Melbourne’s family-sized apartment segment is emerging as an unexpected winner in Australia’s housing shortage, following a trend that Sydney adopted decades ago.
According to data from the Real Estate Institute of Victoria (REIV), three-bedroom units in Melbourne’s CBD have surged by more than $155,000, or 14.1 per cent, over the past year, reaching a median price of $1.255 million.
This sharp rise means that the median price for a three-bedroom unit now exceeds the cost of two two-bedroom apartments in the city, which are valued at around $565,000 each and have not appreciated over the same period.
The shift is driven by developers prioritising larger, more expensive apartments after years of focusing on smaller one- and two-bedroom units.
Higher building costs have made these bigger “sky homes” more financially viable for apartment complexes.
Jacob Caine, acting chief executive of REIV, explained that affordability is a key factor behind this price growth.
“With three-bedroom houses anywhere near Melbourne’s CBD now at a very significant price point,” typically well above the city’s median house price, families are turning to apartments as a practical alternative.
He added that three-bedroom apartments “historically had typically been built to higher standards than those in more affordable price brackets, making them more appealing as well”.
Reflecting broader social shifts, Caine noted that “the societal attitude towards families living in apartments are starting to shift”.
Similar trends are visible beyond the CBD.
In Docklands, three-bedroom apartments have increased by $35,000 (3 per cent) to a median of $1.185 million, even as one- and two-bedroom homes have declined in value.
In Box Hill, three-bedroom units rose nearly $50,000 (5.7 per cent) to $883,000, while smaller homes have stagnated or dropped.
Caine highlighted how elevated construction costs have altered building economics: “The ones that are making money are generally larger and more expensive… And with a higher square metre rate, they are now being built.”
Leonard Teplin, project management director at Marshall White, observed that most new apartments are purchased by affluent buyers downsizing from larger suburban homes.
“Most want a floorplan big enough for a three-bedroom layout with a study,” he said, even if some later convert the space to fewer bedrooms with larger entertainment areas.
He added that prices in Melbourne’s leafy eastern suburbs typically start around $2 million for such homes, with luxury apartments exceeding $5 million.
“And, depending on the price point, it can be anywhere from a 100 sqm home to a 350 sqm one,” Teplin commented.
“Twenty years ago it was an investment, now it’s a home.”
Teplin traced the market’s shift towards larger, more luxurious apartments to rising building costs from 2021 onward.
“It’s all come down to building costs, they have to be bigger and they have to sell for a bigger price,” he said.
“You just can’t build them for less than $700,000 with the land and the build and all the taxes.”
Recent projects like Malvern Gardens and Central Park Residences, where three-bedroom apartments make up 95 per cent of offerings, sold out prior to completion.
Additional features that attract families and downsizers include more garage space, custom joinery in entry areas, ceiling heights up to three metres, and increased storage space.
Teplin said: “The uplift has been quite phenomenal for those people who did buy over the last couple of years… It might be 20 or 30 per cent in some cases.
“Where a larger apartment might have been $13,000-$15,000 a square metre pre-pandemic, now it’s over $20,000.”
Richard Temlett, national executive director of research at Charter Keck Cramer, noted Melbourne is now following Sydney’s lead, with families increasingly drawn to larger apartments, especially in prime school zones stretching from Fitzroy to the city’s inner eastern suburbs.
The rise of family-sized apartment living in Melbourne highlights a shift in housing preferences influenced by affordability pressures, construction costs, and evolving social attitudes toward apartment living for families.
This market segment is becoming a critical part of the city’s housing landscape amid wider challenges facing Australia’s home building sector.
