Melb shrinking blocks hit to backyard dreams

Land in Melbourne’s residential growth corridors is shrinking, and becoming more expensive. Picture: Jake Nowakowski

Shrinkflation has taken hold in Melbourne’s residential growth corridors with buyers paying more for increasingly smaller blocks to build new homes.

New research reveals homebuyers chasing the dream of having their own backyard are facing the reality that land is shrinking, prices are climbing, and the suburbs where buyers can still afford a block are vanishing fast.

The shrinkflation phenomenon most famously emerged when Cadbury dropped the size of its Dairy Milk chocolate blocks, without lowering the price.

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Exclusive Oliver Hume research shows that in Melbourne, the average block has shrunk from 400sq m in 2020, which sold for a median $319,000, to 361 square metres today, now commanding a median price of $399,000.

Though Melbourne remains the only mainland capital with a relatively healthy supply of vacant land, the window of opportunity is narrowing.

Sales volumes jumped nearly 50 per cent in June, and developers are beginning to wind back incentives, signalling that prices could start rising again in early 2026.

While blocks under $1000 per square metre are still available in growth areas, those looking to get closer to the city face a stark choice: smaller lots, or higher prices.

Cadbury dropped the size of its Dairy Milk chocolate blocks, while the price continued to rise.

For first-home buyers, suburbs such as Truganina and Donnybrook offer blocks over 350sq m for less than $400,000, but the closer to the CBD, the scarcer and pricier the options become.

Oliver Hume chief economist Matt Bell said shrinking lots and rising prices were a direct result of limited land supply, coupled with local councils’ longstanding focus on preserving suburb character and heritage rather than prioritising housing.

“I’m an economist, I’m not an architect or a planner, but I’m definitely of the belief that in the past and still to this day, many local councils put way too much weight on those elements,” Mr Bell said.

“Character and heritage and all that sort of stuff, that’s nice to have if you can supply the amount of land and dwellings that you need. But if the choice is maintaining the existing character of a suburb or not housing people, I’d rather sacrifice some of the character and house people.”

Oliver Hume chief economist Matt Bell said shrinking lots and rising prices were a direct result of limited land supply, coupled with local councils’ longstanding focus on preserving suburb character and heritage rather than prioritising housing.

He said high demand and population growth meant Australians were increasingly accepting smaller blocks, with builders adapting to deliver better homes on tighter footprints.

“Everyone wants the bigger lot and the bigger house, that goes without saying,” Mr Bell said. “But people will now sacrifice that because of affordability … get their first house on that 350 square metre block instead of 500 square metres, because they still have aspirations to upgrade.”

For now, pockets of opportunity remain for buyers willing to compromise on size or location, but the message is clear: vacant land is becoming scarcer, and the era of the spacious, affordable block is drawing to a close.

Tge average new house lot is about 360sq m across Melbourne. Picture: Jake Nowakowski

The research reveals that median price and land size haven’t followed straight lines, with the price peaking at $409,500 last March, yet the median lot size reaching its smallest size at 350sq m in June 2024.

On a dollar per square metre calculation, Melbourne’s land price broke $1000 a square metre in June 2022 and hasn’t looked back. It was about $460sq m in mid-2013.

Mr Bell said homebuyers needed to think about transport infrastructure near an affordable block rather than how far it was from the city.

“If I were a buyer, one of the key elements making that decision to buy would be, not necessarily the kilometres, but what the transport infrastructure was like. Whether it had trains or roads or good amenities around it.

“So then, it doesn’t really matter whether it’s, you know, 30km or 25km away from (work), if it means you can save some money on land.”

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