.
Victoria’s controversial investor tax regime, introduced in the May 2023 state budget, has also played a role in making Melbourne one of Australia’s most affordable major housing markets. The latest rental bond data shows 23,000 landlords have exited the market since mid-2023, a trend analysts say has benefited home buyers.
“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,”
says independent economist Saul Eslake. “But they’ve had the effect of discouraging investment in Victoria by property investors, and I would say that’s a good thing.”
Future Outlook and Urban Development
Victoria has been proactive in addressing housing supply issues, building more homes than any other state. Eslake notes, “More dwellings have been completed in Victoria than NSW, despite NSW having 30 percent more people.”
Chang emphasizes the importance of housing supply in Melbourne’s success. The state government has released drafts for 60 proposed activity centers, primarily around public transport hubs in inner and middle Melbourne suburbs. “One of the things we highlight in our last report is the type of reforms that have gotten us to that point where we were able to have more supply,” she says. “A big one is the townhouse code that allows two or three-story townhouses across most zones. Our recommendation is that we should be allowing more townhouse apartments in the middle suburbs close to jobs, uni, transport, not just on the fringe.”
As Melbourne continues to evolve, its approach to housing and urban development may serve as a model for other cities grappling with affordability and livability challenges. The city’s commitment to balancing growth with accessibility underscores its reputation as a top global city.
