Australian Property Boom 2025: Record Prices, Rental Squeeze & What's Next for the Market

Key 2025 Market Highlights

• Home Prices Rebound to Near-Record Highs: Australian property values are rising again in 2025, with national dwelling prices up about 4% over the past year and on track to hit new peaks abc.net.au abc.net.au. Sydney’s median home value is ~A$1.22 million – the highest in the nation – while previously lagging markets like Melbourne have become relatively affordable compared to smaller capitals abc.net.au.
• Severe Housing Supply Crunch: Buyer demand is greatly outpacing available stock. Listings are ~20% below normal levels abc.net.au, and new construction is falling far short of need. Only ~177,000 dwellings were completed in 2024 against underlying demand of ~223,000 (a 46,000 shortfall) nhsac.gov.au nhsac.gov.au. Industry analysts warn Australia is on track to undershoot its national 1.2 million homes target by over 250,000 dwellings at the current building rate nhsac.gov.au.
• Rents at Record Highs, Vacancy Near Record Lows: A rental crisis continues in 2025. National advertised rents hit all-time highs (e.g. ~A$833/week for a Sydney house) amid vacancy rates around 1–1.5% abc.net.au abc.net.au – roughly half the pre-pandemic norm. Annual rent inflation is running ~4%, intensifying affordability pressures for tenants despite slight recent improvements (the rent-to-income ratio dipped to ~24.5% in early 2025) mpamag.com nhsac.gov.au.
• Commercial Property Stabilising, Mixed by Sector: After a turbulent few years, commercial real estate is showing signs of stabilisation. Office vacancies remain elevated (nationally ~14%), especially in Melbourne’s CBD (~17.7% vacancy) assets.kpmg.com, but have started to inch down as workers return and tenant demand improves. Retail occupancy is recovering in prime shopping centres (vacancy down to ~5.4% from ~7.9% a year prior) assets.kpmg.com, although secondary retail lags. Industrial property stays robust – vacancy of ~2.7% remains among the lowest globally assets.kpmg.com – supported by logistics and e-commerce demand, with new warehouse supply only gradually easing the tight market.
• Interest Rates, Policy Shifts Fuel the Market: The Reserve Bank’s interest rate cuts in early 2025 – totaling 0.50 percentage points so far – have improved buyer confidence and borrowing power abc.net.au apimagazine.com.au. This, along with surging immigration and wage growth at a 5-year high, is adding demand just as government initiatives aim to boost housing access. An expanded First Home Buyer Guarantee from October 2025 (allowing 5% deposits without mortgage insurance) is expected to bring in new buyers abc.net.au abc.net.au. Meanwhile, federal and state governments are intervening with measures like a $10 billion housing fund for 30,000 affordable homes abc.net.au, a national 1.2 million homes target with incentives to spur construction abc.net.au abc.net.au, and rent reforms (e.g. capping rent increases to one per year) to ease pressure on tenants abc.net.au abc.net.au.

Residential Market Overview: Prices, Rents and Affordability

After a brief downturn, the residential property market rebounded strongly through 2025. August marked the seventh consecutive month of home price gains, with values rising +0.7% nationally for the month abc.net.au. Prices are now up ~4% year-on-year, and the median Australian dwelling costs about $849,000 abc.net.au michaelwest.com.au. This broad recovery has lifted nearly every region – in August, values climbed in every state except Tasmania michaelwest.com.au – and experts note it’s being driven by classic supply-demand imbalance. “Once again we are seeing a clear mismatch between available supply and demonstrated demand placing upwards pressure on values,” says Tim Lawless, research director at CoreLogic (rebranded as Cotality) michaelwest.com.au. He notes home sales are tracking slightly above average, even as the number of properties for sale remains about 20% below typical levels for this time of year michaelwest.com.au. In short, buyers are back while many sellers stay on the sidelines, creating fierce competition for limited stock.

Major cities: Price growth has been uneven across markets. Sydney values, already Australia’s highest, accelerated amid the upturn – the median home is now around $1.2 million abc.net.au – and Sydney house prices are forecast to jump another 7% over 2025–26 to reach a staggering $1.83 million by next June abc.net.au. If that occurs, a typical Sydney house will have gained over $110,000 in value in one year, more than the average full-time salary abc.net.au. Melbourne, after two years of sliding prices, has stabilized and begun a modest recovery. Its median dwelling ($770k) is now lower than Brisbane, Adelaide or Perth – making Melbourne the unexpected affordability outlier among big cities abc.net.au. Domain forecasts a 6% rise for Melbourne house prices in FY2025–26 (to ~$1.1 million) abc.net.au. Brisbane, Adelaide, and Perth saw the fastest growth over the past year: Perth’s house values jumped ~17% year-on-year to Feb 2025, with Adelaide up ~13% and Brisbane ~11% globalpropertyguide.com. These mid-sized capitals, which benefited from relative affordability and pandemic-era migration, led the upswing; in August, Brisbane notched the nation’s highest monthly gain (+1.2%), with Perth close behind (+1.1%) michaelwest.com.au. Even Darwin – long a laggard – surged 10% annually, finally pushing its prices to a new record high after years in the doldrums business.nab.com.au business.nab.com.au. The only market still looking soft is Hobart, which is coming off the boil after its earlier boom – values there are essentially flat or slightly down on the year abc.net.au michaelwest.com.au.

Importantly, this price rebound has been relatively moderate by historical standards. National prices are rising at roughly 0.5–0.7% per month, which is well below the frenzy of recent cycles (for example, monthly gains hit 2–3% at the peak of 2021) abc.net.au. Affordability constraints are acting as a ceiling. “Even though interest rates are falling, they’re higher than what they were in 2020–21,” observes Cotality head of research Eliza Owen. “Housing values are a lot more expensive too, so the affordability constraint is kind of keeping a lid on [monthly] growth” abc.net.au. Decades-high prices mean buyers face steep deposit and mortgage hurdles. By the end of 2024, the average Australian household needed to spend about 50% of its income to service a new mortgage – an extraordinarily high share, up from ~36% just two years prior nhsac.gov.au. A first-home buyer couple now needs over 10 years just to save a 20% deposit in many cities nhsac.gov.au. Little wonder that Johnathan McMenamin of investment bank Barrenjoey describes home ownership in Australia as “a luxury” increasingly limited to the well-off: “You have to be middle‑aged and above‑average earning to enter the housing market,” he says bluntly globalpropertyguide.com. Recent interest-rate relief has provided some breathing room – thanks to falling loan rates and rising incomes, the share of income required for repayments dipped from 50% to about 48% in the March 2025 quarter, the sharpest improvement in affordability since 2016 mpamag.com. However, mortgages still claim nearly half of household earnings on average mpamag.com, and with prices climbing again, ownership remains out of reach for many.

Rental market: On the rental side, conditions remain extremely tight despite a slight easing in recent months. The national rental vacancy rate is hovering around 1.5%, roughly half the typical vacancy rate seen in the 2015–2019 period abc.net.au. In several cities the situation is even more acute – for example, Sydney’s vacancy is ~1.3% and Darwin’s is under 1%, resulting in fierce competition for rentals. This shortage has driven rents to record highs nationwide. As of August 2025, advertised rents rose at their fastest monthly pace in over a year (up 0.5% in August alone, +4.1% year-on-year) abc.net.au. Capital city house rents now average around $650 per week, with Sydney the priciest at ~$833/week for a house (and ~$750 for an apartment) abc.net.au. Such levels are unprecedented – and deeply straining tenant budgets. According to the National Housing Affordability Council, renters are spending about 33% of household income on the median new lease (as of end-2024), the highest rent-income burden on record globalpropertyguide.com nhsac.gov.au. Lower-income and regional renters often fare even worse. The “human cost” of this rental squeeze is “unacceptably high,” says NHSAC chair Susan Lloyd-Hurwitz, noting many households are forced to cut back on essentials, move farther from work, or live in insecure or overcrowded situations nhsac.gov.au nhsac.gov.au.

