Is It Worth Building Townhouses in Melbourne in 2026?

With interest rates stabilising and Melbourne’s population growth continuing, townhouse development is again drawing strong interest among savvy investors, downsizers, and developers.

But is 2026 the right time to build townhouses in Melbourne? In this guide, Gidaya Group unpacks the financial, planning, and market conditions you need to weigh before moving forward.

Why Townhouses Remain a Smart Investment in 2026

Townhouses continue to bridge the gap between apartments and detached homes. As housing affordability remains front of mind, Melbourne families and investors alike are turning to medium-density housing for:

• Lower cost per square metre compared to standalone homes

• Reduced ongoing maintenance

• Appeal to renters, downsizers, and first-home buyers

• Strategic location advantages near transport and schools

According to property analytics in early 2026, the demand for 2–3 bedroom dwellings near inner and middle Melbourne suburbs is outpacing supply — an ideal signal for townhouse developers.

Current Market Conditions in Melbourne (2026)

The 2026 Melbourne residential market presents a balanced outlook:

• Rental vacancy rates remain below 2%, indicating high demand

• Median land prices have plateaued after rapid 2021–2023 growth

• Construction materials are more stable, with supply chains recovering

• Council policies are encouraging infill and dual occupancy

Combined, these conditions make 2026 a prime year for well-positioned townhouse developments.

Profit Margins for Townhouse Development

While margins vary based on land value, construction efficiency, and market timing, Gidaya Group sees consistent outcomes when:

• Land is acquired below median market rate

• 2–3 dwellings are built on 600m²+ blocks

• The site is zoned GRZ with minimal overlays

Developers often realise 15%–25% gross profit margins on successful projects, assuming efficient design, budget control, and professional project management.

Challenges to Consider

While the outlook is positive, developers should account for:

• Permit timeframes: Town planning approvals can take 3–8 months

• Builder capacity: Ensure your builder has townhouse experience

• Finance restrictions: Banks require feasibility and presales for funding

• Overlays and character controls: These can limit what can be built

Gidaya Group navigates these variables by handling end-to-end feasibility, architecture, and approvals in-house.

Who Is Building Townhouses in 2026?

We’re seeing a mix of developers pursue townhouse builds:

• Mum-and-dad investors: Subdividing backyard blocks

• Builders and tradespeople: Running 1–3 townhouse projects per year

• Retirees and downsizers: Keeping one unit and selling/renting the rest

• Experienced developers: Targeting growth corridors with multiple sites

Should You Build or Buy Townhouses?

Building townhouses offers superior control over the asset, higher potential ROI, and the ability to tailor the design to market demand. Buying established properties limits capital growth potential.

If you already own land with development potential, 2026 is an opportune time to unlock its value.

Final Thoughts: Is Now the Right Time?

With a more stable building environment, softened land prices in select corridors, and high rental demand, Melbourne remains one of Australia’s most attractive markets for townhouse investment.

If you have:

• Land 500m²+

• Access to finance

• A long-term investment horizon

Then 2026 is a strong window to develop. Gidaya Group can walk you through every step from concept to completion.

Reach out today for a tailored feasibility on your site.