Melbourne’s construction slowdown may not become obvious until 2027

Melbourne’s new home market is slowing sharply. But you might not notice it by looking at the number of homes being approved or built.

According to the Housing Industry Association (HIA), new home sales in Victoria fell 23.3% between the March and September 2026 quarters, returning to levels last seen during the state's prolonged construction downturn in 2023 and 2024.

Yet the latest Australian Bureau of Statistics (ABS) figures show Victorian dwelling approvals actually increased 8.9% in August.

How can sales be falling while approvals are rising? The explanation lies in the delay between a buyer committing to a new home and construction beginning. This means the slowdown may not become fully apparent until 2027.

If you’re considering buying or building in Melbourne, this could influence your options and how you arrange your finance.

This article is general information only and does not constitute financial, legal or tax advice. We recommend seeking advice from a qualified accountant and solicitor before making any decisions.

Why are buyers turning away from new homes?

Higher interest rates, rising construction costs and economic uncertainty are making it harder for buyers to commit to building a new home.

According to the HIA, the national cancellation rate for new home sales increased from below 10% earlier this year to 13.6% in September, with some buyers unable to proceed as borrowing costs rise.

Meanwhile, falling established property prices are changing the equation for prospective buyers. According to Domain, house prices in Melbourne declined 3.3% between the June and September 2026 quarters.

With established homes becoming cheaper while construction costs remain elevated, buying an existing property may be increasingly attractive compared with building a similar home from scratch.

Why is construction activity still increasing?

The slowdown in sales has yet to show up in Victoria’s construction figures. ABS data showed 16,239 dwelling commencements in the June 2026 quarter, up 14.9% from the previous quarter.

In August, Victoria also recorded 5,163 dwelling approvals, up 8.9% on July.

These figures reflect earlier buying decisions. New homes typically take months to progress from contract signing through finance, planning, permits and site preparation. According to the HIA, stronger sales in late 2025 and early 2026 created a pipeline of projects now appearing in official construction figures.

The real slowdown could arrive in 2027

The sharp decline in September quarter sales could therefore lead to fewer homes starting construction in 2027.

And the broader industry forecasts are moving in the same direction. In October, Master Builders Australia downgraded its national forecast to fewer than 920,000 new home commencements over the five years to 2030-31 – an 8.4% reduction from its March forecast.

Victoria is already falling short of its housing ambitions. According to the HIA, construction commenced on 57,550 homes in 2025-26, compared with the Victorian government’s annual target of 80,000 – a shortfall of 22,450 homes.

Meanwhile, Victoria’s population grew by 109,500 people in the year to March 2026, according to the ABS. That’s nearly twice the number of homes that started construction in 2025-26, although each home can accommodate more than one person.

If new home sales remain weak and construction starts decline in 2027, the gap between housing supply and demand could widen further.

What does this mean if you’re planning to buy?

The implications depend on whether you’re considering an established property, a house-and-land package or a custom build.

Buying an established property

An established home offers greater certainty around its condition, purchase price and settlement date. With Melbourne property values declining, buyers may have more opportunities to negotiate, using recent comparable sales to assess value.

Buying a house-and-land package

House-and-land packages can simplify the process of buying a new home, but advertised prices may exclude landscaping, driveways, fencing, site costs and upgrades. You’ll also need to consider timing, particularly when land settlement and construction involve separate contracts.

Building a new home

A custom build gives you more control over the design, but costs can change, delays can affect your living arrangements and the completed property’s valuation may differ from expectations. Weaker demand doesn’t necessarily guarantee lower building costs or shorter construction times.

Construction finance needs careful planning

Unlike an established property loan, where funds are generally advanced at settlement, a construction loan typically releases funds in stages as building progresses. These commonly include slab, frame, lock-up, fit-out and completion.

Interest is generally charged on the amount drawn down rather than the full approved construction loan from day one. As construction progresses and more funds are released, interest costs increase. This can put pressure on your finances if you’re also paying rent or an existing mortgage.

Lender requirements also vary, particularly around contracts, valuations, builders and approval periods. If construction is delayed, your finance approval may need to be extended or reassessed, potentially affecting your borrowing capacity or loan arrangements.

That’s why it’s important to understand the full cost of the project and how your loan will work before committing to a build.

Should you buy now or wait until 2027?

Melbourne’s construction slowdown doesn’t necessarily mean you should delay your plans. Fewer new home sales could eventually reduce the supply of newly built properties, but interest rates, construction costs and established property prices will also influence the market.

If you’re considering upgrading or investing, compare the options available today. An established home may offer better value and a faster settlement, while a new build could suit your longer-term needs if the costs and timeline are manageable.

At AXTON Finance, we work with more than 30 lenders and can help you compare borrowing capacity, repayments and finance structures across established properties, house-and-land packages and new builds.