While most of Australia’s housing market has grown over the past five years, some neighbourhoods have gone against the trend — recording double-digit price falls.

Fresh analysis shows the sharpest declines are concentrated in the unit market, particularly across Melbourne and Sydney. Only one location outside New South Wales and Victoria appears on the list.

Melbourne Leads the Declines

The steepest slide was recorded in Melbourne’s Chadstone, where median unit prices dropped 25.2 per cent to $497,000 in the five years to June 2025, according to Domain data. Maidstone followed with a fall of 23.1 per cent, while West Melbourne was down 21.6 per cent.

Melbourne’s CBD also featured, with unit prices sliding 15.8 per cent. Analysts attribute these declines in part to an oversupply of investor-focused apartment projects, particularly those built during the pre-pandemic boom.

Sydney Markets Also Hit

In Sydney, Ultimo led the falls with unit prices down 17.6 per cent, while Eastwood saw a 17.5 per cent decline. Sydney Olympic Park also featured with an 11.1 per cent fall.

Industry observers note that many of these markets share similar characteristics: large volumes of new stock, developments targeted at investors rather than owner-occupiers, and heightened competition among sellers.

Impact of Interest Rates and Supply

Domain’s chief of research and economics, Dr Nicola Powell, said the list was dominated by Melbourne due to higher levels of new housing supply, combined with investor sell-offs, state land tax increases and population loss during the pandemic.

“When you have high levels of new unit supply, particularly of investor-grade apartments, prices tend to come under pressure,” she explained. “The market is not rising everywhere at once. That creates opportunities for first-home buyers, especially with schemes like the federal First Home Guarantee becoming more accessible.”

She added that future housing plans were shifting away from very high-rise projects towards medium-density developments near transport, with quality and innovation — such as modular construction — likely to play a key role in affordability.

Investor Challenges

Angie Zigomanis, head of data and insights at Quantify Strategic Insights, said rising interest rates had weighed heavily on investor returns, despite strong rental growth.

“From an investor’s perspective, the sharp increase in mortgage costs has offset higher rents,” he said. “Where there’s an oversupply of similar apartments — one tower competing with the one next door — sellers face intense competition, and that drives down prices.”

Concerns about construction quality and building defects have also deterred some buyers. Zigomanis noted that larger apartments with practical layouts were holding value better than smaller, standardised units.

However, he warned that softer pricing in the resale market posed challenges for new projects: “If existing apartments are selling for $200,000 less than brand-new ones, it’s difficult for developers to make projects stack up. Over time, rising rents will help close that gap, but in the near term, many projects will struggle to launch.”

Supply, Demand and Outlook

Besa Deda, chief economist at William Buck, said the relationship between housing supply and demand was clearly visible in the data.

“In more dense suburbs, the balance has tilted towards excess supply, which explains some of the price weakness over the five-year period,” she said. “Melbourne’s overall price growth since 2019 has also lagged other capitals.”

Looking ahead, she said population growth, falling interest rates and improving real wages would likely support housing demand, meaning new supply would be absorbed over time.

“While additional housing will help ease pressures, demand is still running hotter than supply — and the challenge is that new supply cannot be delivered quickly enough.”