Blame the 20-year growth cycle, not the government

• Median house price growth since 2017: 1.8% p.a.
• Average inflation over same period: ~3% p.a.

These gaps matter because they position Melbourne as relatively undervalued compared with its own trend, even while other capitals such as Brisbane, Adelaide and Perth remain above trend.

Why commonly cited causes fall short

Commentary often points to Victoria's changes in land tax, tenancy law reforms and the state's higher debt as primary causes. The piece examines these and finds them incomplete.

• Land tax and holding costs: Victoria's temporary land tax levy and a reduced tax‑free threshold have increased costs for some investors. But holding cost comparisons across jurisdictions aren't straightforward. Other costs—council rates, for example—can be substantial elsewhere and can change the comparative attractiveness of markets. In at least one client example, buying a second property in Brisbane actually raised the buyer's land tax more than buying in Melbourne would.

• State debt: Victoria's debt is substantial (about 25% of gross state product), but federal debt sits near 20% of GDP. While higher state debt can raise fears of future tax increases, the direct link between the state's debt position and property prices appears weak.

• Sentiment and media: Negative stories about Victoria appear to outweigh positive indicators, which can depress sentiment. Yet macro fundamentals still show strengths: Victoria recorded the highest population increase in absolute terms and the second‑highest growth rate, and unemployment is only modestly higher than the national average (Victoria ~5.1% vs national ~4.4%).

The 20-year growth cycle explanation

Factors that suggest Melbourne could be relatively undervalued now include high replacement costs and large price gaps between Melbourne and other capitals. Improving rental yields, constrained supply in some areas, ongoing population growth and better sentiment could combine to support stronger capital gains in a future growth cycle.

Investors should focus on forward-looking returns (expected capital growth plus rental yield) rather than past performance alone. For owners who held property before the recent Budget, negative gearing protections mean many will be reluctant to sell because reinvesting in established property may forfeit immediate tax benefits. New investors should weigh current yields, supply constraints and local fundamentals against the changed tax landscape.

Melbourne's decade of weak performance is easier to explain as the aftermath of an exceptional 20-year growth cycle than as the direct effect of recent state policy changes. The market now sits below long-term trend, and a combination of supply and demand factors could support a stronger cycle ahead. Investment decisions should be based on expected returns over the next decade rather than on assigning blame for past outcomes.