Melbourne Houses Are 40% Cheaper Than Sydney. Could Victoria’s Land Tax Reset Change That?
- Rayson L.
- 2 days ago
- 10 min read
Within days of becoming Victoria’s 50th Premier, Ben Carroll gave the property industry something it has not enjoyed for a while: A reason to feel cautiously optimistic.
The Australian Financial Review reported that the new government was considering changes to property taxes to encourage jobs and investment. Business leaders have also called for Victoria’s tax and regulatory environment to be brought more closely into line with competing states such as New South Wales and Queensland.
That does not mean a land tax cut has been announced.
There is no confirmed new threshold, timetable or final policy at the time of writing. A review is not a reform, and a political signal is not legislation.
But the signal still matters.
For years, property investors have argued that Victoria’s tax settings have discouraged investment, weakened confidence and pushed capital towards other states.
The more important question is what could happen if that begins to change.
Because while Victoria has been making itself less attractive to property investors, Melbourne houses have become extraordinarily cheap relative to Sydney.
Could land tax reform help close that gap?
Victoria’s land tax problem is difficult to ignore
Victoria begins charging general land tax to individuals once their combined taxable Victorian landholdings reach just $50,000 in site value, excluding exempt property such as a principal residence.
By comparison:
Queensland’s threshold for individuals is $600,000
NSW’s general threshold is $1,075,000
Victoria’s threshold is $50,000
The calculation methods, ownership rules, exemptions and rates differ between the states, so this is not a perfectly like-for-like comparison. Nevertheless, the difference in entry thresholds is enormous.
A Victorian investor can become liable for land tax while holding a relatively modest investment property.
An investor in Sydney may own more than $1 million in taxable land before crossing the general NSW threshold.
That does not make NSW cheap. It does help explain why Victorian investors feel they are being invited to a very different party—and asked to pay the catering bill.
Victoria also applies different rates to trusts and additional surcharges to absentee owners. Investors must consider these holding costs alongside stamp duty, maintenance, finance, compliance expenses and changes to rental regulation.
Taken individually, each expense may be manageable.
Added together, they affect purchasing decisions.
Some buyers reduce their budgets. Some choose properties with lower land values. Others simply invest interstate.
Why the Premier’s review could matter
Property markets are influenced not only by tax rates, but by confidence.
Investors need to believe that a state welcomes private capital and offers a reasonably predictable environment in which to hold an asset for ten or twenty years.
When the rules repeatedly become more expensive or less favourable, investors demand a larger risk discount.
That discount can appear through:
Lower purchase prices
Weaker investor competition
Higher required rental yields
Reduced development activity
Capital moving interstate
Owners selling properties they might otherwise have retained
Changing Victoria’s land tax settings would not instantly reverse all of these effects.
But a meaningful increase in the tax-free threshold, a reduction in surcharges or a broader reset of property taxes could improve sentiment.
It could also increase the amount investors are willing to pay.
That is where the Sydney comparison becomes particularly interesting.
Melbourne houses now cost only 60% as much as Sydney houses
Domain’s June 2026 House Price Report placed the median house price at:
Sydney: $1,733,891
Melbourne: $1,041,205
Melbourne’s median house price was therefore only about 60% of Sydney’s. The dollar difference was nearly $693,000.
That relationship is historically unusual.
Immediately before COVID, in the December quarter of 2019:
Sydney’s median house price was $1,142,212
Melbourne’s median house price was $901,951
At that point, Melbourne was worth approximately 79% of Sydney.
In other words, Melbourne has moved from being roughly 21% cheaper than Sydney to being around 40% cheaper.
That does not prove Melbourne must catch up. It does suggest the present discount deserves serious examination.
Does Melbourne have 30% growth waiting to happen?
Mathematically, perhaps.
If Sydney’s median remained unchanged and Melbourne returned to 80% of Sydney’s price, Melbourne’s median house price would need to rise to approximately:
$1.387 million
That would be around 33% above the current Melbourne median.
But that is not a forecast.
The price relationship could normalise in several ways:
Melbourne prices rise while Sydney stays flat
Melbourne grows faster than Sydney over several years
Sydney prices fall
Both cities rise, but Melbourne outperforms
The gap remains wider than it was historically
The correct conclusion is not that Melbourne is guaranteed to grow by 30%.
It is that Melbourne appears to have considerable **relative valuation headroom** if some of the factors holding it back begin to change.
Land tax reform could become one of those factors.
Similar populations, very different prices
The contrast becomes even more striking when population is considered.
At June 2025:
Greater Sydney had approximately 5.64 million residents
Greater Melbourne had approximately 5.44 million residents
Melbourne added around 105,000 people during the year, compared with Sydney’s increase of about 75,000.
Melbourne therefore has approximately 96% of Sydney’s population but only around 60% of its median house price.
So why isn’t Melbourne already as expensive as Sydney?
