The truth about Melbourne, Sydney ‘exodus'

In the years since the pandemic first began to unfold, the perception of Melbourne and Victoria more broadly in the nation's collective imagination has changed dramatically. Prior to the pandemic Victoria had the fastest rate of population growth in the nation in both nominal and per capita terms, while the state's economy was one of the fastest growing of any in the nation.
Yet despite Victoria's relative economic strength prior to the pandemic, today the perception of Melbourne and Victoria could scarcely be more different. But is that reputation deserved? Or is Victoria experiencing a hangover of pandemic era perceptions that are no longer reflective of reality, years after the pandemic drew to a close.
In an attempt to provide a concrete answer to this question, we'll be looking at three quantifiable metrics, comparing today's Victoria not only with the other states and territories, but also with where Victoria was at the eve of the pandemic.
Housing
In recent years Victoria has often made headlines for an exodus of property investors. Weaker than average growth in housing prices, a lowering of the land tax threshold and higher land taxes have all been put forward as reasons for investors exiting the market.
For the sake of argument, we will assume that the rental bond data used to underpin claims of an exodus is correct, despite the extremely high likelihood of seeing the number of rentals in Victoria revised upward.
If there has been an exodus of property investors from Melbourne, no real downside is being realised relative to other states and territories. As of the latest data from property data firm SQM Research, Melbourne has the highest rental vacancy rate of any the nation's capital cities and in relative terms has a vacancy rate 83 per cent higher than the average rate of the nation's other capital cities and 42 per cent higher than the national average.
This not what you would expect to see if an exodus of property investors was negatively impacting Melbourne's renters.
In recent years, an increasingly widespread perception of a mass exodus from Melbourne has developed, arguably as a response to the state's more protracted and more severe lockdowns than the national average.
It is correct that population flows in and out of Melbourne have shifted since the pandemic. During the 2021-22 financial year, 24,450 people left Melbourne in net terms as a result of domestic migration. However, the largest loss of residents to domestic migration of any city during 2021-22 was experienced by Sydney, where 49,800 people exited the harbour side city in net terms.
Fast forward to the latest data from the ABS which covers up to the end of the last financial year, Melbourne saw a loss of 7580 residents to net internal migration. Meanwhile, Sydney saw a significantly larger exodus of residents to domestic migration, with 41,100 exiting during 2023-24.
While Melbourne has certainly seen a major shift from the pre-pandemic norm of domestically driven population inflows, the outflows it is now experiencing are a fraction of what became the norm in Sydney over a decade ago.
The labour market
When it comes to the labour market Victoria's performance is significantly less impressive. But first some good news, Victoria's unemployment rate is 0.47 percentage points lower than it was at the end of 2019 (4.85 per cent then vs. 4.37 per cent today).
The bad news is that despite the strong improvement in the labour market compared with pre- pandemic, its improvement is the weakest of the nation's five most populous states.
As of the latest data from the ABS, Victoria also has the highest unemployment of the five most populous states, with 4.37 per cent of the labour force out of work compared the best performing state, Queensland where 3.69 per cent are unemployed.
While things are not going as well for Victoria compared with the other states on this metric, there is a silver lining. Since January, the unemployment rate in Victoria has reduced by 0.3 percentage points, even while the unemployment rate in New South Wales and South Australia has increased.
The takeaway
While Melbourne has seen domestic migration turn negative since the onset of the pandemic, claims of a mass exodus are overstated, at least when put into context with Sydney, which saw 5.4x residents exit to elsewhere in Australia in 2023-24.
On the other hand, the news from the labour market is more mixed, unemployment in Victoria is significantly lower than where it was prior to the pandemic, but is 0.31 percentage points higher than the national average.
Meanwhile, the best news for Victoria stem from its housing market, where it holds the title of highest rental vacancy rate in the nation and simultaneously the lowest cost house rents of any major city.
Victoria certainly faces challenges on the road ahead, most notably from its state budget, as the Allan government attempts to get the state on a more sustainable fiscal path after facing a
particularly damaging period during the pandemic.
Ultimately, despite its other challenges, Victoria is not facing the problems claimed to the degree that is often perceived and in some important ways Victoria is excelling to a degree unseen in the rest of the nation's large states.

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