Melbourne Can’t Catch Up? The Harsh Truth About Sydney’s Exploding Property Prices [APS093]

As of June 2025, the housing price gap between Sydney and Melbourne has reached the highest point in the past 25 years. The median house price in Sydney is 70% higher than in Melbourne. So, what’s really going on here? Even though these are both Australia’s largest cities with similar populations, why are the property prices so different? Even for someone who has lived in Australia for over 20 years, it is hard to understand the real reasons behind this.

The reasons are both complicated and straightforward. We’re going to break it down in detail—looking at geography, economic structure, government policies, society, and culture. It's not that hard to explain. It’s just when you are living in the middle of it, it’s hard to see the bigger picture.

For us, property investors, the question we care about is: Will the price gap between these two cities continue to grow wider in the future, or will it gradually narrow? And perhaps the biggest question of all—will property prices in Melbourne overtake Sydney's? Make sure you keep watching to the end—because the answer will surprise you.

25 Years Property Trends

Let’s start with a chart. The horizontal axis shows time, and the vertical axis shows the median price of houses. Around 2000, property prices in the two cities were very close, but after that, the gap continued to widen. Especially after the pandemic, the difference in prices didn't just get bigger—the pace of change also accelerated.

So, what exactly happened at several key turning points along the way? Starting from 2000, let's take a look at the property price trends of both cities over the past 25 years. Based on the events that took place and the rise-and-fall patterns of the market, we can divide this period into six stages.

1. The Olympics (2000–2004)

In 2000, Sydney was in the global spotlight. The Sydney Olympics brought huge benefits to the city's property market. The Games led to large-scale infrastructure projects: new highways, railways, the Olympic Village, and sports facilities. These projects improved the city's overall appearance, made daily life more convenient, and created countless job opportunities.

How optimistic was the market back then? Analysts at the time predicted Sydney house prices would rise by 50% within five years. In 2000, Sydney’s median house price was AUD 290,000.

On July 1, 2000, the Australian government introduced the First Home Owner Grant. If you met the criteria, the government would give you AUD 7,000—roughly 2.5% of the price of a house at the time. Fast forward to 2025, and the grant now accounts for just 0.6% of Sydney’s median house price. When you look at it that way, you can imagine just how generous that subsidy was back then.

Young people with full-time jobs in Sydney could buy a two-bedroom home in areas like Newington—the Olympic Village—for about AUD 400,000.

Melbourne didn’t host the Olympics, but it still benefited from the national economic boom and the recovery of the property market. Prices in Melbourne rose too, but not as sharply as in Sydney. The growth there was more moderate, driven mainly by local population growth and economic expansion. It simply couldn’t compare to Sydney, which had the full momentum of the Olympics behind it.

In 2000, a Melbourne family could buy a second-hand house in the middle-ring suburbs for about AUD 200,000, and homes in newly developed areas on the city's fringes were even cheaper. During those years, Sydney house prices appreciated at an average annual rate of 7–10%, while Melbourne grew at about 5–8%.

2. The Mining Boom (2004–2007)

From 2004 to 2007, China’s rapid industrialisation fueled a mining boom in Australia, creating enormous national wealth. But this boom also split the Australian property market into two parts—one moving fast, the other slower.

Perth and Brisbane—one producing iron ore and the other coal—were at the heart of the boom. Jobs surged, economic output soared, and naturally, property prices skyrocketed. These mining cities attracted waves of talent looking to cash in, and much of the money they earned flowed back into Melbourne.

During this period, Melbourne’s house prices weren’t as high as Sydney’s, but the growth rate outpaced Sydney’s. Even though Melbourne’s economy didn’t directly benefit from mining, the inflow of capital from Perth supported economic growth and drove property prices higher. It just didn’t experience the explosive spikes that Perth did.

