Carlton North - Princes Hill Leads Melbourne Yields at 3.6%

Yields across Melbourne's 14 inner suburbs range from 3.6% in Carlton North - Princes Hill down to roughly 3% in the most expensive premium pockets. The spread is narrower than the gap between short-term rental and long-term rental at the city level, but Melbourne's entry prices vary enormously: from $1,191,052 for the cheapest entry point to $3,043,759 at the top of the market. Melbourne is fundamentally a premium, growth-led capital where yield is the trade-off you accept for capital appreciation. Where you buy still changes the income picture, but the more important question is how much yield you are willing to give up for blue-chip inner-city exposure.

Carlton North - Princes Hill Tops the Yield Ranking at 3.6%

Gross yields = annual income / sale price. Based on 3-bed house medians. Every property type and bedroom count is available for comparison.

Inner-City Suburbs Lead Because Tenant Demand Runs Deepest There

Carlton North - Princes Hill leads the ranking because the inner-north combination of student demand, hospital staff, and young professionals supports rents that hold up against a $1,362,418 entry point. The University of Melbourne, the Royal Melbourne Hospital, and the Royal Children's Hospital all sit within walking or short tram distance, anchoring a deep tenant pool that does not soften when interest rates move. Heritage Victorian housing stock keeps supply tight and the streetscape desirable, which sustains rents through cycles.

North Melbourne sits second at 3.5% on similar fundamentals: walking distance to the central business district, the Queen Victoria Market, and a thicket of tram corridors, with entry prices around $1,328,946. The tenant mix is professionals, students from RMIT and Melbourne University, and short-stay corporate renters. Short-term rental yields lift to 6.1%, reflecting weekend and event demand without the regulatory friction that hits Sydney's inner suburbs under the Greater Sydney 180-night cap.

Kensington (Vic.) ranks third at 3.4% largely because it is the cheapest entry point of the leaders. Its rents are not the highest in the inner ring, but they hold steady relative to a $1,191,052 median price. Tram access, proximity to Flemington Racecourse, and ongoing gentrification keep rental demand reliable. Kensington (Vic.) reads more as a long-term rental suburb with stable tenant flow than a tourist destination, which makes it a candidate for income-focused investors who want consistent occupancy over event-driven peaks.

Yield Falls Sharply as You Move Toward Premium Postcodes

An investor entering at $1,362,418 in Carlton North - Princes Hill faces a very different capital-risk profile from one buying at $1,997,854 in Docklands or $3,043,759 at the top of the market. The cheaper entry point yields more because rents do not fall as fast as prices when you move down the market. Premium suburbs price in lifestyle amenity, school catchments, parkland views, and capital growth expectations, and buyers accept thinner income returns in exchange.

City-wide, Melbourne's median 3-bed house sells for $1,700,318, sitting 119.3% above the Victoria median of $775,353. The yield maths follows: high prices and modest rents produce a city-median gross yield of 2.8%. Investors chasing yield-led returns typically look further out from the inner ring, but they sacrifice the deep tenant demand and capital growth track record that the inner suburbs have delivered over multi-decade cycles.

Melbourne's Established Premium Suburbs Trade Yield for Growth

For context, here is how some of Melbourne's most in-demand suburbs compare. These are established suburbs where investors typically accept lower yields in exchange for capital growth and liquidity.

High-demand suburbs for context. Same methodology as the yield ranking above.

These premium suburbs deliver lower long-term rental yields because buyers pay for amenity, school zoning, parkland frontage, and growth potential rather than income. Short-term rental yields can lift the picture for some, but Melbourne's tourism demand is more event-driven (Australian Open, Spring Racing Carnival, AFL season) than year-round, which means occupancy varies more than in coastal holiday markets like the Gold Coast or Byron Bay.

The Yield Ranking Misses Capital Growth and Vacancy Risk

A high yield can mean depressed prices rather than strong rents. Capital growth typically favors the premium end: over multi-decade cycles, suburbs like Toorak, Brighton, and Hawthorn have delivered total returns (income plus growth) that comfortably exceed what the inner-north has produced, even though the inner-north wins on yield alone. Investors targeting income today should weight yield rankings; investors targeting wealth in 15 to 20 years should weight growth track records and the depth of buyer demand at the next sale.

Vacancy risk also does not show up in this table. Some high-yield suburbs have thinner rental pools, meaning longer tenant searches when a property comes vacant. Inner-Melbourne's deep tenant demand makes this risk relatively low across the leaders, but bedroom mix matters: 3-bed houses in student-heavy suburbs sometimes sit longer than 2-bed apartments. You can stress-test rent and yield by bedroom count and property type to find the configuration that fits your budget.

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

Negative Gearing Tilts the After-Tax Picture Toward Long-Term Rental

Melbourne's pre-tax yields look thin, but Australia's negative gearing rules can change the comparison once tax is included. Long-term rental properties in expensive markets like Melbourne often run at a cash-flow loss in the first few years, with mortgage interest plus operating costs exceeding rent. That loss is deductible against salary and wage income, which reduces the investor's tax bill. At a marginal tax rate of 45% (income above $190,000), each $1 of rental loss saves $0.45 in tax. At 30% (income $45,000 to $135,000), it saves $0.30. A long-term rental property showing a modest pre-tax loss can therefore deliver a positive after-tax return once the offset is applied.

Depreciation amplifies the benefit. There are two forms: the building depreciation allowance (2.5% of construction cost per year, available for buildings less than 40 years old) and fixtures and fittings depreciation on items the investor installs themselves after settlement (carpets, appliances, air conditioning units), note that previously used plant and equipment in established second-hand purchases is not deductible since the 2017 reforms. Both reduce taxable income without reducing cash flow. For a buyer at the $1,700,318 city-median price with around 80% building allocation, the building depreciation deduction is roughly $34,006 per year before fixtures are added.

Short-term rental properties that are profitable do not benefit from negative gearing because there is no loss to offset. The 50% capital gains tax discount for properties held longer than 12 months applies equally to both strategies. Your after-tax position depends on your income, since negative gearing and depreciation feed into the calculation. Enter your salary to see how the tax treatment changes the short-term rental versus long-term rental comparison for your tax bracket.

Short-Term Rental Rules in Melbourne Stay Permissive for Now

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

This is a relatively permissive regulatory environment for an Australian capital, which keeps short-term rental optionality on the table for inner-Melbourne investors. The Victorian government's January 2025 levy adds to operating costs but does not restrict where or how often you can let. Verify current state and council rules before investing; this is an active legislative area in Australia.

Melbourne Yields Sit Below the State and National Averages

Melbourne's city-median gross yield of 2.8% sits 1.0pp below the Victoria median of 3.8% and 1.2pp below the Australia-wide median of 4.0%. Even Carlton North - Princes Hill at 3.6%, the top suburb in this ranking, sits below the national average. This is the trade-off: Melbourne is a capital-growth market, not a yield market, and the suburb ranking inside the city does not change that overall positioning. Investors prioritising yield over growth typically look to other Australian markets where median yields run higher, particularly in the regional centers of Queensland, South Australia, and Western Australia.

Methodology details are available in the data sources and market score methodology pages. 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.