From the big end of town, the perspective is grim. Global investment in Victoria’s property sector halved in three years, down from $10 billion to $5 billion. The Property Council is quick to blame the state government’s “punitive” tax settings. Real estate agents, meanwhile, warn that higher land taxes and tighter tenancy laws have driven investors to sell thousands of properties rather than let them.
When Victoria’s new opposition leader Jess Wilson set about meeting business types, she says she heard the phrase anywhere but Melbourne three times in three days. One of Wilson’s first pledges was to make housing more affordable by addressing “all the taxes that sit on property.”
It’s true: Victoria’s taxing of property investments does stand apart from other states. In the 2023 budget the state government not only increased the rate of land tax but also dropped the threshold at which it kicks in. The Parliamentary Budget Office calculated that 380,000 Victorian property investors and holiday home owners would pay land tax for the first time, at an average of almost $900 each, and 480,000 existing tax payers would see their annual land tax bill rise by more than $2000.
Since the start of 2025, Victoria has also levied a tax on vacant residential land in swathes of inner and middle Melbourne. It’s payable on homes vacant for more than six months in the previous year, and on land where homes have been under construction, in the process of renovation or uninhabitable for more than two years. If homes remain empty for a second year, the tax rate goes up. From this month the levy also applies to residential land in the rest of metropolitan Melbourne that has remained undeveloped for more than five years.
Victoria also applies a windfall gains tax of 62.5 per cent if government rezoning results in land increasing in value by between $100,000 and $499,999, with larger gains taxed at 50 per cent. Foreign property owners pay surcharges and extra duties, and a levy applies to short-stay rentals.
The Property Council says this all makes Victoria incredibly difficult for domestic and global investors. Its research, commissioned from Mandala Partners, shows that Victoria attracted 40 per cent less global institutional property investment per capita than New South Wales between 2023 and 2025.
But are state taxes and charges really to blame here? The data also shows that per capita foreign investment in property was much lower than Victoria in smaller states with more generous tax regimes — 46 per cent lower in South Australia and 70 per cent lower in Western Australia. Mandala’s snapshot of institutional investment may tell us more about market size and market conditions than tax settings as drivers of boardroom decisions.
The Mandala report also showed that apartment projects accounted for only 6 per cent of all global institutional investment in Australian property between 2011 and 2025. The vast bulk of foreign investment flowed to commercial projects, particularly office buildings in New South Wales. Given that apartments are a subset of all housing, the impact of new taxes on international investment in Victoria’s overall residential property market is likely to be modest.
Another reason big players may be reluctant to commit to major residential projects Melbourne is the thousands of brand new apartments already on the market. In March last year the property advisory firm Charter Keck Cramer reported 8000 unsold apartments — or about one in every six units completed between 2020 and 2024. In November the firm cautioned that “it will be challenging to deliver new supply” as long as the current stock remains unsold. Apartment prices, it said, would need to rise by about 30 per cent before new projects stack up. In other words, apartments need to get pricier before developers will build more of them.
Of course, if the Victorian government cut its taxes and charges that could make apartment projects more viable, but a more significant factor undermining commercial profitability is the rising cost of construction, up 40 per cent since the pandemic.
Victoria is also ahead of other states in regulating the private rental market and protecting tenants. It led the way in important ways: ending no-fault evictions; allowing tenants to have pets and make minor modifications; banning rent bidding; and introducing minimum standards for heating, cooling, ventilation and locks. Recent amendments have made it harder for landlords to withhold a tenant’s bond without good reason when leases end.
The latest Homes Victoria rental report shows the number of active bonds fell by 1.5 per cent last financial year, which suggests that more investors are leaving the rental market than entering it. The Real Estate Institute of Victoria says excessive burdens on landlords and property managers are shrinking the pool of rental properties, with claims that there are now 10,000 fewer homes available for rent.
Given all this doomsaying, and the usual linking of supply and demand, you would expect Melbourne’s property market would be particularly tight. If fewer homes are available to let, then surely rents must be going up and vacancy rates going down? If higher taxes have stalled home building, then presumably a shortage of supply should be driving up prices. Yet property industry data suggests that Melbourne is the best state capital to be a tenant and one of the best to buy a home.
