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September 7, 2026If your hot water system has just died, or you’re planning a reno and need to pick one from scratch, you’ve probably already noticed that gas, electric, solar and heat pump options all seem to have a fan club. It’s confusing when every article tells you something different.
This guide gives you a straight, unbiased answer based on your household size, your budget and Melbourne’s incoming 2027 gas rule, so you know exactly what to look for before you book a hot water system installation.
Quick Answer: Which System Type Suits Most Melbourne Homes?
For most Melbourne homes right now, a heat pump is the strongest all-round pick. It uses a fraction of the electricity of standard electric storage, and with rebates available it’s more affordable to switch than a lot of people assume.
That said, it’s not a one-size-fits-all answer. If your roof doesn’t get much sun, your yard doesn’t have room for the unit, or your budget just won’t stretch that far this year, gas, electric or solar might still be the better call.
The rest of this guide walks you through when each one makes sense.
The Main Types of Hot Water Systems
There are four main types installed in Melbourne homes: gas, electric, solar and heat pump. Each one heats and stores water differently, which affects how much it costs to run and how well it suits your household.
We’ve covered the technical side of each in a full breakdown of each type, so here we’ll keep it practical.
Gas Hot Water Systems
Gas systems heat water fast and cope well with a household that’s used to running the shower, dishwasher and washing machine back to back without waiting around.
If your home already has a gas connection, it’s usually the cheaper option to install.
The catch is Victoria’s incoming 2027 end-of-life replacement rule, which we’ll get into further down. It’s worth knowing about before you commit to another gas unit, especially if yours is getting on in years.
Electric Hot Water Systems
Standard electric storage systems are the cheapest to install upfront, which makes them a common choice when a gas connection isn’t available or a heat pump can’t be sited properly. The downside is they’re among the most expensive systems to run day to day, unless you’re pairing one with solar power.
If you want a straightforward, no-fuss replacement and running costs aren’t your main worry, electric still does the job.
Solar Hot Water Systems
Solar systems use rooftop collectors to heat your water directly using the sun, so once installed, running costs are low. You’ll still need a gas or electric booster for overcast days and winter mornings, since Melbourne doesn’t exactly guarantee sunshine.
The trade-off is a higher upfront cost, and you need a roof with the right space and orientation to make it worthwhile. If your roof faces the wrong way or is already crowded with solar panels, this option gets harder to justify.
Heat Pump Hot Water Systems
Heat pumps work a bit like a reverse fridge, drawing heat from the surrounding air using a refrigeration cycle. That means they use significantly less electricity than a standard electric storage system to do the same job.
They cost more upfront than electric, but between the running-cost savings and current rebates, that gap usually closes over a few years. For a lot of Melbourne households, it’s the system that makes the most financial sense over its lifespan, not just at the checkout.
Victoria’s 2027 Gas Hot Water Rule (And Why It Matters Now)
From 1 March 2027, an existing gas hot water system in Victoria will need to be replaced with an efficient electric alternative, such as a heat pump, once it reaches end-of-life and can’t be repaired. The rule kicks in at replacement time, not for ordinary repairs, so you’re not forced to rip out a working system early.
Rental properties face a stricter version of this rule, covering both gas heaters and gas hot water systems, so landlords should be paying closer attention to timelines.
The practical takeaway is this: if your gas system is already getting old, it’s worth planning your own replacement on your own schedule rather than waiting for it to fail and forcing a rushed decision.
There are currently heat pump rebates in Victoria that can help offset the switch, so it’s worth finding out what you’d qualify for before you decide.
How to Choose the Right System for Your Household
Picking the right system really comes down to three things working together: how many people are in your household, what you’re comfortable spending, and what rebates you can actually claim. Here’s how to work through each one.
Match the System to Your Household Size
As a rough baseline, the Australian Standard for hot water services (AS/NZS 3500.4) works on around 50 litres of hot water per person per day.
That figure accounts for showers, dishwashing, laundry and general use, so it’s a decent starting point even before you factor in anything unusual about your household’s habits. From there, you can use this as a general tank-size guide:
- 1 to 2 people: roughly 150 to 200 litres
- 3 to 4 people: roughly 200 to 270 litres
- 5 or more people: 300 litres or more
Keep in mind these figures assume fairly typical usage. If you’ve got teenagers who love long showers, a home gym that needs washing down daily, or you regularly have guests staying over, it’s worth sizing up rather than going with the bare minimum.
Undersizing is one of the most common regrets homeowners have with a new system, since running out of hot water halfway through the morning routine gets old fast.
Continuous flow gas units and heat pumps are sized by flow rate rather than tank litres, which works differently again. Instead of storing a fixed volume, they heat water as it’s needed, so the sizing question becomes about how many hot water outlets could realistically be running at once in your home.
