Melbourne is the 2nd most expensive city to live in Australia next to Sydney.

If you are looking for a family-friendly home in Melbourne, you might be looking at the wrong city. 

According to a recent analysis by RiskWise Property, housing affordability in Melbourne continues to be a major problem, especially for families looking for suitable units that fit their budget. 

In fact, Melbourne is the 2nd most expensive city to live in Australia next to Sydney. Across the globe, it ranks 11th. 

RiskWise CEO Doron Peleg said a typical family unit in Melbourne that spans 105 square meters is not affordable for average Australian families

"The point is, Sydney and Melbourne are not as bad as first thought when compared to other cities. And yes, while in general families cannot afford a 105sqm unit, the situation in other places is significantly more serious. Both Sydney and Melbourne, as global cities, could potentially be even less affordable," Peleg said, adding that compared to Hong Kong, Melbourne is relatively a cheaper city. 

When comparing it to Sydney, the difference lies with Melbourne's better supply of units, which gives buyer an advantage to score a more affordable unit. Add to that the deceleration of price growth in the Victorian capital due to the lending restrictions. 

“It’s important to note that units that are suitable for families (averaging 105sqm), particularly in the middle ring,  just aren’t that affordable and we have to make a clear distinction between units that are suitable for families vs units for investors. They are not fully substitute products," he said. 

Peleg furthered, "The needs of families differ from those of singles and couples and many new apartments are not suitable simply because they do not have three bedrooms. This means there is an imbalance between the supply of units to the market needs, not forgetting that the closer to the CBD, the smaller the unit.”

For Peleg, this just goes to show the disconnect between the price of the units and the median household income, which is heavily affected by the pace of income growth. 

He pointed out that the people who own the majority of residential properties that are suitable for families are "mainly higher income earners and investors. They are not standard household earners. They are, largely, people at the top 50 per cent of income earners or investors who are cashed-up."

"It comes down to undersupply of suitable dwellings that force the price up and make them completely unaffordable in both Sydney and Melbourne.”