While the recent statistics from property analysts SQM and Domain differ, both find that Melbourne has the largest share of properties available for rent of any capital city in Australia. SQM puts Melbourne’s vacancy rate at 2 per cent and Domain has it at 1.6 per cent.
That doesn’t make it easy to find an affordable place to live in Melbourne — far from it. In a market with a reasonable balance between supply and demand the vacancy rate would be 3 per cent. (In other words, at any time, three in every 100 rental properties would be empty and listed for rent.) Yet dire as the situation in Melbourne may be, it is significantly better than in other state capitals, where vacancy rates are much lower.
The weekly asking rent for a house in Melbourne is lower than in all state capitals too (at least on Domain’s data), while rents for units are significantly cheaper than in Sydney, Brisbane or Perth.
Every year, SGS Economics and Planning, Melbourne develops a rental affordability index based on comparing household incomes and median rents. In 2025, Greater Melbourne’s rating was 118, which put it in the category of “moderately unaffordable” (which would translate to very unaffordable for people on low incomes). This is bad, but the scores for other state capitals were even worse. The next best was Greater Hobart with an RAI of 106. Greater Sydney came in at 100 and Greater Perth at 94
When it comes to buying a house, Melbourne is cheaper than Sydney and Brisbane but a bit pricier than Perth and Adelaide, while for apartments, Melbourne is cheaper than any city except Hobart.
How do we square these two things: property industry claims that Victorian government taxes and tenancy regulations are wreaking havoc on the housing market, and data that suggests Melbourne performs relatively well as a place to rent or buy?
The first thing to note is that a review of basic census data shows Victoria has consistently out-performed other states in building homes. In the two decades from 2001 to 2021, the number of residents per dwelling in greater Melbourne fell significantly, down from 2.48 to 2.39 people per dwelling. The ratio fell marginally in Sydney and Brisbane, stagnated in Perth and rose slightly in Adelaide and Hobart. This suggests that Victoria outperformed other states in housing a growing population over those two decades.
More recent data confirms this trend. Between September 2021 and March 2025, Victoria completed around 220,000 new dwellings, one for every 2.3 additional residents. NSW completed only 173,000 dwellings, or one for every 2.8 extra residents, while Queensland and WA built even fewer homes per capita.
Only Tasmania did better than Victoria. The island state added more dwellings than people, which means, according to the standard supply-and-demand theory, property prices and rents should have fallen there. The fact that they rose suggests demand for housing is not just driven by Tasmanians looking for a place to live. Other factors could be locals and mainlanders building holiday homes or properties to let to tourists as short-term rentals.
The second thing to note is that while higher land taxes and better protections for tenants may make the business of being a landlord more challenging in Victoria, when property investors quit the market, the homes they sell don’t disappear. They are either sold to other investors, who will rent them out, or to owner-occupiers who will live in them. And when people sell holiday houses or other underused dwellings to avoid higher land taxes or vacancy levies, it’s likely that the purchasers will use those homes more intensively, resulting in a more efficient allocation of the scarce resource that is housing.
Lending data suggests that first home buyers are the winners from Victoria’s higher taxes and stricter tenancy rules. In every mainland state except Victoria, the ratio of new loans going to investors and new loans going to first home buyers is about 70–30. In Victoria it is 60–40. (This applies whether assessing loans by number or by value.) This ratio held steady in Victoria over the past three years as new tax settings and tenancy laws took effect, whereas in other mainland states it shifted markedly in favour of investors.
If the primary aim of housing policy is to help more people realise the great Australian dream of home ownership, then it looks like Victoria is leading the pack.
Melbourne remains an extraordinarily expensive city in which to buy or rent a home, especially for people on modest incomes. The fact that it outperforms other Australian capitals, though, suggests that alongside greater housing supply, higher property taxes and more stringent tenancy regulations can help to constrain house price inflation and rent increases. And surely that’s a good thing, even if investors aren’t happy. •
