Victoria’s rental market has undergone a pronounced cycle in recent years, with steady pre-pandemic growth, a COVID-induced redistribution toward regional areas, and a strong post-lockdown rebound culminating in a peak in late 2023. Since then, however, the number of rental bonds held—particularly in Melbourne—has declined, pointing to tightening rental supply despite continued strength in underlying demand.
In the pre-COVID period to end-2019, rental bonds in Victoria grew steadily, reflecting population growth, strong migration and robust investor participation. Both Melbourne and Regional Victoria contributed to this expansion, with rental stock increasing consistently across the state.
Impacts though COVID-19 lockdowns (2020)
The onset of COVID-19 marked a clear break. Melbourne experienced a decline in bonds held through mid-to-late 2020, while Sydney continued to record growth. This divergence can likely be attributed to:
Longer and more stringent lockdowns in Melbourne, reducing household formation and mobility
Greater exposure in Melbourne to international students in inner-city rental markets, leading to elevated vacancies
A pronounced shift toward regional living, reflected in strong growth in bonds across Regional Victoria
As a comparison, New South Wales exhibited greater resilience, with both Sydney and regional areas continuing to expand, albeit at a moderated pace.
Post–COVID Recovery (2021-2023)
The post–COVID recovery phase saw a strong rebound in Melbourne as borders reopened and migration resumed, driving a peak in bonds held in September 2023. This period reflects a ‘catch-up’ dynamic, with both returning overseas migration and previously suppressed demand re-entering the market.
In contrast, Regional Victoria recorded a modest decline in bonds through parts of this period despite tight rental conditions. This likely reflects a shift from rental to owner-occupation amid strong price growth and elevated purchasing activity, combined with lagging new housing supply and possibly some movement of dwellings into short-stay accommodation in holiday areas.
Investor Contraction (2023-2024)
Since the September 2023 peak, Victoria has diverged sharply from New South Wales. Total bonds declined materially through to a trough in December 2024, driven almost entirely by Melbourne, while NSW maintained a broadly stable and gradually expanding rental base.
Given strong population growth and persistently low vacancy rates, this decline appears supply-driven rather than demand-driven. It appears that many Victorian investors retreated from the market, underpinned by various factors emerging around this time, including:
Increased holding costs, including land tax changes
A more stringent and evolving regulatory environment
Elevated interest rates reducing investment viability
This is supported by declining investor lending through 2022–2023, while sustained first home buyer activity (which has consistently remained above pre–COVID levels), suggests that the rental stock has been transitioning into owner-occupation. While tenant demand remains strong, as evidenced by rising rents, the number of rental dwellings has consequently contracted, particularly in established metropolitan areas.
Investor Recovery (2025)
More recently, there are signs of modest recovery. Investor demand has begun to return alongside continued rental growth, and bond numbers have increased slightly since December 2024. However, rental stock remains below the 2023 peak and continues to grow more slowly relative to population growth.
Distribution of Rental Stock in Victoria
Notably, rental bond trends have varied significantly at the Local Government Area level, highlighting the structural drivers reshaping the market.
Greater Melbourne
Inner and middle Melbourne LGAs have generally recorded declines in bonds relative to pre-COVID levels. These areas are characterised by:
High concentrations of investor-owned and apartment stock
Higher land values and tax exposure
Greater sensitivity to regulatory and cost pressures
The decline in bonds likely reflects investor exit and a shift toward owner-occupation, reducing rental supply. A key exception is the City of Melbourne, where institutionally owned build-to-rent developments are contributing new supply.
In contrast, outer growth corridor LGAs continue to record strong increases in bonds, supported by:
Rapid population growth
Significant new housing supply
Relatively stronger rental yields
Unlike inner Melbourne, where apartment feasibility has been constrained, new dwellings in growth corridors are more viable and frequently enter the rental pool.
Investor activity in land and new housing has increased significantly since 2020, up by nearly 60% since 2020. Investors now make up 47% of all loans for new housing construction, reinforcing this shift toward outer-suburban rental supply.
Regional Victoria
Regional patterns are more mixed but broadly reflect the persistence of pandemic-era migration trends:
Lifestyle and commuter-belt LGAs have maintained elevated bond levels, supported by population growth and new supply
Many other regional LGAs have recorded declines. Outside of peri-urban locations, more affordable housing could be translating to greater owner occupation, while in some cases, conversion to short-stay accommodation
Compared with Regional New South Wales, growth in rental bonds in Regional Victoria has been less sustained, suggesting possible weaker ongoing supply expansion and a greater shift toward owner-occupation.
Implications
The stagnation and recent decline in rental bonds across Victoria, combined with a clear redistribution of rental stock toward growth corridors and select regional areas, reflects a structural tightening in rental supply.
Where new supply has been limited, particularly in inner and middle Melbourne, owner-occupiers appear to be slowly absorbing existing rental stock. Conversely, supply has increased in locations where new housing delivery remains strong.
This redistribution is occurring in the context of sustained demand, as evidenced by population growth and rising rents. The result is increasing spatial pressure: renters are being pushed toward outer and regional markets, inner areas face heightened competition and affordability challenges, and overall rental availability is becoming more constrained.
Unless the feasibility of new apartment development improves and additional housing supply is delivered in supply-constrained parts of both Melbourne and Regional Victoria, rental markets are likely to remain unbalanced. In Melbourne, the mismatch between access to jobs and amenity in inner and middle areas and the locations where new supply is being delivered will continue to widen. At the same time, parts of Regional Victoria may struggle to attract population to meet employment needs without sufficient housing availability, reinforcing upward pressure on rents and reshaping the geography of renting across the state.
For more insight into rental market trends and what it means for your development or your business, contact Angie Zigomanis at [email protected] or Rob Burgess at [email protected]
