Melbourne Apartments Outyield Houses Across Bedroom Counts

Melbourne apartments outyield houses at most bedroom counts because entry prices fall faster than nightly rates do. A 2-bed apartment in this market trades at roughly $523,772, well under a third of a 3-bed house at $1,591,255, yet the apartment still pulls a meaningful nightly rate of around $260. The result, before body corporate levies, is a gross short-term rental yield of 11.0% for apartments versus 4.4% for houses, a gap of 6.6%.

These are city medians across 14 suburbs, so your specific suburb may sit well above or below the figures shown.

Per-Bedroom Yields Show Apartments Leading at Most Bedroom Counts

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

The same table also exposes a quieter pattern: long-term rental yields cluster much closer together between houses and apartments than the short-term comparison suggests. Long-term rents respond more directly to floor area and bedroom count, so the cheaper apartment loses some of its short-stay advantage when the strategy switches to a permanent tenant. That distinction matters later when negative gearing enters the picture, because the long-term route is where the tax offset typically kicks in.

Why Apartments Lead on Yield, and What Closes the Gap

The arithmetic is simple. A 2-bed apartment at around $523,772 costs a fraction of a 3-bed house at $1,591,255, but a one-bedroom-smaller apartment in central Melbourne does not collect a fraction of the nightly rate. Travellers booking a city stay for a couple or a small family pay close to the same nightly price for a well-located apartment as for a comparable house, so the cheaper denominator drags the yield up. This is the core mechanism behind the gap shown in the table.

Body corporate levies pull the apartment advantage back somewhat. Estimated at around $3,826 per year for a 2-bed in this market, levies sit outside the gross yield numbers and need to be deducted before the comparison is fair. Levies also vary widely by building: a CBD tower with a pool, gym, and concierge can charge two or three times what a low-rise walk-up in Carlton or Kensington collects. Older buildings without lifts tend to be cheapest, while newer luxury stock and short-stay-friendly buildings with dedicated reception areas command the highest fees.

There is also a regulatory dimension specific to apartments. Strata by-laws can restrict or outright ban short-term letting at the building level, regardless of state and council rules. Always read the by-laws and check with the owners corporation before purchasing for short-stay use, because a yield model built on apartment economics collapses the moment the building votes the strategy out.

Bedroom Count Lifts Houses and Apartments at Different Rates

House yields and apartment yields do not move in lockstep as bedroom count rises. Houses tend to lift at the larger end because group-travel pricing kicks in: a 4+ bed house can absorb six or eight guests at a strong per-night rate, while the underlying purchase price grows more slowly than the nightly potential. Apartments behave differently. The 4+ bed apartment line actually rises further because the small pool of genuine multi-bedroom apartments in central Melbourne can absorb group-travel pricing on a denominator that is still a fraction of a comparable house. The supply of genuine 4+ bed apartments is thin, which keeps nightly rates firm relative to the purchase price.

The long-term rental columns tell a flatter story. Weekly rents follow bedroom count more linearly, so the curve from 1-bed up to 4+ bed is gentler in both columns. Worth treating the 4+ bed category with extra caution: it bundles 4-bed, 5-bed, and 6+ bed listings together, and a handful of trophy properties can pull the median in either direction.

Suburb-Level Numbers Diverge from the City Median

A city median hides a lot. Within these 14 suburbs, prices for a 3-bed house range from roughly $1,191,052 in the cheaper inner-north pockets up to $3,043,759 in the most established streets of East Melbourne. Suburbs like Carlton North - Princes Hill and Kensington (Vic.) sit at very different price points but produce broadly similar gross yields, while a suburb like Docklands delivers higher rents on a much larger purchase price. The dashboard shows suburb-level data for every bedroom count and property type, so you can compare within the specific area you are evaluating.