Melbourne’s median house price rose from AUD 320,000 in 2004 to AUD 410,000 in 2007—a jump of 28%. Sydney, on the other hand, had already reached the peak of its Olympic-driven cycle and entered a correction phase. Its median house price dropped from AUD 520,000 in 2004 to AUD 480,000 in 2007. Part of this decline was because Sydney needed time to absorb the surplus housing supply built during the Olympic era. Many Sydney investors at that time also started buying properties in Melbourne.

Mining engineers earning AUD 150,000 a year and working in remote mining towns—where there wasn’t much to spend money on—could easily afford investment properties in Melbourne. In small mining towns near Perth, house prices rising 30% in a single year was common. Much of that capital appreciation was then reinvested in Melbourne.

Suburbs like Richmond and South Yarra became hotspots, attracting cashed-up property investors who made big money in Perth. Looking back now, it's unbelievable. But in 2025, Perth investors are once again buying properties in Melbourne. History has a way of repeating itself.

3. The Subprime Crisis & GFC (2008–2011)

In 2008, the U.S. subprime mortgage crisis swept across the globe, becoming the first major test for Australia’s economy and property market in decades. Australia was actually very fortunate at the time. Unlike many international markets, the Australian housing market went through only a mild correction before quickly rebounding. By the end of the crisis, the national property market had fallen just 4.6%.

In October 2008, the First Home Owner Grant was boosted to AUD 21,000, and the RBA slashed its cash rate from 7% in 2008 to 3% in 2009. These measures stimulated demand during the crisis and provided strong support for the market.

From 2008 to 2011, Sydney’s median house price rose from around AUD 500,000 to AUD 580,000, a 16% increase over three years. During the same period, Melbourne’s price barely moved, rising only 2% from around AUD 400,000 to about AUD 410,000, although it did briefly approach AUD 440,000 in 2010.

Why was there such a difference in growth? First, by late 2009 to 2010, Melbourne’s prices had already surged too much, pushing affordability to its limit—in simple terms, people could no longer afford to buy. Sydney, on the other hand, had gone through negative or flat growth between 2005 and 2007, so it was starting from a much lower base. By this point, Sydney had already fully absorbed the excess housing supply built in the post-Olympic period. As credit conditions recovered, demand was released back into the market.

In Melbourne, however, rising house prices led to large amounts of land being developed and released for sale—areas like Point Cook, Tarneit, and Berwick. These new developments offered affordable entry-level prices, which meant Melbourne’s overall property prices didn’t rise much during this period. By 2011, Melbourne investors started to worry about the volume of land supply and shifted their focus to the more mature and safer Sydney market. By the end of 2011, the number of overseas investors entering the market had also begun to climb.

4. The Overseas Investment Super-Cycle (2012–2017)

From 2012 to 2017, Australia experienced one of the most dramatic property price surges in its history, driven by the inflow of foreign capital and ultra-low interest rates. During this period, Sydney and Melbourne—Australia’s two global cities—became prime destinations for international investors.

Chinese investment in Australian real estate exploded from AUD 600 million in 2009 to AUD 16.9 billion in 2014, a staggering 28-fold increase. In 2015, this figure surged again to AUD 24 billion, completely reshaping the market landscape.

The RBA’s cash rate dropped to a record low of 1.5% in 2016, making borrowing costs extremely cheap. At the same time, Australia’s Big Four banks rolled out lending policies that allowed overseas income to be leveraged three to four times. This flood of overseas capital quickly pushed the market from investment into speculation.

From 2012 to 2015, Australia entered an apartment construction frenzy. Why? Overseas investors preferred apartments, and apartments were perfect for speculation. You could flip them and make a quick profit.

At that time, apartments in Melbourne’s CBD were priced between AUD 600,000 and 800,000, and many investors would buy multiple units at once. Sydney locals earning AUD 100,000 a year could also borrow AUD 500,000–600,000 thanks to ultra-low interest rates, giving them the power to compete with overseas investors. This competition further accelerated property price growth.