There are tentative signs the worst rental pressures may be peaking. New rental supply is slowly coming on stream as investor activity picks up and developers pivot to build-to-rent projects. In addition, the post-pandemic surge of population growth is expected to moderate (net overseas migration is forecast to stabilise at ~175,000 households per year from 2025–26, down from the huge 2022–24 influx) nhsac.gov.au. Indeed, industry data show vacancy rates have edged up from their absolute lows and rental growth has decelerated from double-digits to mid-single digits. But any relief for tenants is relative – conditions remain far tighter than pre-COVID. Nationally, rents are still rising faster than incomes, and vacancy rates around ~1%–2% mean landlords retain the upper hand. Competition for rentals in major cities is intense; for example, Sydney and Melbourne are absorbing a wave of returning international students and migrants, filling inner-city units that sat empty in 2020. Darwin and Perth currently lead the pack on rent rises (Darwin unit rents jumped ~9% over the past year, with gross yields above 6% – the highest in the nation) abc.net.au. Overall, with housing supply constrained and many prospective first-home buyers stuck renting longer, the rental market in 2025 remains a landlord’s market – one marked by near-record low vacancies and record high rents, only now hinting at gradual improvement abc.net.au abc.net.au.

Commercial Property Performance: Retail, Office & Industrial

The commercial real estate sector in Australia is navigating a turning point in 2025. After the pandemic upheaval – which saw CBD office vacancies spike and shopping centres struggle – conditions are cautiously improving in some segments, while others remain challenging. Broadly, higher interest rates over 2022–23 caused commercial property values to recalibrate (with yields rising and capital values softening). In 2025, falling rates and an economic rebound are helping restore investor confidence. Commercial transaction volumes in H1 2025 totaled $19.6 billion, up 19% from a year earlier and back in line with long-term averages rprealtyplus.com. There was a slight dip in Q2 deal activity ( ~$10.3 billion, −7% y/y), but a large pipeline of nearly $10 billion in pending transactions suggests momentum is stronger than the settled sales imply rprealtyplus.com. Foreign investment is also flowing in: notably, overseas buyers (especially from the US and Asia) are once again targeting Australian offices and alternative assets, seeing opportunities after recent price corrections rprealtyplus.com rprealtyplus.com. Below is a sector-by-sector look at performance:

Office Market

Australia’s office property market is gradually finding its footing, albeit with lingering weaknesses. Occupancy levels in major CBDs are improving as workers return to office more regularly, but hybrid work is here to stay – national office utilisation is stabilised around 80% of pre-COVID levels, with about 22% of work hours still done from home assets.kpmg.com. This structural shift means demand for office space has reduced, particularly for older, lower-grade buildings. Vacancies: For the first time since 2022, the national office vacancy rate has ticked down slightly – to about 14.1% in Q1 2025 (from 14.5% a couple quarters prior) assets.kpmg.com. Sydney’s premium office market is leading the recovery: Sydney CBD vacancy fell ~0.6 percentage points in early 2025 to 12.8%, thanks to solid tenant absorption assets.kpmg.com. Melbourne’s CBD – which was hit hardest by long lockdowns and an exodus of some firms – also saw a modest improvement, with vacancy dipping 0.5 points to 17.7% assets.kpmg.com. Even after this decline, nearly one in six Melbourne offices remain empty, the highest vacancy among capitals. In Brisbane, office vacancy actually ticked up to about 10.3%, as new supply and some tenant downsizing added space assets.kpmg.com – though Brisbane still boasts the tightest big-city office market at present. Perth and Adelaide office vacancies sit in the mid-teens (after climbing in 2020–22), and Canberra around 10%, each reflecting local economic conditions.

Rents and values: Office landlords are facing a “two-speed” market. Demand is concentrated in modern, energy-efficient buildings (“prime” and “A-grade” offices), while older B- and C-grade towers struggle to attract tenants. As a result, effective rents (taking into account incentives) are rising in the prime segment but remain under pressure in secondary stock. In the past six months, effective rents have increased in Sydney, Brisbane and Perth CBDs – buoyed by limited new supply and companies seeking high-quality space to lure staff back – but rents are still declining in Melbourne, where a glut of older space and slower post-pandemic recovery weigh on leasing rates assets.kpmg.com. From an investor perspective, office property values underwent a correction as interest rates climbed: capitalization rates (yields) expanded by roughly 100–150 basis points since 2021. The good news is that yields appear to have stabilised in recent months. Prime office cap rates have held steady (around 5–6% for CBD offices) and there are “early signs of potential cap rate compression” in core markets as buyer sentiment improves assets.kpmg.com. However, investment activity remains subdued – just $1.1 billion of Sydney office assets traded in Q2 2025, for example, underscoring that even Australia’s flagship office market is “not immune” to deal flow volatility rprealtyplus.com. Overall, the outlook for offices is cautiously optimistic. Well-located, high-grade offices are seeing demand recover and values stabilise, aided by the 2025 rate cuts. But higher vacancies and obsolescence will continue to plague secondary offices, especially in Melbourne. Landlords are increasingly investing in upgrades, amenities and “green” credentials to remain competitive, as tenants use the market shake-up to “reassess relative value across asset classes” and only pay premium rents for premium space rprealtyplus.com.

Retail Sector

In retail real estate, conditions in 2025 are better than feared a year or two ago. Brick-and-mortar shopping has rebounded as consumers return to malls post-COVID, though the sector faces headwinds from higher living costs and e-commerce. Vacancies: Retail vacancy rates have trended down over the past year, especially in top-tier shopping centres. Nationally, retail vacancy was around 5.4% in early 2025 – slightly up quarter-on-quarter (due to a few large format store closures) but significantly improved from ~7.9% vacancy in mid-2024 assets.kpmg.com assets.kpmg.com. “Prime, super-prime and major regional centres have experienced lower vacancy compared to 12 months ago,” KPMG reports, reflecting renewed tenant demand in well-located malls as foot traffic recovers assets.kpmg.com. In contrast, secondary retail (aging strip malls, smaller centres in less affluent areas) is still struggling – vacancy in that segment remains essentially unchanged from a year ago assets.kpmg.com as some weaker retailers continue to downsize or go online-only. Overall, the worst of pandemic-era store closures is behind us, and successful centres (especially those anchored by supermarkets or popular brands) are approaching full occupancy, while marginal assets see lingering vacancies.

Rents and investor interest: Retail rents have stabilised and even risen slightly in prime locations, after falling in 2020–21. Landlords in large shopping centres have been able to wind back leasing incentives as sales rebounded. Still, retailers remain cost-conscious given tighter consumer budgets in a high-inflation environment. Non-discretionary retail – grocery-anchored centres and large format retail selling essentials – has proven resilient, which hasn’t escaped investors’ notice. Yields for neighborhood shopping centres have compressed modestly in 2025 (cap rates edging down to ~5.7% on average, from ~5.8% a year prior) assets.kpmg.com. There have been “instances of minor cap rate compression in the more liquid neighbourhood sectors (including some regional locations), indicating solid demand from the investor cohort, seeking stable asset-class fundamentals underpinned by non‑discretionary cash flows” assets.kpmg.com. In plainer terms, domestic investors are piling into retail assets like supermarkets and large malls that generate reliable income from groceries and everyday needs. In fact, 41% of domestic commercial property investment in the first half of 2025 went into retail, a much higher share than foreign investors allocate to the sector rprealtyplus.com. Offshore buyers remain more wary of retail (given online shopping trends), but local institutions see value at current prices. Luxury retail strips in Sydney/Melbourne are also rebounding as tourism returns. Meanwhile, secondary retail rents are flat and yields remain higher, reflecting perceived risk. All up, the retail property sector is on a recovery path: key shopping centres report higher occupancy and tenant sales, and investor sentiment has improved in tandem with better economic conditions and an easing inflation outlook assets.kpmg.com. However, retailers and landlords still face challenges from elevated energy costs, wage pressures, and cautious consumer spending amid cost-of-living concerns.

