GLOBAL - Melbourne, once Australia’s second most expensive city for housing, has seen a significant shift in its property market dynamics, becoming comparatively more affordable. This development, driven by a combination of increased housing construction and government policies that have dampened investor speculation, offers potential lessons for managing housing affordability in rapidly growing urban centers like Nairobi.

In 2021, Melbourne's median house price soared past A$1 million following a decade of sharp increases. However, by late 2025, the market has cooled considerably. According to data released by Australian property portal Domain on Thursday, October 23, 2025, Melbourne's median house price of A$1.083 million now trails not only Sydney (A$1.75 million) but also Brisbane (A$1.101 million) and Canberra (A$1.1 million). This places it just A$40,000 above Adelaide, a city it once significantly out-priced.

Policy and Supply: The Key Drivers

The stabilization of Melbourne's market can be attributed to two primary factors. Firstly, the state of Victoria has outpaced other Australian states in housing construction. The Victorian government has actively worked to increase housing supply by reforming planning processes and unlocking land for new homes, aiming to create a long-term pipeline of new properties. This has resulted in more listings being available in Melbourne compared to other major cities, which helps to keep price growth in check.

Secondly, policy changes implemented by the Victorian government have made property investment less attractive. These measures include the introduction of additional land taxes for investors and levies on short-stay accommodations and vacant properties. For instance, a property with a land value of A$650,000 incurred an estimated A$1,300 annual increase in tax. Consequently, there has been a noticeable decline in property investment activity in Victoria, easing competition for homebuyers and contributing to the price slowdown. This has allowed a higher percentage of first-time homebuyers to enter the market compared to the national average.

Contrasting Fortunes: The Kenyan Context

The situation in Melbourne presents a stark contrast to the property market in Kenya, particularly in Nairobi. According to a September 2025 report by HassConsult, a Kenyan real estate firm, residential property prices in the country have surged by an extraordinary 425% since 2000, far outpacing markets like the United States and Australia. In the year leading up to June 2025, Kenyan property prices saw a 7.8% increase, the highest capital appreciation among nine international markets analyzed. Australia ranked second with a 4.74% rise.

This resilience and rapid growth in the Kenyan market are attributed to strong domestic demand, with a significant portion of property purchases made in cash rather than with mortgages. This reliance on cash buys makes the market less susceptible to the interest rate fluctuations that have impacted debt-leveraged markets globally. Furthermore, reports from Knight Frank indicate a 5.6% growth in Kenya's real estate sector in the first half of 2025, with 77% of approved building plans in Nairobi being for residential projects. This highlights the continued high demand for housing, especially from Kenya's expanding middle class.

Lessons for Nairobi's Urban Planners

While the economic and regulatory environments of Melbourne and Nairobi differ significantly, the Australian city's experience underscores the impact that targeted policy and a focus on housing supply can have on affordability. As Nairobi continues to grapple with rising property prices and a growing housing deficit, Melbourne's strategy of boosting construction and managing investor activity could offer a valuable case study.

The Victorian government's commitment to expediting planning and unlocking land for development is a strategy that could be adapted to the Kenyan context to address the supply-side constraints that fuel price hikes. Similarly, while Kenya's market is less driven by investor credit, policies that encourage development for owner-occupiers over speculative investment could help in creating a more balanced and affordable housing market for the average Kenyan.

However, the potential downside of discouraging investment, as seen in Melbourne with a decline in rental stock, is a crucial consideration. Any policy interventions in Nairobi would need to be carefully calibrated to increase affordability for homebuyers without inadvertently creating a rental crisis. As Melbourne's market shows signs of investors returning to seek bargains, the long-term sustainability of its affordability remains to be seen. This ongoing evolution will provide further insights for urban centers worldwide, including Nairobi, as they navigate the complex challenge of ensuring adequate and affordable housing for their citizens.