Melbourne Apartments Yield Roughly 5.8%, Outpacing Houses

The reason Melbourne apartments out-yield houses comes down to entry price: a strata unit costs a fraction of a freestanding home, but its nightly rate and weekly rent do not fall at the same ratio. That mathematical gap is what produces the headline result here, with apartments averaging 11.0% on short-term rentals against 4.4% for houses, a spread of 6.6%. Both figures are gross of body corporate levies, which trim the apartment advantage once they are deducted.

These are city medians across 14 suburbs inside the City of Melbourne local government area. Your specific suburb may sit well above or below these numbers, and the bedroom-by-bedroom picture is more nuanced than the headline gap suggests.

Apartments Lead at Every Bedroom Count on Short-Term Yield

City medians across 14 suburbs. Gross yields before body corporate (apartments) and before operating costs.

Reading the long-term column tells a similar story to the short-term one: apartments tend to clear higher gross yields than houses for the same bedroom count, because the price gap between the two property types is larger than the rent gap. That matters for the negative gearing discussion later, since long-term rentals are where the Australian tax system's loss-offset mechanics typically apply. For a Melbourne investor weighing strategies, the table is a useful starting point but the real decision sits at the suburb level.

The Gap Comes From Price, Not From Rent

Apartments win on yield because the price gap dwarfs the rent gap. The 2-bed comparison makes the point cleanly: a 2-bed apartment in central Melbourne sits around $523,772, while a 2-bed house comes in at $1,222,808. The house may pull a higher nightly rate or weekly rent in absolute dollars, but not by the same multiple as the price, so the yield ratio favours the apartment. This is why every "yield" comparison between property types is really a comparison of how proportional the rent premium is to the price premium.

Body corporate levies then narrow that gap. Owners of a 2-bed Melbourne apartment typically pay around $3,826 per year in body corporate fees, which are not deducted from the gross yields in the table above. Levies vary widely by building: an older walk-up charges far less than a newer high-rise with a pool, gym, concierge, and lift maintenance loaded into the quarterly notice. Premium buildings in the CBD can run levies several multiples of the city average, which is why the net yield picture on a luxury apartment can disappoint relative to its gross headline.

The other apartment-specific risk is the building's by-laws. Some Melbourne owners corporations have voted to restrict or ban short-term rentals, and others impose minimum-stay rules that effectively rule out the Airbnb model. Always read the body corporate by-laws and minutes before purchasing if a short-term rental is part of your plan. A building that prohibits stays under 30 days will collapse the short-term yield case entirely.

Bedroom Count Tells Different Stories for Houses and Apartments

For houses, larger properties tend to hold their yield better than the price-jump alone would suggest, because group travellers and family bookings push nightly rates up disproportionately for 3-bed and 4+ bed homes. For apartments, the curve is shaped more by what is actually being built and traded: 1-bed and 2-bed stock dominates the Melbourne CBD inventory, while genuine 3-bed and 4+ bed apartments are scarcer and skew toward the premium end, where prices climb faster than rents.

The 4+ bed apartment figures deserve caution. That category bundles 4, 5, and 6+ bedroom listings into a single median, and the City of Melbourne has only a small number of such units in trading. A handful of penthouse sales can pull the median sharply, so treat the 4+ bed apartment yield as directional rather than precise. Both the short-term and long-term medians for the 4+ bed apartment row sit on a thin sample, so weight that category lightly.

Suburb Variation Swamps the City-Wide Average

The 14 suburbs inside the City of Melbourne are not interchangeable. Carlton North - Princes Hill leads the long-term yield table at 3.6%, while the lower-yielding inner suburbs sit closer to 1.9%. That spread is wider than the house-versus-apartment gap shown above, which means the property-type decision is the second-order question: the suburb decision is the first-order one. The dashboard shows suburb-level data for every bedroom count and property type, so you can compare within the specific area you are evaluating rather than relying on the city median.