Industrial & Logistics

The industrial property sector – which includes warehouses, logistics facilities, and factory space – has been the standout performer of Australian real estate in recent years, and it continues to display strong fundamentals in 2025. The e-commerce boom, supply-chain reconfigurations, and firms holding more inventory have supercharged demand for well-located warehouse space. Even as interest rates rose, industrial asset values held up relatively well, supported by rent growth and scarcity of land in key markets. Vacancy rates remain extremely low: nationally about 2.7% of industrial space is vacant as of early 2025 assets.kpmg.com assets.kpmg.com. This is up slightly from the record lows (~2% or under) seen in 2022, as new warehouses are finally being completed, but it’s still historically tight. In Sydney and Melbourne – the largest industrial hubs – vacancy is in the 1–3% range, depending on sub-market, and tenants often face intense competition for any available shed. Brisbane and Perth have a bit more slack (vacancy in the 4–6% range) after a wave of construction, but even those are near full occupancy by international standards.

Such tight markets have translated into rapid rental growth for industrial landlords. Prime industrial rents jumped by double digits in 2021–2023, and though the pace has eased, rents are still rising in 2025 (albeit at a more sustainable mid-single-digit annual rate as new supply comes online). In some areas, industrial rents are now 60–80% higher than pre-pandemic levels. This has pushed yields lower and values higher, making industrial the darling of property portfolios. As interest rates peaked, industrial yields expanded a bit (many are now in the mid-5% range, up from sub-5% lows), but like other sectors they appear to have stabilised. Investors remain bullish on logistics real estate: in H1 2025, industrial was among the top targets for capital deployment, accounting for ~17% of offshore investment and a similar share of overall volume rprealtyplus.com. Large deals include logistics parks and warehouse portfolios, often backed by institutional buyers looking for long-term income. The development pipeline is active – particularly in Western Sydney, Melbourne’s west, and Brisbane – which is helping gradually restore balance. “Recent increases in new and proposed supply will lead to a stabilisation in rental growth and further elevate vacancy rates towards more normalised levels,” notes KPMG, though they add that barriers to entry (like land shortages and long approval times) remain significant in many markets assets.kpmg.com assets.kpmg.com. Indeed, some easing of conditions is evident: after years of record-low vacancy, Australia’s industrial vacancy is now inching toward more “normal” levels across the eastern seaboard, indicating supply is finally catching up to demand in certain pockets assets.kpmg.com.

In sum, industrial property fundamentals are still robust – vacancies near historic lows, solid tenant demand from logistics operators, and rental growth outpacing other commercial sectors – but 2025 marks a shift from red-hot to merely strong. The frenzy for warehouse space is calming as new facilities open and global supply chain disruptions abate. Nonetheless, industrial real estate remains arguably the healthiest sector: it offers relatively high rents and low vacancy, and is viewed as a defensive asset class. Gross rental yields for prime warehouses average around 5–6% (with secondary assets higher); notably, Darwin’s industrial market boasts yields near 6.5% – the highest in the country – reflecting both strong rents and higher perceived risk in that small market abc.net.au. Going forward, analysts expect industrial rents to keep rising, albeit at a moderated pace, and vacancy to stay low by historic standards. As one report summed up, Australia’s industrial sector “has been stabilising… with state-based vacancy rates indicating more normalised supply conditions now, and for the foreseeable future” assets.kpmg.com assets.kpmg.com. For investors and developers, the challenge will be finding land and overcoming rising construction costs to deliver the next generation of logistics facilities to meet still-evolving e-commerce and distribution needs.

Regional Market Breakdowns

Australia’s property trends vary not just by sector but by region. Here we provide an overview of key markets – Sydney, Melbourne, Brisbane, Perth – as well as other capitals and regional areas, highlighting 2025 conditions in each.

Sydney (Greater Sydney, NSW)

Sydney remains Australia’s largest and most expensive property market. After a dip in 2022, Sydney’s housing prices have come roaring back, climbing about 5% in the past year amid chronic supply shortages. The median Sydney dwelling is valued around $1.22 million, the highest in the nation abc.net.au. House prices in many suburbs are again at record highs, and Domain forecasts Sydney’s median house price will rise a further 7% over the 2025–26 financial year, reaching an eye-watering $1.83 million by next June abc.net.au. Demand in Sydney is buoyed by relatively high incomes, rebounding migration, and investor interest, while supply for sale is scarce – listings are down ~20% compared to normal levels abc.net.au abc.net.au. This “seller’s market” dynamic was evident at recent auctions, where multiple bidders have driven prices well above reserve. In one inner-west auction, a two-bedroom unit attracted frenzied bidding to sell for $1.93 million, while a Newtown house fetched $2.65 million – a hefty $600k over the opening bid abc.net.au. “There are more buyers with less to choose from… that’s what creates the competition,” noted Sydney agent Tina O’Connor of the tight conditions abc.net.au abc.net.au. On the rental side, Sydney is ground-zero for the rental crunch: it has the highest rents in the country (median asking rent ~$750/week for units, ~$830 for houses) abc.net.au, and a vacancy rate oscillating around 1–1.5%. Inner Sydney unit rents have jumped sharply as international students and CBD workers have returned. Affordability is a central concern – the typical Sydney buyer mortgage consumes ~55–60% of local median income, and first-home hopefuls face extreme hurdles. The NSW government in 2023 moved to ease the burden by abolishing stamp duty for first-home buyers on purchases up to $800k (and discounts up to $1 million), but in Sydney’s pricey market this covers mostly apartments and far-flung houses.

Sydney’s commercial property is likewise a tale of two worlds. The Sydney CBD office market is rebounding relatively well: Q1 2025 vacancy dipped to 12.8% assets.kpmg.com, and tenant inquiries for prime space are up, especially from finance and tech firms consolidating offices. Several big transactions have underscored confidence – e.g. an office tower at Circular Quay sold to offshore investors, contributing to the $3.2 billion deployed into Sydney offices year-to-date (a remarkable 79% of which came from foreign capital) rprealtyplus.com. However, Q2 saw a slowdown in closed deals (just $1.1 billion in that quarter rprealtyplus.com), reflecting that buyers and sellers are still adjusting price expectations. In retail, Sydney’s large shopping malls (e.g. Westfield Parramatta) report high occupancy and sales back at or above 2019 levels, though CBD retail is recovering more gradually with office worker footfall. Industrial/logistics real estate around Western Sydney remains red hot, thanks to infrastructure projects (new airport, intermodal hubs) and e-commerce – vacancies under 2% and rents surging in areas like Erskine Park. Land shortages are acute, pushing some warehouse development to fringe or regional areas.