If you’re not sure what that means for your household, it’s worth a quick chat with a licensed plumber before you buy, rather than guessing and ending up with a unit that can’t keep up.
Weigh Up Upfront Cost vs Running Cost
It’s tempting to go with whatever’s cheapest to install, but that’s often the system that costs the most over time. Standard electric storage is the classic example: low purchase price, higher power bills for years afterwards.
Over a system’s typical 10 to 15 year lifespan, that gap in running costs can easily outweigh whatever you saved on day one.
The reverse is also true. Solar and heat pump systems cost more upfront, but they’re designed to claw that difference back through lower electricity use, and often faster than people expect once rebates are factored in.
The right call really depends on how long you plan to stay in the property, whether you’re happy to spend more now for savings later, and how tight your budget is at the time of installation.
The full mix of hot water system costs, both installation and ongoing running costs, varies quite a bit by system type, so we won’t repeat every figure here.
Check What Rebates You Can Claim
Victorian Energy Upgrades and other current incentives can bring down the cost of switching to a heat pump, particularly if you’re doing it ahead of the 2027 gas rule rather than waiting until your hand is forced.
These schemes are designed to make the switch away from gas more affordable, and depending on your circumstances, they can meaningfully close the gap between a heat pump and a cheaper electric system.
Rebate amounts do shift around fairly often, so it’s worth confirming the current figures before you make a decision rather than relying on what you read somewhere last year.
A licensed plumber quoting your job should be able to tell you exactly what applies at the time, rather than you having to chase it down yourself.
Stick to Licensed, WaterMark-Certified Installation
Whatever system you land on, it needs to be installed in Victoria by a BPC-licensed plumber using WaterMark-certified products. This isn’t just red tape. It keeps you compliant and keeps your manufacturer’s warranty valid, which matters a lot if something goes wrong down the track.
Skipping this step to save a bit of money upfront can end up costing far more if a fault isn’t covered.
Brands like Rheem, Rinnai, Dux, Bosch, Thermann and Solahart all come up regularly in Melbourne installs, but the right brand still comes down to matching the unit to your household needs, not just picking a name you recognise.
This is exactly where a proper gas vs electric hot water systems comparison and a chat with your plumber earns its keep, and it’s the sort of thing Neighbourhood Plumbing’s team walks Melbourne homeowners through every day.
FAQ About Choosing the Best Hot Water System
Which hot water system is cheapest to run?
Heat pumps and solar systems are typically the cheapest to run day to day once they’re installed, since both rely mostly on free or low-cost energy (air and sunlight) rather than buying electricity or gas outright.
Standard electric storage is usually the most expensive to run, unless it’s paired with solar power to offset the electricity use, in which case the running costs drop closer to what a solar hot water system would cost.
How long do hot water systems last?
Most hot water systems last around 10 to 15 years with regular maintenance, though this varies depending on the system type and your local water quality.
Hard water areas tend to wear out storage tanks faster through mineral build-up, and systems that aren’t serviced regularly often fail well before their expected lifespan.
Can I still install a gas hot water system in Victoria right now?
Yes, for now. The March 2027 rule only applies when an existing gas system reaches end-of-life and can’t be repaired, so you’re not required to switch anything that’s currently working.
It’s also worth knowing that new homes requiring a planning permit have already been unable to connect to gas since 2024, so this mostly affects existing homes with an older gas connection.
What size hot water system do I need for a family of four?
As a general guide, a family of four in Melbourne typically needs around 200 to 270 litres of storage, or the equivalent continuous flow rate. Your actual usage habits and the local climate can shift that up or down a bit, so it’s worth erring on the larger side if your household tends to use more hot water than average.
Is a heat pump hot water system worth the extra upfront cost?
For most Melbourne households, yes. The running-cost savings combined with available rebates tend to offset the higher purchase price within a few years, and it future-proofs your home against the 2027 gas rule, so you’re not stuck making a rushed decision later on.
Conclusion
There’s no single “best” hot water system, only the best one for your household size, budget and how soon Victoria’s 2027 gas rule might affect you.
A heat pump suits most homes, but gas, electric and solar all still have their place depending on your situation.
Still weighing up your options? Whether you’re leaning towards a heat pump, need a straightforward electric replacement, or just want a second opinion before you spend the money, Neighbourhood Plumbing’s licensed plumbers can help.
We will help you pick the right system and take care of the hot water system installation from start to finish. Call 0488 885 122 for a free, no-obligation quote!
About the Author
From unclogging the toughest drains to repairing leaking toilets, Ricky is a seasoned plumber who has brought his craftmanship to homes across Melbourne. He is passionate about sharing plumbing tips just as much as he is about fixing your plumbing issues. So, when your taps or pipes begin leaking, you know who to call.