Because population alone does not set property prices. Prices are determined by the interaction between population, incomes, borrowing capacity, housing supply, geography, investor demand and the scarcity of the particular housing people want to own.
Sydney has greater usable scarcity
Sydney’s official metropolitan boundary may cover a large area, but a substantial amount is constrained by:
The harbour and other waterways
National parks
Bushland
Steep terrain
The coastline
Major geographic and transport bottlenecks
These constraints restrict the supply of conveniently located detached housing.
Melbourne has its own natural boundaries and protected green wedges, but it can continue expanding across relatively flat growth corridors in the north, west and south-east.
The Victorian Government’s development data identified capacity for more than 334,000 potential greenfield lots across Melbourne’s growth areas at various stages of zoning and development as at January 2025. More recent state planning material refers to approximately 375,000 remaining greenfield lots, representing an estimated 19 to 23 years of supply.
That creates a pressure-release valve.
When established Melbourne houses become too expensive, Melbourne buyers simply move outwards, towards:
Melton
Wyndham
Hume
Whittlesea
Mitchell
Casey
Cardinia
Don't get me wrong. New estates do not offer the same amenity or investment characteristics as established suburbs. But they provide additional housing choices, which restrains the overall city median.
Sydney has growth corridors too, but its desirable established housing is more severely constrained by geography.
Sydney Harbour is beautiful. It is also a remarkably effective device for removing land from the housing supply.
Sydney has historically attracted more high-income and global demand
Sydney has traditionally benefited from a greater concentration of:
Financial-services employment
Corporate headquarters
International executives
Technology and professional-services roles
Prestige buyers
Offshore and institutional capital
This creates a deeper pool of wealthy purchasers competing for scarce housing.
Property prices are not set by what the average person can afford. They are set by what the strongest competing buyer is prepared and able to pay.
That distinction becomes especially powerful in tightly held suburbs.
Melbourne has world-class education, culture, food, sport and liveability. It attracts migrants, international students, professionals and wealthy families from around the world.
But Sydney has historically carried Australia’s strongest global-city and trophy-property premium.
Melbourne produces more substitutable housing
A Melbourne family searching for a detached home may be able to compare the east, south-east, north and west.
They can consider:
An established house
A townhouse
A villa unit
A growth-corridor home
A smaller property in a superior suburb
A larger property farther from the CBD
These properties are not identical. But there are enough alternatives and price difference to reduce the intensity of competition across the whole city.
Sydney buyers often face more severe compromises when moving away from their preferred location. Relocating farther out can mean crossing geographic bottlenecks, accepting substantially longer travel or losing access to the amenity that made the original area desirable.
That makes conveniently located Sydney houses harder to substitute—and therefore more expensive.
This is why not every Melbourne property will benefit equally
It would be dangerous to interpret this article as:
Melbourne is cheap, so every Melbourne property is a good investment.
That is not how property works. If tax settings become more favourable and investor confidence returns, demand is unlikely to spread evenly across every suburb and property type.
The strongest response is more likely to occur where additional demand meets genuinely limited supply.
That includes properties with:
A meaningful underlying land component
Strong owner-occupier appeal
Established schools, transport and shopping
Access to major employment centres
Limited nearby development capacity
Attractive streets and consistent neighbouring housing
Practical floor plans
Good natural light and orientation
Scarcity that cannot easily be reproduced
A generic property in an area capable of producing thousands of similar homes may remain affordable for a reason.
A well-selected house in an established, tightly held suburb is a different asset entirely.
Thinking of buying before the market narrative changes?
Policy announcements attract headlines. Property selection determines results.
Concierge Buyers Advocates has more than 20 years of Melbourne property experience, combining detailed market analysis with on-the-ground assessment, negotiation and due diligence.
We help home buyers and investors identify the properties most likely to benefit from Melbourne’s growth—while avoiding the stock that merely looks cheap.
Speak with Concierge Buyers Advocates before you commit to a property or suburb.
What would meaningful land tax reform do?
A serious reform package could affect the Victorian market in several ways.
It could bring investors back
A higher threshold or lower effective tax burden would improve the cash flow of some investment properties.
That would not make every investment attractive, but it could encourage buyers who have been directing their capital towards Queensland, NSW, South Australia or Western Australia to reconsider Melbourne.
It could improve competition and liquidity
More investors mean a deeper pool of purchasers.
That can support prices, reduce selling periods and improve confidence among existing owners.
It could support rental supply
Investors provide a large proportion of private rental housing.
If the financial equation becomes more attractive, some investors may retain properties for longer or add to their portfolios rather than selling.
It could be partly capitalised into prices
There is no free lunch in property.
If a tax reduction materially improves the after-tax return from owning an investment, buyers may respond by paying more for the asset.
Part of the financial benefit can therefore eventually flow to the seller through a higher purchase price.