Melbourne (Greater Melbourne, VIC)

Melbourne, Australia’s second largest city, experienced a softer property cycle than Sydney – values fell more and took longer to stabilise – but 2025 has seen momentum return. As of August, Melbourne dwelling values were inching upward again (up ~0.3% for the month) michaelwest.com.au. The median house price is around A$900k and units around $600k, making Melbourne significantly cheaper than Sydney and now even cheaper than Brisbane, Adelaide and Perth on a median dwelling basis abc.net.au. This relative affordability (a reversal of the historical norm) is partly due to Melbourne’s prolonged lockdowns and population outflows in 2020–21, which cooled its market. Now, with migration resuming – Melbourne is once again attracting overseas migrants and students, as well as some return of interstate movers – demand is picking up. Domain projects a +6% rise in Melbourne house prices in 2025–26, following two consecutive years of declines abc.net.au. If that holds, Melbourne’s median house would top $1.1 million by next year, finally recapturing its pre-2022 peaks. First-home buyers in Melbourne have benefited from price dips and state incentives (e.g. stamp duty exemptions up to $600k), yet many still struggle with deposits and rising repayments. “If you’re trying to break into the property market, the next year could be your toughest challenge yet,” warns Nicola Powell, Domain’s Chief of Research. Interest rate cuts and government support might offer help, “but they’re also likely to keep prices rising, especially in Sydney and Melbourne” where markets are very rate-sensitive abc.net.au. Powell notes that affordability remains a major barrier – even though Melbourne is cheaper than other capitals now, housing costs still consume an outsized portion of income for locals abc.net.au.

In the rental market, Melbourne saw some relief earlier (vacancies briefly rose in 2020–21), but by 2025 it too is very tight. Vacancy rates have fallen back toward ~1% for units and under 2% for houses, after the rapid absorption of empty CBD apartments by returning students. Rents in Melbourne, while below Sydney’s, have escalated quickly – unit rents are up ~15% year-on-year at mid-2025 and houses around +9%, pushing median rents to ~$550/week. Melbourne remains one of the more affordable capitals for renters, but that’s faint comfort as affordability overall is poor. The average Melbourne tenant spends well over 30% of income on rent globalpropertyguide.com, and competition for inner-city rentals (especially among students) is intense. The Victorian government has introduced some renter-friendly reforms (like allowing pets, banning rental bidding, and capping rent hikes to annual intervals) in an effort to improve conditions.

In commercial property, Melbourne’s CBD office market is grappling with a high vacancy overhang. At ~17.7% vacant assets.kpmg.com, Melbourne has one of the highest office vacancies of any major Asia-Pacific city. The city’s extended lockdown and shift to hybrid work hit demand, and several new office towers that were planned pre-COVID have opened into a weaker leasing environment. Effective rents for secondary office space in Melbourne have fallen, and incentives for tenants (like rent-free periods) are among the highest in the country. The bright side: top-quality buildings are still attracting tenants, and Q1 2025 saw vacancy decline slightly as some firms expanded and others took advantage of lower rents to upgrade offices assets.kpmg.com. Melbourne’s suburban office markets (e.g. Mulgrave, Box Hill) are performing better, with lower vacancies, as some companies decentralise. Retail in Melbourne has recovered in suburban strips and malls (Chadstone, the CBD’s Bourke Street Mall, etc.), buoyed by the return of shoppers and tourists, but discretionary retail is feeling the pinch of reduced consumer spending. Notably, Melbourne’s hospitality and cafe scene – a key part of its retail landscape – roared back to life as the city reopened, helping occupancy in retail precincts. Industrial property in Melbourne’s west and southeast remains in huge demand, with vacancy under 2-3%. Big-box warehouse rents in Melbourne have jumped ~70% since 2020, a faster rise than even Sydney, as e-commerce firms and 3PL logistics operators snap up space. The city’s industrial land supply is larger than Sydney’s, which has kept a lid on extreme shortages, but prime land around the port and airport is now effectively fully occupied.

Brisbane & South-East Queensland

Brisbane continues to be one of Australia’s most dynamic markets. The Queensland capital enjoyed strong population inflows during 2020–22 (as remote workers and retirees moved north), and its housing market surged as a result – house values in Brisbane are up ~75% since 2019 business.nab.com.au. In 2025, Brisbane’s market remains buoyant though showing signs of leveling off from its breakneck pace. As of August, Brisbane recorded the largest monthly price gain of all capitals (+1.2%) michaelwest.com.au, bringing its median dwelling value to roughly $950k abc.net.au. That’s slightly above Melbourne’s median, a remarkable situation reflecting Brisbane’s popularity and limited supply. However, analysts note Brisbane may be approaching an affordability ceiling; prices are at record highs and annual growth is slowing compared to last year. Domain’s forecast expects Brisbane’s price growth to “cool” to ~low single digits going forward abc.net.au – not a crash, just a gentler trajectory. Even so, the pressure on first-home buyers and lower-income buyers in Brisbane is still intense. Once considered an affordable alternative to the southern capitals, Brisbane’s house prices are now comparable to Melbourne’s, and rents have soared as well. The city’s rent median (around $600/week for houses) is at an all-time peak, after surging double digits in the past two years. Vacancy rates are extremely tight across South-East Queensland – often under 1% outside the inner city – exacerbated by high interstate migration and a slowdown in new apartment construction.

Looking ahead, Brisbane has some unique drivers. The coming 2032 Olympic Games are spurring infrastructure upgrades and investor interest in Brisbane and the Gold Coast. Already, there’s speculation that major projects (transport, stadiums, housing developments) will support the property market over the next decade. In the nearer term, Brisbane’s economy – buoyed by tourism, construction, and interstate migrant spending – is growing solidly, which underpins housing demand. On the flip side, Brisbane could be affected by net migration patterns returning to normal (some who moved north for COVID reasons might drift back south or overseas as offices call back workers). But any moderation in population growth is expected to be gradual; Queensland’s lifestyle and relative housing space will likely keep attracting many.

In commercial, Brisbane’s office market is comparatively healthy – at ~10.3%, its CBD vacancy is well below Sydney/Melbourne assets.kpmg.com. The city benefits from being the business hub of a resource-rich state; many mining and engineering firms maintain offices in Brisbane, providing steady tenant demand. 2025 saw a slight uptick in vacancy as a new office building opened and a few downsizings occurred assets.kpmg.com, but overall Brisbane’s office scene is balanced. Some older buildings are being converted to apartments/hotels, which will further tighten supply. Retail property in Queensland is mixed: coastal tourist areas (Gold Coast, Sunshine Coast) have very low retail vacancies and strong rents thanks to booming population and tourism recovery, whereas some Brisbane suburban strips have empty shops reflecting shifting spending patterns. Industrial property in Brisbane and surrounds remains in heavy demand, especially for logistics servicing Queensland’s growing population. Big new industrial estates around Ipswich and Logan are being developed to meet the appetite. Brisbane’s industrial vacancy (around 2–4%) is a tad higher than Sydney/Melbourne’s, simply because more land is available for development, but it’s still tight historically. Investors rank Brisbane/SEQ industrial highly given the region’s growth prospects.

Perth (Greater Perth, WA)

Perth has quietly become one of Australia’s hottest property markets, reversing a prolonged slump from 2014–2020. The Western Australian capital is benefiting from a commodities upswing, strong job market, and relatively affordable housing that has attracted migrants from interstate and overseas. In the year to Feb 2025, Perth led all capital cities with a 17.6% annual rise in house values globalpropertyguide.com – a staggering growth rate that finally pushed Perth prices back above their previous mining-boom peak. (Perth’s dwelling values have now surpassed the highs last seen in 2014 business.nab.com.au, ending a decade-long malaise.) Even after those gains, Perth’s median house price – roughly $750k–$800k – remains the lowest of any mainland capital, so it still offers relative value. That combination of low base and high demand is fueling price momentum. As of mid-2025, Perth prices continue to trend up (August saw a 1.1% rise) michaelwest.com.au, though there are hints the pace may ease as affordability becomes stretched for locals. Investor activity is vibrant in Perth; gross rental yields above 5% (even 6% in some outer areas) abc.net.au are drawing interest, and nearly 95% of property resales in WA are now profitable for sellers – one of the highest rates in the nation abc.net.au abc.net.au. Regional WA towns (like mining centers and lifestyle areas Margaret River or Busselton) have also seen prices jump and deliver big resale gains abc.net.au.

