Melbourne's Demolition Wave Is Undermining Housing Affordability Efforts
Australia's housing affordability crisis has become one of the most pressing policy challenges of the decade. With rents soaring, vacancy rates near record lows, and home ownership slipping further out of reach for everyday Australians, governments at every level have promised to build more homes, faster. Yet in Melbourne — the country's fastest-growing major city — a quiet but damaging trend is working directly against those promises. Thousands of existing homes are being demolished each year, and mounting evidence suggests this demolition wave is erasing affordable housing stock faster than new supply can replace it.
The Scale of Melbourne's Demolition Problem
Melbourne has consistently recorded some of the highest demolition rates of any city in the developed world. Each year, thousands of dwellings — many of them modest, older, and critically, affordable — are knocked down to make way for new construction. While the stated goal of this cycle is to increase housing density and ultimately lift supply, critics and housing economists argue the reality on the ground tells a more complicated story.
The suburbs recording the highest demolition activity tend to be established, middle-ring areas with good access to public transport, schools, and employment hubs. These are precisely the kinds of locations where affordable housing is most desperately needed. When an older, lower-value home is demolished and replaced by a premium townhouse or luxury apartment, the net effect on affordability can be neutral at best — and actively harmful at worst.
Why Demolitions Hurt More Than They Help
The core problem is a mismatch between what is being torn down and what is being built in its place. Older homes — weatherboard cottages, postwar brick houses, small units from the 1960s and 1970s — represent the majority of Melbourne's naturally occurring affordable housing. These properties are not subsidised. They are cheap simply because they are old, modest, and unimproved. Housing researchers sometimes call this stock "affordable by default," and it is irreplaceable once lost.
When a developer demolishes one of these homes and constructs two or three new townhouses, the new dwellings typically sell or rent at market rates that are substantially higher than the property they replaced. Even if the number of dwellings on a given block increases, the affordability of those dwellings does not keep pace. The supply gain, in other words, is not a proportional affordability gain.
There is also the issue of displacement. Renters and low-income households living in the types of properties most likely to be demolished often have nowhere equivalent to go. As affordable stock disappears suburb by suburb, these households are pushed further from the city centre, away from jobs, services, and community networks they depend on.
Melbourne's Most Affected Suburbs
Data on demolition activity points to a consistent pattern: the suburbs with the highest rates of demolition are clustered in Melbourne's inner and middle rings. Areas such as Doncaster East, Glen Waverley, Bentleigh, Reservoir, and Coburg have all seen significant demolition activity in recent years. These suburbs share common characteristics — established tree canopy, proximity to train lines, access to good schools — that make them attractive to developers seeking to maximise the value of new builds.
The irony is that these are also the suburbs where housing advocates most want to see affordable supply preserved. When the homes being cleared are the cheapest on the market in desirable locations, their loss is felt acutely by first-home buyers, key workers, and long-term renters trying to remain connected to their communities.
Policy Gaps That Allow the Problem to Persist
State and local governments have largely focused housing policy on targets for new dwellings — how many homes should be built, in which corridors, by which year. What these targets typically fail to account for is net housing stock. A city could theoretically hit its new dwelling construction targets while simultaneously losing affordable housing if demolitions are not tracked and managed alongside new builds.
There is currently no systematic mechanism in Victoria for assessing the affordability profile of homes being demolished versus the homes replacing them. Planning permits for demolition are granted without any requirement to consider the affordability impact of the proposed development. This regulatory blind spot allows the quiet erosion of affordable stock to continue largely unnoticed in official statistics.
Housing advocates have called for reforms including affordability impact assessments as part of planning applications, mandatory inclusion of affordable dwellings in redevelopment projects above a certain scale, and stronger protections for renters facing displacement due to demolition.
What a Genuine Fix Would Look Like
Solving the housing affordability crisis in Melbourne requires more than simply building more homes. It requires building the right homes, in the right places, at price points that serve households on low and moderate incomes — and it requires stopping the unnecessary destruction of the affordable homes that already exist.
A genuine policy response would treat demolition data as seriously as construction data. It would set targets not just for new dwellings but for net affordable dwellings — accounting for what is gained and what is lost in the same reporting period. It would incentivise developers to deliver affordable outcomes through density bonuses and planning fast-tracks tied to inclusionary conditions. And it would provide stronger pathways for community housing organisations to acquire and preserve older, affordable properties before they enter the demolition pipeline.
The Bottom Line
Melbourne's housing affordability crisis cannot be solved by construction alone if demolitions continue to destroy affordable stock at scale. The city is, in a very real sense, running up a down escalator. Until policymakers begin measuring and managing what is lost alongside what is gained, the gap between housing need and housing reality will remain stubbornly, painfully wide. Addressing demolitions is not a minor footnote in the affordability debate — it is central to it.