Sydney’s median house price soared from AUD 640,000 to AUD 1.2 million—an 83% increase—while Melbourne’s rose from AUD 520,000 to AUD 900,000, a 69% increase.

Once again, Sydney’s property prices rose faster than Melbourne’s, and there were several key reasons for this: Sydney’s international reputation was stronger, so when global investors thought of Australia, Sydney was their first choice. Whether it was luxury homes, prime locations, or middle-class suburbs, demand was red-hot. In suburbs like Chatswood, Eastwood, and Epping, auction sites were often filled with both local and overseas Chinese buyers, with bids jumping AUD 100,000–200,000 at a time. Melbourne’s population growth at the time was driven mainly by domestic migration, while Sydney’s was fueled by overseas migration, which naturally brought in far more wealth. Sydney investors were also more familiar with using negative gearing tax strategies, and major infrastructure projects like the Sydney Metro and WestConnex boosted confidence in the Western Sydney market.

All of these factors combined to push Sydney’s property price growth ahead of Melbourne once again during this period.

5. The Royal Commission (2018–2019)

By 2018, overseas investors' interest in the Australian property market had decreased a lot. Tightened regulations and stricter bank policy triggered the most severe industry correction in decades. For the first time since the early 1990s, both Sydney and Melbourne experienced significant price drops.

The Royal Commission into Misconduct in the Banking Sector exposed widespread mortgage fraud in the banking industry. Banks dramatically tightened their lending standards, weakening the borrowing capacity of many buyers.

The Australian Prudential Regulation Authority (APRA) implemented strict lending controls, requiring banks to assess borrowers’ living expenses much more stringently and reducing the availability of investor loans.

At the same time, China tightened its capital controls, and Australian regulators increased their scrutiny of foreign property purchases, leading to a noticeable drop in overseas buyer activity.

A couple earning a combined annual income of AUD 150,000 saw their borrowing capacity slashed from AUD 750,000 to AUD 600,000 due to the tougher lending standards brought in by the Royal Commission.

Chinese investors who had signed off-the-plan apartment contracts in 2015–2016 were unable to settle their purchases due to the tighter credit environment, resulting in widespread defaults. In premium suburbs like Mosman in Sydney and Toorak in Melbourne, homeowners found that property prices had fallen by AUD 200,000–300,000 from their peak, wiping out years of capital gains almost overnight. Sydney’s property prices fell 16% from their 2017 peak, while Melbourne’s dropped 10%. This correction was sharper than during the Global Financial Crisis, with the pace of decline being twice as fast as a typical downturn.

In 2018, the national average housing price dropped 5.1%, surpassing the 4.6% fall during the Global Financial Crisis. Melbourne’s price decline during this period was largely due to the sheer number of new homes being built—more than in Sydney—which raised concerns about oversupply in city-centre apartments and suburban house-and-land developments. Sydney’s downturn, on the other hand, was driven by the retreat of overseas investors.

The market’s downward trend began to ease after the new federal government came into power in May 2019.

6. The Post-Pandemic Era (2020– )

And then we entered the post-pandemic era that we all know so well. Fighting the pandemic hit the economy hard. Banks slashed interest rates, and the government offered more housing subsidies.

Even though Australia’s borders were shut during the pandemic, Sydney and Melbourne still saw significant house price growth. And when the borders reopened and large numbers of immigrants began pouring into Australia, the property market saw a second wave of price surges. But if we take a closer look at the house price trends, the real problem becomes clear.

When the pandemic began, the median house price in Sydney was AUD 1.2 million, while in Melbourne it was AUD 900,000. The gap wasn’t that big. But by 2025, Sydney’s median had jumped to over AUD 1.7 million, while Melbourne’s barely reached AUD 1 million. The price gap had widened to a staggering 70%.