Perth’s rental market is extremely tight. Vacancies are running around 0.7–1%, the lowest of any capital, as years of under-building and a sudden population uptick (net migration turned positive again) collided. Perth rents have consequently soared – house rents are up about 15% year-on-year, and unit rents over 20% y/y in some areas – yet from a low base, so weekly rents ($550 for house, ~$480 unit) remain below east-coast levels. The WA Government has taken steps to incentivise housing supply, including a 50% land tax discount for Build-to-Rent developments and grants for new home construction, hoping to alleviate the shortage.

In the commercial arena, Perth’s office market has improved alongside the state’s economic recovery. CBD office vacancy, which hit ~20% in the late 2010s after the mining construction bust, has been trending down and sits around the mid-teens now. Mining and energy companies have expanded, taking up prime office space, though secondary vacancies remain high. Investors from Asia (notably Singapore and Japan) have started to revisit Perth offices and industrial assets, attracted by higher yields. Retail in Perth is stable – the big malls (e.g. Westfield Carousel) report strong tenant sales thanks to WA’s low unemployment, while some weaker shopping strips still have vacancies. Industrial property in Perth is experiencing a mini-boom due to logistics demand and a pickup in manufacturing (for mining equipment etc.). Perth’s industrial vacancy has dropped to ~3-4%, and rents are climbing. One constraint is Perth’s distance – shipping costs are up, so companies are warehousing more goods locally, which further drives demand for storage space.

Other Cities and Regional Areas

Outside the big four, several markets deserve mention:

• Adelaide (South Australia): Adelaide has been a surprise performer, registering double-digit price growth through 2022–early 2023 and continuing to rise in 2025 albeit at a slowing clip. House values jumped ~13% in the year to Feb 2025 globalpropertyguide.com – second only to Perth. This has pushed Adelaide’s median house price to ~A$700k–$750k, still the cheapest capital city after Darwin. The city benefits from affordable entry prices, steady population growth (including ex-interstate arrivals drawn by low prices and jobs in defense and space industries), and very limited new housing supply. Adelaide’s price gains have made it less of a “budget” market than a few years ago, but housing is comparatively attainable; it remains one of the few capitals where many first-home buyers can purchase without stretching incomes to breaking point. Rents, however, have spiked here too – Adelaide’s vacancy rate has been under 1% for over a year, driving rents up ~10%+ y/y.
• Canberra (ACT): The nation’s capital saw strong run-ups in 2020–21 and then a plateau. Canberra’s median house price hovers around $900k–$1M, among the highest in Australia (reflecting high public-service incomes and limited land release). Prices dipped slightly in 2022 when interest rates jumped, but have steadied since. Units in Canberra have a large supply pipeline which has kept values soft. The rental market is quite tight (vacancy ~1%), and Canberra consistently ranks as having the highest median rents of any capital (often even higher than Sydney for houses, around $800+/week, due to solid local incomes and landlord-friendly market). Government demand anchors the property market, making Canberra relatively stable through cycles.
• Hobart (Tasmania): Hobart was the star market of the late 2010s (prices more than doubled from 2016–2021) but has cooled off significantly. It was the only capital to record a drop in values in August 2025 (−0.2%) abc.net.au michaelwest.com.au, and year-on-year growth is only 1%. Hobart’s median house price ($680k) is off its peak and buyer demand has softened as affordability became an issue and population growth slowed (some mainlanders who moved during COVID have left). The small size of the market means it can swing quickly. Rents in Hobart are still climbing (vacancy ~1%), but the pace is easing. Investors have been wary after Tasmania’s fast run-up and the state government’s discussions about short-stay (Airbnb) regulations and potential rent caps.
• Darwin (Northern Territory): Darwin’s housing market is notoriously volatile but is on an upswing in 2025. As noted, Darwin had the largest annual gain of any capital in August (prices +10.2% y/y) abc.net.au. Still, Darwin’s median dwelling (~$550k) is the lowest of all capitals. The city is benefitting from increased defense spending, LNG industry projects, and a post-COVID revival in regional migration. Turnover remains low (the NT market is small), but virtually all sellers are now making a profit – 97% of houses resold in Q1 2025 did so above their purchase price abc.net.au. Rental yields in Darwin are the highest among capitals, around 6–7% gross, due to modest prices and high rents. This is drawing investor interest anew. However, Darwin’s economy and population are prone to swings, so it remains a higher-risk, higher-reward market.
• Regional markets: Many regional towns and cities saw an unprecedented boom during 2020–2022 as city-dwellers sought space and remote work options. By 2025, some of those tree-change hotspots have cooled, while others continue to see growth. Coastal lifestyle regions near capitals – like NSW’s Central Coast, Wollongong/Illawarra, Newcastle/Hunter, and Queensland’s Sunshine Coast – still have robust demand and prices at or near record highs, supported by ongoing population inflows. For example, Noosa and the Sunshine Coast in QLD, and Busselton in WA, delivered some of the biggest profit uplifts on resales in the country in early 2025 – with median resale gains over $400,000 in those markets, a “staggering increase” versus five years ago abc.net.au. Such areas, however, are now grappling with affordability and rental shortages much like the capitals. In contrast, some more remote regional areas that boomed (e.g. tree-change towns in inland NSW/Vic) have seen demand temper as workers return to offices and interest rates limit holiday-home buyers. Regional Australia as a whole still showed price growth in early 2025 (the combined regions index was up ~1.6% for the March quarter, slightly outpacing capital cities) business.nab.com.au, but the gap is closing. Analysts anticipate that as immigration refocuses on the big cities and offices beckon employees back, capital city markets will once again grow faster than most regionals business.nab.com.au. Nonetheless, lifestyle destinations and satellite cities (e.g. Geelong, Gold Coast, Wollongong) remain in high demand and are benefiting from infrastructure improvements.

In summary, regional divergences persist. Sydney and Melbourne are re-accelerating (though still below prior peaks in some segments), Brisbane and Perth are at record highs, and smaller capitals like Adelaide and Darwin have had surprising strength. Many regional markets remain elevated after the pandemic-era surge, with only selective cooling. The broad theme is that virtually all parts of Australia have seen housing values lifted by the 2021–2025 cycle, leaving few genuinely “affordable” pockets near job centers. This widespread growth – from capital cities to coastal towns – underscores the nationwide supply-demand imbalance that is driving the current property story.

Key Drivers of the Market in 2025

Several key factors are influencing Australia’s real estate market this year, fueling demand on the one hand and constraining supply/affordability on the other:

