Extraordinary performance: Perth surpasses Melbourne with housing prices

According to the latest PropTrack House Price Index (May 2025), the property market in Perth has reached a significant milestone, with the city’s median surpassing Melbourne’s median.

This shift reflects the turnaround in the Western Australian housing market since 2022, based on a unique combination of affordability, population growth, investor demand and supply constraints.

Melbourne had its biggest monthly growth (+0.79 per cent) in May 2025, and it continued to recover during the long-term softer growth. However, the value is still below the 2022 peak of 2.85%.

Despite Melbourne’s monthly lead, Perth’s median home value is $787,000, surpassing Melbourne’s median for the first time in a decade at $782,000. This reflects Melbourne’s relative weakness, compared to Perth’s continued surpassing performance in recent years.

Just five years ago, the median value of Perth homes was at a huge discount relative to Melbourne’s home value, with the median value of Perth homes lowering nearly 40%.

A chart comparing relative AVM value estimates shows that from 2016 to 2020, houses in Perth have always been trading below Melbourne.

However, house prices in Perth have continued to be strong since mid-2022 and have always been the strongest market for price growth in the country.

As a result, the city has been on a steep upward trajectory, eventually reaching home values, now surpassing Melbourne’s home values.

From weak to performance

Perth’s rapid value growth is driven by structural and cyclical dynamics.

New York City started this at a low base during a period of sluggish mining investment and subsequent market stagnation.

Relative affordability has become a key draw, especially as real estate prices surged across the East Coast throughout the pandemic, interest rates rose in 2022, reducing borrowing capacity and increasing the cost of mortgage services.

Affordability has always been the key driver. With a lower starting point, Perth offers higher value for money, a quality that resonates with homebuyers and investors, especially with the trend of remote work and lifestyle changes that have facilitated relocation. This value proposition has since been strengthened by rapid rental price growth, low vacancies and strong returns, attracting a wave of investor activity.

Population pressure and supply pressure

Western Australia’s population growth also plays an important role. Interstate migration has turned positive during the pandemic and has been rising since 2022, while overseas migration has soared. This momentum is under increasing pressure on housing stocks.

Meanwhile, new supply failed to maintain pace. Construction activities are limited by input costs, shortages and capacity issues throughout the construction sector.

Even as demand climbs, this mismatched driving competition and price increase, even if demand climbs, the number of new homes remains below historical norms.

Investors’ appetite and rental dynamics

Rental conditions in Perth are one of the most pressing conditions in the country. Vacancy rates have been at record lows, and rents have risen rapidly over the past few years. This has intensified calls from investors seeking capital growth and strong rental returns, further intensifying competition for homes.

Although Melbourne is still a larger, more diversified market, population growth has been slower and price momentum has been softer in recent years.

Melbourne has been the weakest capital city market in the past five years, with prices far less than 20 per cent, while prices in other capitals averaged 60 per cent.

The state currently has the highest property tax in Australia, and landlords have been working to achieve substantial costs in a timely manner from the minimum rental property standards legislation.

The Victorian government has also increased property taxes on investment properties as part of the budget announced in May 2023.

These additional taxes make ownership of leased properties less attractive in Victoria and continue to be higher in 2024, with increased holding costs, and many have sold investment properties.

Looking to the future

Although Perth’s housing price growth has been alleviated after its long-term performance, Perth’s housing market still enjoys a cyclical tailwind.

Continuously low rental vacancy rates, stable population growth and a relatively strong labor market are continuing to support demand.

While affordability pressures are beginning to increase in momentum, the prospect of further reductions in interest rates and new housing supply is expected to continue, with prices growing slowly despite slower prices.