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

What the Yield Table Leaves Out

• 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. Luxury and amenity-heavy buildings can run several times higher.
• Capital appreciation: Houses usually outperform apartments on long-term value growth in Melbourne because you own the land. Inner-Melbourne house land values have historically driven most of the total return on a freestanding property, while apartment growth depends more heavily on building age, supply, and amenities.
• Renovation potential: Houses offer optionality, including extensions, granny flats, and pool additions, that apartments structurally cannot match. This optionality is its own form of return.
• Financing constraints: Some lenders restrict mortgages on small apartments under 50 sqm and on buildings with high investor concentration or short-stay zoning. This narrows the buyer pool on resale, which can affect both price and time on market.
• 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, which is why the 4+ bed category should be treated as directional rather than precise.

Melbourne Sits in Premium Territory, Not Cash-Flow Territory

Melbourne is a premium appreciation market, not a cash-flow market. The 3-bed house median of around $1,591,255 sits well above the Victorian median of $775,353 and the national figure of $833,886. Long-term rental yields here, at 2.8%, sit below both the state median of 3.8% and the national median of 4.0%.

That positioning shifts the house-versus-apartment decision. In a yield-led regional market, the cheaper apartment with stronger gross returns is often the obvious play. In Melbourne, the case for a house leans on capital growth and land value over time, while the case for an apartment leans on the higher gross income and a much lower entry price. Neither is automatically correct, and the right answer depends on whether you are buying for cash flow, for long-term capital growth, or for both.

Negative Gearing Can Tilt the Comparison Toward Long-Term Rental

The gross yields above are pre-tax. Negative gearing can change the after-tax ranking, particularly for high-income investors choosing between short-term and long-term rental. Negative gearing allows rental property losses to be offset against salary income, reducing taxable income. In Melbourne, where property prices are high relative to rents, long-term rental properties often run at a cash loss in the early years because mortgage interest exceeds the rent collected. That loss becomes a tax deduction.

The benefit scales with the marginal tax rate. At the 45% top bracket (income above $190,000), each dollar of rental loss saves 45 cents in tax. At the 37% bracket ($135,000 to $190,000), each dollar saves 37 cents. At the 30% bracket ($45,000 to $135,000), each dollar saves 30 cents. So a long-term rental running at a $15,000 cash loss generates roughly $6,750 in tax savings for a top-bracket investor and around $4,500 for a 30%-bracket investor.

Depreciation amplifies the effect. Newer buildings qualify for the building depreciation allowance, a non-cash deduction equal to 2.5% of the building's construction cost per year for buildings less than 40 years old. Fixtures and fittings depreciation, covering items like air conditioning, carpets, and appliances, adds another layer of non-cash deduction in the early years of ownership. Together, these can push a property into a paper loss even when it is cash-flow neutral. The 50% capital gains tax discount on properties held longer than 12 months applies equally to short-term and long-term rental.

A profitable short-term rental, by contrast, has no loss to offset, so negative gearing does not apply. The pre-tax comparison in the table can therefore look very different after tax: a long-term rental showing a modest loss may deliver a positive after-tax return for a high-income investor, while a profitable short-term rental simply pays tax on the income at the marginal rate. Negative gearing is not free money, it requires a real cash loss, but the tax treatment can tip the balance toward long-term rental for investors in higher tax brackets.

The dashboard calculates your after-tax position including negative gearing and the building depreciation allowance 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 specific tax bracket, and how it shifts the house-versus-apartment decision once depreciation differences between newer apartments and older houses are factored in.

Regulatory Context for Melbourne Investors

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](https://participate.melbourne.vic.gov.au/short-term-accommodation).

The state-wide short-stay levy that commenced on 1 January 2025 applies to revenue from short-stay bookings and is a real cost to factor into any yield model. The proposed local registration scheme and 180-night cap remain on hold pending state policy, so today's modelling uses 330 effective nights per year, which reflects maintenance and turnover gaps rather than any regulatory ceiling.

Data reflects market conditions as of April 2026.

For methodology behind these figures, see our market score methodology and data sources. To run the same comparison in your own market, explore rental data in the dashboard.

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.