• Interest Rates (Monetary Policy): After an aggressive tightening cycle in 2022–23, the Reserve Bank of Australia pivoted to rate cuts in 2025 as inflation eased back into target. The RBA delivered its first 0.25% cut in February 2025 (a clear turning point for housing trends business.nab.com.au) and another 0.25% in May, bringing the cash rate down to 3.60%. The prospect of further rate relief – markets expect up to ~0.8% of additional cuts by mid-2026 abc.net.au – has buoyed buyer sentiment. Lower mortgage rates directly boost borrowing capacity and monthly affordability, which in turn stimulates property demand. As Cotality’s research team noted, the rate cuts improved buyers’ ability to borrow and lifted confidence, “helping to push values higher” once the cycle turned business.nab.com.au. Indeed, multiple experts have attributed 2025’s housing rebound largely to the RBA’s policy shift. However, there’s a flip side: cheaper finance also risks re-inflating prices, undermining affordability gains. Regulators are remaining vigilant – the Australian Prudential Regulation Authority (APRA) in July kept its home loan serviceability buffer at 3% (meaning banks must assess new borrowers’ ability to pay at 3 percentage points above the actual rate) to prevent an overly loose credit environment apimagazine.com.au apimagazine.com.au. APRA acknowledged that falling rates are easing pressure on existing borrowers and have “increased borrowing capacity for new borrowers,” but cautioned that if rates drop too far while the labor market stays strong, it could lead to a surge in risky lending and house prices apimagazine.com.au apimagazine.com.au. In short, interest rate movements are a critical swing factor: rate cuts are currently stoking the market, but policymakers are poised to intervene (or pause cutting) if credit growth and prices begin to overheat again.
• Migration and Population Growth: Australia’s population growth rebounded dramatically after borders reopened – at one point reaching record levels (~400,000 net migrants annually in 2022–23). This wave of immigration, returning expats, and foreign students has been a major demand-driver for housing, especially rentals. The surge caught the housing system off-guard, contributing to the tight rental vacancies and supporting property sales (as new households form and need homes). For example, the National Housing Supply Council estimated underlying housing demand in 2024 at 223,000 dwellings – far above new supply – largely due to an influx of migrants needing accommodation abc.net.au. Capital cities like Sydney and Melbourne, which saw population outflows during COVID, suddenly had to house tens of thousands of additional people. Interstate migration trends also played a role: Queensland saw big net inflows (boosting Brisbane/Gold Coast markets), while NSW and Victoria lost some residents to other states in 2020–21, though those trends have moderated. Looking ahead, official forecasts suggest new housing demand will moderate to around 175,000 households per year from 2025–26 as the initial post-pandemic migration surge abates nhsac.gov.au. Indeed, overseas student arrivals have normalized and the federal government has slightly tightened some visa settings to ensure infrastructure keeps pace. Even so, Australia’s population growth is expected to remain robust by historical standards (driven by skilled migration targets and natural increase), meaning housing demand will continue to grow steadily. In sum, strong migration flows have been a boon to housing markets (filling rental vacancies and bolstering buyer pools), and though growth is slowing from the peaks, population pressure on housing is set to persist, especially in urban centers.
• Housing Supply & Construction Challenges: If demand is high, the supply side of Australia’s housing equation is struggling to keep up. New housing construction is running at roughly 180,000 completions per year abc.net.au – nowhere near the needed 230k+ to satisfy population growth and catch up on undersupply. The result is a structural shortfall. The National Housing Accord (between federal and state governments) has set an ambitious target of 1.2 million new homes over 5 years (from mid-2024) abc.net.au – effectively 240k per year – but current trends fall well short. In fact, the National Housing Supply Council projects only about 938,000 dwellings will be delivered in that five-year period, leaving a 262,000 shortfall against the target nhsac.gov.au. This gap means that competition for existing homes (whether to buy or rent) remains intense. Why can’t we build faster? The industry faces multiple constraints: labor shortages (a lack of skilled tradies), high material costs (supply chain disruptions and inflation made construction much pricier), and productivity issues in the building sector nhsac.gov.au nhsac.gov.au. Financing for development also got tougher with higher interest rates and some builders going bust. Moreover, planning and land availability are bottlenecks – restrictive zoning, lengthy approval times, and community opposition to density have limited new housing, especially in established suburbs where people want to live abc.net.au. As one industry executive quipped, “we’re building fewer than half as many homes per hours worked today than in the mid-1990s”, pointing to a productivity slump in construction propertycouncil.com.au. All these factors mean new supply is slow even though it’s desperately needed. The supply shortage is a fundamental driver pushing up prices and rents in 2025. Until construction can ramp up significantly – which will require reforms and time – this supply-demand imbalance will likely continue to support property values.
• Economic Conditions – Wages and Employment: The broader economic backdrop in 2025 has been relatively supportive for housing. Unemployment remains low (around 3.5–4%), meaning job security is high and more households feel confident to make major purchases like homes. Wage growth has finally picked up after a decade of stagnation – growth is running above 4% per year, the fastest since 2009, which boosts purchasing power abc.net.au. Higher real wages (combined with the slight tax cuts that went into effect) help households save for deposits and service loans, somewhat offsetting the impact of past rate rises. Indeed, real wages turned positive in 2025 for the first time in years, easing cost-of-living pressures. Consumer confidence also improved as interest rates started falling and inflation came down sharply (by mid-2025, inflation was ~2–3%, back in the RBA’s target band apimagazine.com.au). This has translated into housing market sentiment recovering from the doldrums of late 2022. Buyer inquiries and auction clearance rates are up – auction clearance in capital cities hit ~70% in August, a 20-month high, indicating robust demand relative to supply michaelwest.com.au michaelwest.com.au. That said, there are economic clouds that could temper the market: global growth is slowing, China’s economy (key for Australia) is cooler, and domestic consumer spending is under strain from high rents and past interest hikes. If unemployment were to rise or if another inflation surge forced rate hikes, housing demand would be impacted. But at present, economic fundamentals – solid employment, rising incomes, and easing inflation – are underpinning buyer activity and allowing more people to qualify for loans.
• Credit Availability and Lending Standards: The availability of credit – how much banks will lend and on what terms – is a crucial driver of property markets. In 2025, credit conditions are a mixed bag. On one hand, falling interest rates and intense competition among lenders have seen banks start to slightly loosen up, offering discounts and longer loan terms to attract borrowers. New loan commitments to first-home buyers have shown signs of stabilising after previous declines mpamag.com. On the other hand, regulators are keeping guardrails. APRA’s decision to hold the serviceability buffer at 3% (despite calls to lower it to 2% or 2.5%) means many borrowers’ maximum loan sizes are still constrained apimagazine.com.au apimagazine.com.au. This is particularly affecting those on the margins (e.g. first-home buyers with lower deposits or investors with existing debt) – some simply cannot borrow enough to pay current house prices, which dampens excessive price growth. The flip side is that if rates keep dropping, that 3% buffer will gradually bite less in absolute terms, effectively freeing up borrowing capacity. There’s also been discussion of banks adjusting their lending criteria as conditions change. For example, non-bank lenders and some second-tier banks have started to reduce their buffers or accept higher debt-to-income ratios for certain low-risk borrowers, which can inject a bit more capacity into the market. Investor lending is another angle: after a lull, investor loan demand is rising again (attracted by improved yields and prospects of capital growth). A surge in investor credit can add fuel to the market, as seen in past cycles. As of early 2025, investor loan growth was picking up from very low levels globalpropertyguide.com – a trend to watch, as regulators could consider macroprudential curbs if investor lending and interest-only loans accelerate too quickly. In sum, credit availability in 2025 is gradually improving due to rate cuts, but tempered by continued prudent lending standards. It enables steady housing demand but likely prevents a return to the free-wheeling lending of the mid-2010s.
• Investor and Sentiment Factors: Finally, general market sentiment and investment appetite are key drivers. Real estate in Australia is deeply ingrained as an investment choice, and sentiment can quickly swing markets. In 2025, sentiment has shifted positive: would-be buyers fear missing out again (“FOMO”) as prices creep up, and investors see upside with rates falling. As one senior strategist noted, Australia’s housing market often feels “too big to fail” – our banking system is heavily exposed to mortgages, so any major price correction would pose risks to financial stability abc.net.au. This implicit safety net, combined with cultural affinity for property, keeps medium-term expectations anchored that prices will trend up. We see this in analyst surveys: a Reuters poll of property experts forecast home prices will rise ~3.7% in 2025 and then about 5% per year in 2026 and 2027, rather than falling globalpropertyguide.com. Likewise, AMP’s Chief Economist Shane Oliver – who had been cautious – now expects roughly +7% growth in 2025, potentially accelerating to +10% in 2026 if interest rates are cut further michaelwest.com.au. Such expectations can become self-fulfilling as buyers act sooner, assuming today’s prices are the lowest they’ll be. Of course, risks remain (talk of recession in major economies, geopolitical tensions, etc.), but prevailing sentiment in Australia’s property market is that any dips are temporary and property “only goes up” in the long run. This mentality is a powerful driver of demand, even in the face of affordability challenges.

