Melbourne’s pandemic experience presents an ideal natural experiment for what might happen if we ‘flooded the market’ with additional housing. Unabated construction combined with the population outflow generated an excess supply of 100,000 dwellings, or enough to house 260,000 people. This report analyses the impact on housing affordability.

Key findings:

• The report estimates that slow population growth in 2020 and a population outflow of around 80,000 residents or 1.6% of the population in the year to mid-2021 amid ongoing, stable construction over these years produced an excess supply of 100,000 to 130,000 dwellings more than was required to house the population at pre-pandemic rates of occupancy. 
• The impacts of this excess supply on housing costs was small and short-lived. Average rents fell by only 12%, and for only about a year. The report estimates that the average rental household will have saved around $2,200 for a maximum of one year as a result of the decline in rents to mid-2021.
• 35,000 more dwellings than usual were left vacant or under-used over the entirety of 2021 and 2022, a 51% increase on 2019 levels. Withheld supply absorbed one-third of the excess supply shock.
• The decline in average household size in Melbourne from more than 2.6 people per household in 2020 to around 2.5 by end-2022 meant the population remaining in the city occupied around 4% or approximately 80,000 dwellings more than previously required, absorbing the other two-thirds of the excess supply shock.