Melbourne completely missed the two mini market upswings that took place after early 2022. During this time, Sydney continued to be buoyed by overseas migration. Even if there were short-term dips, each rebound pushed prices even higher. Melbourne wasn’t so lucky. It had the longest lockdowns in the world during the pandemic, and the state government racked up massive debts. To pay off that debt, they introduced targeted property tax hikes, which drove investors away.

Today, Melbourne’s house prices rank third lowest among Australia’s eight capital cities, a level that’s completely out of step with its status as a major international city.

The Main Reasons Behind the Price Gap

Now you’ve seen the full history of Sydney and Melbourne’s house price trends over the past 25 years. My personal experience in the industry spans nearly 20 years, and I’ve lived through almost every market cycle. Here are my key takeaways on why Sydney’s price premium over Melbourne has grown so large:

1. Geography and Supply Constraints

Sydney’s geographic limitations are perhaps the single most important long-term factor driving its property premium. Sydney is surrounded by Sydney Harbour, the Blue Mountains, national parks, and natural landscapes that restrict the amount of developable land.

By contrast, Melbourne’s terrain is relatively flat, making urban expansion much easier. This fundamental difference is reflected in housing supply data: over the past 25 years, Victoria has completed 9.5 homes for every 1,000 residents each year, while New South Wales has only managed 7 per 1,000.

2. Land Scarcity and Development Costs

Sydney’s constrained geography creates artificial scarcity, which drives up land values, particularly in highly desirable coastal and harbour-adjacent areas. Higher development costs also exacerbate the situation. Taxes, charges, and red tape account for 50% of the cost of new housing in Sydney, compared to just 37% in Melbourne.

If you understand construction costs, you’ll know that for the same square metre, same finishes, and same build quality, a property in Sydney costs about 15% more to build than one in Melbourne. This continuous stream of lower-cost housing stock has dragged down Melbourne’s average property price.

3. Economic and Population Factors

For more than a decade, Melbourne’s population growth has historically outpaced Sydney’s. But the latest data shows that gap has narrowed sharply. By 2023, New South Wales added 185,500 new residents, compared to Victoria’s 186,500. Sydney has particularly benefited from higher numbers of overseas migrants, who often bring more wealth than interstate migrants.

4. International Appeal

Sydney is a true global city with iconic landmarks, stunning harbour views, and international prestige. It continues to attract high-end buyers. Waterfront properties and beaches offer resources Melbourne simply cannot replicate, ensuring steady demand in the luxury property market.

5. Melbourne’s Pandemic Struggles

Since 2020, Melbourne’s property market has underperformed. The city endured the world’s longest lockdowns, which led to significant population outflows and falling investor confidence.

From March 2020 onwards, Melbourne has consistently been the worst-performing capital city. As of 2024, its house prices remain 4.7% below their previous peak. Victoria’s introduction of higher land taxes on investment properties has further reduced Melbourne’s appeal relative to Sydney.

Will the Price Gap Get Even Bigger?

So, will the price gap between Melbourne and Sydney get even larger? My personal view is that as Melbourne recovers from the pandemic-driven downturn, the gap we see now might start to narrow. A market recovery in Melbourne could see it return to historical price highs sometime between late 2025 and early 2026.

Meanwhile, Sydney faces mounting affordability issues that may start to limit further price growth. But the structural drivers—geography, supply constraints, and international appeal—aren’t going away anytime soon. In the foreseeable future, Sydney is very likely to maintain a significant premium over Melbourne.

The current 70% price gap may gradually ease, reverting to the long-term historical average of a 30–40% premium. But the idea that Melbourne could ever match Sydney’s prices—or even surpass them—I personally don’t think that will happen in the next 20 years.

For property investors and buyers, understanding these structural differences will help you make smarter investment decisions. Melbourne property can certainly be worth investing in. But if you had the same amount of money, would you buy in Brisbane, Perth, or Melbourne first? I’d love to hear your thoughts—join the discussion in the comments section below.

Watch the video version of the blog on YouTube.

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