In summary, 2025’s housing market drivers include the tailwind of falling interest rates, strong population-driven demand, and a relatively resilient economy, all colliding with the headwind of inadequate housing supply and still-tight credit limits. The net effect has been renewed price growth and persistent rental stress. How these drivers evolve – e.g. whether construction can ramp up, or if the RBA’s rate cuts stoke too much exuberance – will shape the market’s trajectory in the coming years.

Policy and Government Interventions

Facing a public outcry over housing affordability and availability, governments at all levels have stepped up involvement in the housing market through 2024–2025. A range of policy measures and reforms have been rolled out or proposed, aimed at boosting supply, helping first-home buyers, and protecting renters. Here we outline the major initiatives and changes:

• National Housing Accord & Targets: In August 2023, National Cabinet (the Prime Minister and state premiers) agreed to an ambitious new housing supply target: 1.2 million new homes over 5 years (2024–2029) abc.net.au, which is 200,000 more than previously planned. The idea is to encourage states to accelerate zoning and development. To back this, the federal government announced a $3 billion New Home Bonus – essentially paying state/territory governments $15,000 for each dwelling built above their baseline target abc.net.au abc.net.au. This incentive is meant to tackle the “not in my backyard” inertia by rewarding extra supply. While it’s early days, all states have nominally committed to hitting their share of the 1.2M target. The Property Council of Australia praised the target’s first year as focusing minds, but points out we’re still on track to miss it by a wide margin (as noted, projections show a ~262k shortfall at current build rates) nhsac.gov.au. The PCA is calling for “a redoubling of effort” – including rolling 5-year targets beyond 2029, faster planning approvals, and addressing construction productivity – to actually achieve the ambitious numbers propertycouncil.com.au propertycouncil.com.au. As PCA Chief Executive Mike Zorbas put it, “We need to move from 170,000 homes a year into the high 200,000s… That requires bold leadership to dissolve assessment and approval gridlock in key corridors” propertycouncil.com.au. In short, boosting housing supply is now firmly on the national agenda, with targets set and some incentives offered, but concrete outcomes will depend on implementation by states and industry.
• Affordable/Social Housing Investment: The centerpiece of the federal government’s housing plan is the Housing Australia Future Fund (HAFF), a $10 billion sovereign fund legislated in September 2023. The HAFF will finance the construction of 30,000 new social and affordable homes over five years abc.net.au. This includes 20,000 social housing units (for low-income and vulnerable groups) and 10,000 affordable rentals (for key workers, etc.). While 30k homes is only a fraction of national housing output, housing advocates welcomed it as the first significant federal build program in a decade abc.net.au. The fund’s returns will be spent on housing, with at least $500 million to be disbursed per year (and a cap of $50m/year on any shortfall if returns are poor) abc.net.au. Additionally, the government in mid-2023 deployed a $2 billion Social Housing Accelerator – one-off direct funding to states, allocated per capita, to construct more public housing quickly abc.net.au. States must commit that money to projects by mid-2025, and it’s expected to deliver a few thousand new homes (exact number TBC) abc.net.au. Another $1 billion was announced for National Housing Infrastructure, to help enable new housing development (e.g. funding utilities, roads) abc.net.au. While these amounts won’t solve the crisis alone, they represent a significant re-entry of government into housing provision. By early 2025, Housing Minister Julie Collins reported that over 5,000 new social/affordable homes have already been completed with federal support since the government took office in 2022 michaelwest.com.au. The aim is not just more homes, but also to spur construction sector activity and jobs.
• First-Home Buyer Assistance: To help first-time buyers break in amid high prices, governments have expanded various incentive schemes. The federal First Home Buyer Guarantee (FHBG) – which allows first-time buyers to purchase with only 5% deposit (or 2% for single parents) without paying lender’s mortgage insurance, as the government guarantees the loan – has been significantly expanded from 2023–24. Originally capped at 10,000 spots a year, it was raised to 35,000 and now, from 1 October 2025, the scheme will offer unlimited places, remove price caps and income caps, and even allow friends or siblings to jointly use it abc.net.au abc.net.au. Essentially, the FHBG is being opened to a much wider group for a trial period. This expansion, part of the government’s Home Guarantee Scheme overhaul, is intended to “bolster demand, particularly among first-home buyers with smaller deposits” abc.net.au abc.net.au. While it helps buyers get in sooner, there are concerns it could simply bid prices higher. Treasury estimated the expanded scheme might lift prices only ~0.5% over several years, but many analysts think the impact could be larger when combined with rate cuts and low supply abc.net.au. Eliza Owen of Cotality expects the scheme’s timing – “fresh off the back of rate cuts” – will indeed give the market a short-term jolt abc.net.au abc.net.au. She and others worry it risks pushing prices up further for the very cohort it’s trying to help, especially while housing stock is limited abc.net.au. Nonetheless, in the immediate term, thousands of first-home buyers are likely to take advantage of the low-deposit guarantee to enter the market in late 2025 and 2026. Meanwhile, state governments continue to offer grants or stamp duty concessions to first-home buyers: e.g. Victoria has a $10k First Home Owner Grant for new builds under $750k; NSW waived stamp duty for first homes up to $800k, etc. These demand-side boosts, while politically popular, do risk further heating prices unless matched by supply increases.
• Tax and Planning Reforms: There is growing recognition that structural issues – like tax disincentives and planning restrictions – need addressing to fix housing woes. Some movement is happening:
  • Stamp Duty / Land Tax: The long-debated shift from stamp duties to broad-based land taxes (to reduce upfront costs and encourage mobility) is inching along. The ACT is midway through a 20-year phase-out of stamp duty. NSW briefly introduced an optional land tax for first-home buyers (to replace stamp duty) in 2022, but the incoming state government in 2023 rolled that back, opting instead for larger stamp duty exemptions. Other states have not removed stamp duty (given it’s a cash cow), but NSW, VIC and QLD all offer concessions for first-home or off-the-plan buyers. The Property Council and economists continue to lobby for abolishing stamp duty, calling it an inefficient tax that hinders downsizing and upsizing moves abc.net.au abc.net.au. While no major state has concrete plans to scrap it yet, there’s incremental change (like NSW’s tweaks) and the topic is live.
  • Build-to-Rent Incentives: Both federal and state governments have latched onto Build-to-Rent (BTR) – large-scale rental apartment developments, often by institutional investors – as one solution to add rental supply. In 2023, the federal government halved the withholding tax for foreign investors in BTR projects (from 30% to 15%) and increased depreciation benefits rprealtyplus.com. States like NSW, VIC and QLD have introduced land tax or planning concessions for BTR schemes (e.g. 50% land tax discount in VIC & QLD, fast-tracked approvals in NSW). This has led to a surge of interest: the number of BTR units under construction or planned has jumped, with international investors (notably from the US, Europe and lately Japan) pouring capital into Australian BTR ventures assets.kpmg.com assets.kpmg.com. For instance, FY2024 saw Japan re-emerge as a major investor in Aussie real estate, particularly in build-to-rent projects assets.kpmg.com. The idea is to create a professionally managed rental sector like in the US/Europe. While still nascent (only a few thousand BTR units in operation so far), this policy push could deliver tens of thousands of new rentals over the coming decade if momentum continues.
  • Planning & Zoning: Recognising that restrictive planning laws choke supply, some states have started reforms. NSW implemented housing targets for councils and is expanding “code assessable” development (fast approvals) for medium density. Victoria in late 2024 announced a sweeping Housing Statement with plans to rezone more land for high-density development (especially around transport hubs), set minimum targets for affordable housing in new developments, and curb councils’ ability to block projects. Queensland and WA have also moved to streamline approval processes for subdivisions and medium density. The federal government, via the National Housing Supply Council, is nudging states toward pro-density policies – for example, by tying some infrastructure funding to housing outcomes. However, progress is uneven. As an illustration of the challenge: to meet just the infill housing portion of the 1.2M target, Australia would need to add the equivalent of 26 Melbourne CBDs of medium-density housing each year abc.net.au abc.net.au – a practically herculean task under current zoning rules. Without dramatic “radical measures” (as commentator Alan Kohler mused, perhaps semi-facetiously, about bulldozing golf courses or overriding local councils abc.net.au abc.net.au), it’s hard to see that scale of upzoning happening. Nonetheless, the pressure is on state governments to at least incrementally loosen planning constraints, enable more townhouses, units, and subdivision in established areas, and hasten approvals – all of which are slowly underway.
  • Tax Reform for Housing Supply: Beyond stamp duty, other tax levers are debated. The National Housing Supply Council noted that Australia’s tax settings often encourage investment in existing housing (negative gearing, CGT discount) rather than new construction abc.net.au. They floated ideas like increasing tax breaks for new housing – e.g. making new-build homes capital gains tax-free on resale – to incentivize development abc.net.au. So far, no government has adopted that. However, state-based foreign investor taxes have come under fire. Several states charge additional stamp duty and land tax surcharges on foreign buyers (e.g. NSW 8% stamp duty surcharge), which some argue deter foreign capital from funding new housing like apartments. The Property Council’s Mike Zorbas specifically calls for rethinking these “apartment-killing foreign investor taxes,” especially with state budgets in deficit and needing private capital for housing propertycouncil.com.au propertycouncil.com.au. We could see adjustments here if states become desperate to spur construction (for instance, one idea is waiving foreign surcharges for investments in new housing stock or build-to-rent).
  • Rental Reforms: With renting so tough, governments have sought to strengthen tenant protections. National Cabinet agreed to move toward a national standard of no more than one rent increase per year (previously some states allowed 6-monthly increases) abc.net.au abc.net.au. As of 2025, all jurisdictions except NT have implemented the annual limit (and NT is expected to follow). They also pushed for banning no-cause evictions – all states now require reasonable grounds for eviction, giving renters more security abc.net.au. Minimum rental property standards (for safety, efficiency) are being phased in across multiple states. However, more aggressive measures like rent caps or freezes were resisted by most governments; the Greens continue to campaign for direct rent control, but PM Anthony Albanese said in August 2023 that an across-the-board rent cap was not on the table federally abc.net.au abc.net.au. Critics argue the agreed renter measures are relatively modest – essentially “enshrining the status quo” by formalising once-yearly rent hikes, which could still be large abc.net.au. Nonetheless, from the tenant’s perspective, these changes at least prevent the worst abuses (rapid-fire rent raises, arbitrary evictions). Some states went further: e.g. Queensland capped rent increases to just once per year and banned rental bidding; Victoria already had rent caps tied to CPI for long-term leases (and is now looking at tighter controls). The ACT has implemented a form of rent increase cap (limited to CPI + 10% of CPI). This patchwork may evolve into stronger national standards if rental stress continues, but for now, most governments prefer supply solutions over hard price controls.
• Financial Regulation: We’ve touched on APRA’s stance – maintaining the 3% loan buffer to safeguard against future rate rises and keep household debt in check apimagazine.com.au. The Council of Financial Regulators (RBA, APRA, etc.) also has tools like limits on high debt-to-income loans, but currently banks’ lending has been fairly prudent on those fronts, so no additional macroprudential tightening is active. If the market re-heats significantly (credit growth accelerates sharply, or investor lending gets too high), regulators might re-impose lending caps (for instance, limiting interest-only loans or capping investor credit growth like they did in 2015–17). Conversely, if conditions had worsened, APRA could have lowered the buffer to stimulate borrowing – but as noted, they explicitly decided not to in mid-2025, signalling they don’t want to overstimulate housing apimagazine.com.au apimagazine.com.au. Thus, financial policy is currently in a holding pattern: supportive of stability and incremental growth, but poised to tighten if exuberance returns.
• Broader Initiatives: The government has other housing initiatives like the National Housing Infrastructure Facility (to fund enabling infrastructure for new housing estates), the Help to Buy shared equity scheme (the Albanese government promised a 30,000-place scheme where the government co-buys up to 30% of a home to help buyers – but its start has been delayed pending legislation and state agreements). Some states are doing their own shared equity programs (WA’s Keystart, VIC’s HomesVic, etc.). Additionally, the issue of vacant homes and short-term rentals (Airbnb) has come up – Victoria in 2023 proposed a 7.5% levy on short-term rental revenue to encourage owners to return properties to the long-term rental pool, and NSW is allowing councils to cap short-term rental days in tourist-heavy areas. While not major policy levers yet, these reflect attempts to nudge more efficient use of existing stock.

