With prices for family homes continuing to rise, young Melburnian families are still chasing the Great Australian Dream—albeit on a smaller scale.

New data from the Real Estate Institute of Victoria (REIV) reflects this trend, showing that two-bedroom apartments have outperformed larger family homes in Melbourne in terms of annual price growth, particularly in the inner and outer rings.  

“A backyard is still a priority for many buyers, and this factor is really driving growth for smaller homes across the city,” REIV president Joseph Walton said. “A two-bedroom house allows buyers on a budget to enter the market well below the suburb’s median house price, without needing to consider an apartment.”

Data from REIV indicates that the median price for two-bedroom houses within 10km of the CBD rose from $885,000 to $1.015m (14.7%) in the year to March. Meanwhile, three-bedroom houses in the inner ring rose 12%, to $1.31m, and four-bedroom houses in the same vicinity rose 8.5% to $1.9m.

Medians for inner-Melbourne units inched just 1% for one-bedrooms, 2.6% for two-bedrooms, and 6.9% for three-bedrooms.

Walton noted that small houses still delivered value for money at the top end of the market, and were largely sought after by young couples and downsizing seniors.

Two-bedroom houses were also the strongest performers 20km-plus from the city, according to Walton, despite larger family homes being “typically the norm”. The median increased nearly 12% annually to $460,000.

Glen Iris had the strongest inner-city market for two-bedroom houses in the year to March, with the median jumping 41.7% to $1.455m. Also enjoying remarkable growth were Essendon, Clifton Hill, and North Melbourne—suburbs where small houses now cost seven-figures on average.

In the outer ring, small houses performed best in Frankston, up 20.3% annually to $480,000.

“People would love something bigger. But to get a three-bedroom house, you’re looking at spending close to $2 million,” said Eric Brown, real estate agent at Jellis Craig Northcote.