View Melbourne in the dashboard → Free preview · every bedroom count and property type

What the Yield Table Does Not Capture

• Body corporate levies: Estimated at around $3,826 per year for a 2-bed apartment in this market, not deducted from the gross yields in the table above. Newer high-rises with pools, gyms, and concierge run substantially higher.
• Capital appreciation: Houses usually outperform apartments on long-term value growth in Melbourne because you own the land. The City of Melbourne's apartment market has, at times, gone sideways for years while house values in adjacent inner suburbs continued to rise.
• Renovation potential: Houses offer optionality (extensions, second storey, garden, off-street parking) that apartments cannot match. Strata title restricts most structural changes.
• Financing constraints: Some lenders restrict mortgages on small apartments (under 50 sqm) or buildings with high investor concentration, both of which describe a meaningful slice of the Melbourne CBD apartment stock. Expect higher deposit requirements and a narrower lender pool for studios and 1-bed units in tower buildings.
• 4+ bed data breadth: The 4+ bed category bundles 4, 5, and 6+ bedroom listings. A small number of outlier properties can pull the median in either direction.

Melbourne Sits Well Above the National Median on Price

The City of Melbourne is a premium-price, modest-yield market on the Australian map. The 3-bed house median sits at $1,591,255, against $775,353 for Victoria as a whole and $833,886 nationally. The corresponding gross yield on a 3-bed house comes in at 3.1%, below both the Victorian average of 3.8% and the national median of 4.0%. This is the classic appreciation play: investors here are paying for inner-city land, lifestyle access, and long-run capital growth, not for headline cash flow.

That positioning shapes the house-versus-apartment decision specifically. If your thesis is capital growth, the freestanding house is the better instrument because the land component compounds. If your thesis is yield, the apartment is mathematically attractive on the gross numbers, but you need to underwrite the body corporate levies, the by-law risk, and the historically weaker capital growth before treating the higher yield as a clean win.

Negative Gearing and Depreciation Change the After-Tax Picture

The pre-tax yields in the table above are not the figures that hit your bank account. Australia's negative gearing rules let you offset rental losses against your salary income, which changes the after-tax comparison between short-term and long-term rentals. A long-term Melbourne investment property with a 2.8% gross yield often runs at a cash-flow loss in early years once mortgage interest is added, and that loss becomes a tax deduction.

The benefit scales with your marginal tax rate. At 45% (taxable income above $190,000), each $1 of rental loss saves $0.45 in tax. At 30% (between $45,000 and $135,000), it saves $0.30. So a $20,000 rental loss is worth $9,000 to a top-bracket investor and $6,000 to a middle-bracket one, and that recovery flows back as a refund or a reduced PAYG bill.

Depreciation amplifies the effect. The building depreciation allowance is 2.5% of the construction cost per year for buildings less than 40 years old, and fixtures and fittings depreciation covers items like air conditioning, carpets, ovens, and appliances on accelerated schedules. These are non-cash deductions, so they reduce taxable income without reducing actual cash. Newer Melbourne apartments benefit disproportionately because the building component is younger and the fixtures are recent, which is one reason the after-tax case for an apartment can look better than the pre-tax yield gap suggests.

This matters for the strategy choice in front of you. A profitable short-term Melbourne rental does not benefit from negative gearing, because there is no loss to offset. A long-term rental that runs at a modest pre-tax loss can deliver a positive after-tax return for a high-income investor once the negative gearing offset and depreciation are factored in. Negative gearing is not free money, it requires a genuine cash loss, but it does mean the after-tax ranking between strategies can differ from the pre-tax ranking. The 50% capital gains tax discount on properties held more than 12 months applies equally to both strategies.

The dashboard calculates your after-tax position including negative gearing and depreciation based on your income. Enter your salary to see how the tax treatment changes the short-term rental versus long-term rental comparison for your tax bracket.

Melbourne Regulatory Context for Short-Term Letting

Melbourne permits short-term rentals with minimal regulatory restrictions. Details: Currently no day limits or planning permit requirements. Proposed policy (on hold): $350 annual registration + 180 day cap. State government levy commenced Jan 1, 2025. Local caps shelved pending state policy. View official regulations

The 330-night figure used in the modelling is not a regulatory cap; it is a maintenance and turnover allowance that assumes the property is unavailable for around 35 days per year for cleaning, repairs, and gaps between bookings. Verify current state and council rules before investing; this is an active legislative area in Australia.

Data reflects market conditions as of May 2026.

This information is for educational purposes only and should not be considered financial or legal advice. Regulations and market conditions change frequently. Verify current rules with local authorities before making investment decisions.