It could change Victoria’s reputation
This may be more important than the immediate dollar saving.
Victoria needs to show that it understands the cumulative effect of taxation, regulation and policy uncertainty on long-term investment decisions.
A credible tax reset could signal that the state wants private investment rather than merely seeing property owners as a convenient revenue source.
What buyers should not do
Buyers should not rush out and purchase an investment property because a newspaper has reported that tax changes are being considered.
No reform has yet been finalised.
Victoria still faces significant state debt and relies heavily on property-related revenue. Any reduction will need to be funded, offset or carefully targeted.
The final policy may also be narrower than investors hope.
And even substantial tax reform will not fix a poorly chosen property.
A tax saving cannot repair:
The wrong location
Oversupplied housing
An inferior floor plan
Major structural defects
Poor land usability
Excessive body corporate costs
Weak owner-occupier demand
Buying above market value
Tax settings influence performance.
They do not replace asset selection.
Could Melbourne eventually become more expensive than Sydney?
It is possible, but it is not the base case. For Melbourne’s median house price to exceed Sydney’s, Melbourne would likely need a combination of:
Much tighter housing supply
Stronger high-income employment growth
Greater international capital demand
More competitive tax settings
Reduced fringe development capacity
Sustained economic outperformance
A major deterioration in Sydney’s relative appeal
Population parity alone is not enough.
Sydney possesses genuine geographic scarcity that Melbourne does not.
But that does not mean the current 40% Melbourne discount is justified forever.
A recovery from 60% to even 70% or 75% of Sydney’s median would represent substantial relative outperformance without requiring Melbourne to overtake Sydney.
My view: the gap is too wide, but the opportunity is selective
Melbourne’s lower price is partly justified by its greater land supply, weaker recent investor demand and less severe geographic constraints.
But a median house price equal to only 60% of Sydney’s appears unusually low for a city with:
More than 5.4 million residents
Faster recent population growth
A diverse economy
World-class education
Major employment centres
Strong international appeal
Established high-quality housing markets
While land tax reform would not guarantee a Melbourne boom, it could remove one of the market’s largest psychological and financial handicaps. The buyers who benefit most will not necessarily be those who buy immediately after the reform is announced.
It will be those who identify the right assets while confidence is still weak, competition is manageable and the broader market remains focused on Victoria’s problems rather than its potential. IE, the smarter investors who had faith in Melbourne and bought and accumulated when everyone else is avoiding Melbourne, will be the ones who reap the most benefit.
That is where experience matters.
The bottom line
Reports that Victoria’s new Premier is considering property-tax changes are encouraging, but they should be treated as an early signal rather than a completed policy.
If Victoria genuinely moves closer to NSW and Queensland on land tax, it could help restore investor confidence and support Melbourne property demand.
At the same time, Melbourne houses are trading at only around 60% of Sydney’s median price, compared with approximately 79% immediately before COVID.
That creates a credible long-term catch-up argument. It does not create a licence to buy indiscriminately. While Melbourne may be undervalued, not every Melbourne property is.
Buying in Melbourne? Get the property right before the market changes
Concierge Buyers Advocates has spent more than two decades analysing, inspecting and buying Melbourne property.
Our fixed-fee buyer advocacy combines data, local experience, physical property assessment, due diligence and confident negotiation. We do not sell property, accept developer commissions or recommend a property simply to complete a transaction.
Our focus is straightforward: find the right asset, protect the buyer and purchase it on the best achievable terms.
With a 99.5% acquisition success rate, we help interstate, overseas and local buyers purchase Melbourne homes and investment properties with greater clarity and confidence.
Contact Concierge Buyers Advocates for a confidential discussion about your Melbourne property strategy.
Frequently asked questions
Is Victoria definitely cutting land tax?
No. Reports indicate that the new Victorian government is considering property-tax changes, but no final land tax reduction, threshold or implementation date has been confirmed.
How does Victoria’s land tax threshold compare with NSW and Queensland?
Victoria’s general threshold for individuals begins at $50,000 of taxable land value. Queensland’s individual threshold is $600,000, while NSW’s general threshold is $1,075,000. Different valuation, exemption and ownership rules apply in each state.
Is Melbourne property undervalued?
Melbourne appears historically inexpensive relative to Sydney. Its median house price is around 60% of Sydney’s, compared with approximately 79% immediately before COVID. However, part of the difference reflects Melbourne’s larger housing pipeline and Sydney’s greater geographic scarcity.
Does Melbourne have 30% growth potential?
Melbourne would need to rise by approximately 33% to return to 80% of Sydney’s current median, assuming Sydney did not move. This is mathematical headroom, not a forecast.
Which Melbourne properties could benefit most from a recovery?
Established houses with strong land value, owner-occupier demand, good transport and schools, limited competing supply and characteristics that are difficult to reproduce are generally better positioned than generic or highly substitutable housing.
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