For the first time on record, renting a unit in Melbourne is now more expensive than renting a house. In the March quarter, median asking rents for units reached $600 per week, overtaking houses at $590 per week. This shift highlights a major imbalance in supply and demand, particularly driven by strong migration and student return, which is putting increased pressure on the unit rental market.
For investors analysing rental performance, structuring finance through options like investment home loans can help maximise returns in a rapidly changing rental landscape.
Key Takeaways
- Melbourne unit rents have surpassed house rents for the first time
- Median unit rent reached $600 per week compared to $590 for houses
- Migration and student demand are driving unit rental growth
- Limited supply is contributing to rising rental prices
- The shift highlights affordability challenges across the rental market
Unit Rents Have Surpassed Houses in Melbourne
Melbourne’s rental market has reached a surprising milestone.
According to Domain’s latest Rental Report, the median asking rent for units climbed to $600 per week in the March quarter, rising from $575 in the previous quarter.
At the same time, house rents increased to $590 per week, leaving units now $10 more expensive on average.
This marks the first time on record that units have overtaken houses in rental price, signalling a shift in demand dynamics across the city.
Migration and Students Are Driving Demand
One of the key factors behind this trend is strong population growth, particularly from overseas migration and returning university students.
Domain’s chief of research and economics, Dr Nicola Powell, highlighted the speed at which demand has returned.
“It’s quite painful for tenants right now. Demand for units has returned much faster than supply can keep up.”
Melbourne continues to attract international residents due to its universities and lifestyle appeal, making inner city units a preferred option for new arrivals.
Land Size and Its Implications
The biggest priority, of course, is getting the right-sized block to match your needs. However, while different lenders have different rules, you should bear in mind that the size of your land generally dictates how big your deposit will have to be. For example, with an 11-hectare property, you might be required to pay a deposit of 20%. Also, in the case of a default, many lenders feel that large blocks are harder to sell because fewer people will be interested in buying a bigger area of land.
Supply Is Struggling to Keep Up
While demand continues to rise, supply has not kept pace.
Angie Zigomanis, head of data at Quantify Strategic Insights, pointed to population growth as a key driver of the current imbalance.
“At the moment, the demand side is pretty strong because we have solid population growth in Victoria.”
New arrivals typically enter the rental market before purchasing property, placing immediate pressure on rental supply.
At the same time, construction levels have not increased sufficiently to meet this demand, resulting in tighter vacancy rates and higher rental prices.
For investors considering entering the market, understanding funding structures such as home loans is essential when evaluating rental yield opportunities.
What This Means for Rental Affordability
Traditionally, units have been seen as a more affordable rental option compared to houses.
However, this trend is now reversing.
Damien Patterson, director of policy, advocacy and engagement, described the shift as a sign of dysfunction in the rental market.
“Renters often look for units because they’re looking for cheaper housing options in the rental market.”
“But if units are now more expensive than houses, then there are few affordable options available.”
This shift is making it increasingly difficult for tenants to find cost effective accommodation, particularly in high demand areas close to universities and employment hubs.
Rental Trends Across Australia
Melbourne is not alone in experiencing rental pressure, but it is unique in how unit rents are now exceeding house rents.
Across other capital cities:
- Sydney units remain cheaper than houses
- Brisbane shows a similar trend with houses still more expensive
- Perth, Adelaide, and Canberra all maintain higher house rents compared to units
This makes Melbourne’s current rental dynamic particularly noteworthy.
What Investors Should Watch Next
For property investors, this shift could signal a change in rental yield performance.
Units, once considered lower yielding assets, may now offer stronger rental returns in certain areas, especially where demand from students and migrants is concentrated.
At the same time, investors should remain cautious of supply constraints and broader economic factors that could influence long term rental growth.
Those exploring alternative strategies or mixed asset portfolios may also consider funding solutions such as commercial loans depending on property type and structure.
Learn More About Perry Finance
To better understand how rental trends impact your investment strategy, visit Perry Finance or speak with an expert via the contact page.