Overall, 2024–25 has seen an unprecedented level of coordinated action on housing from Australian governments. There is money flowing into social housing, targets and incentives for more supply, assistance for buyers, and modest protections for renters. The policies are trying to thread a needle: improve affordability and access without crashing the existing market (since millions of homeowners rely on it). The fundamental constraint is that meaningful results (like significantly lower prices or plentiful rental supply) take time to materialize – and some measures, like first-home buyer grants, can even be counterproductive by stoking demand. Policymakers are essentially betting they can build their way out of the crisis. As Housing Minister Clare O’Neil said in September, the government is delivering on its housing agenda with thousands of new affordable homes already in train michaelwest.com.au, but she acknowledges it’s just a start. Susan Lloyd-Hurwitz of NHSAC emphasizes that “significant system-wide reform” and innovation are needed beyond what’s currently underway, and that the housing crisis was “decades in the making” and will not be solved overnight nhsac.gov.au nhsac.gov.au. The coming year will test how much these interventions can move the needle – especially if the market keeps surging, potentially requiring further policy responses.

Market Outlook: Forecasts and Analyst Insights for the Rest of 2025

As we enter the latter part of 2025, the big question is: what’s next for the Australian real estate market? The consensus among property analysts is cautiously optimistic – most expect further growth in prices over the next 12–18 months, though at a moderate pace, with some ups and downs along the way. Here’s a summary of key forecasts and perspectives:

• Property Price Forecasts: Multiple forecasters see Australian home values continuing to rise through 2025 and into 2026. A Reuters poll of 16 real estate analysts projected nationwide house prices to increase around +3.7% in calendar 2025, followed by a quicker +5.0% in 2026 and 2027 as the full effect of rate cuts flows through globalpropertyguide.com. Under this outlook, mid-sized capitals (Brisbane, Adelaide, Perth) would lead gains in the near term with ~5–8% growth this year (given their strong local conditions), while Sydney and Melbourne grow around ~3% globalpropertyguide.com – a reversal of the last boom when Sydney/Melbourne outpaced others globalpropertyguide.com. Domain’s latest forecasts (for FY2025–26) are even more bullish: they predict record-high prices in most cities by 2026, with Sydney’s median house up 7% (to $1.83M) and Melbourne’s up 6% (to $1.10M) abc.net.au abc.net.au. They also see solid house price growth in Canberra (+8%), Brisbane (+4%), Adelaide (+3%) and Perth (+1%) over that period, and unit prices hitting record highs almost everywhere abc.net.au abc.net.au. This implies a broad-based upswing, albeit slower than the frenzied gains of 2021. CoreLogic (Cotality) researchers likewise anticipate further value rises, noting that after the initial post-rate-cut bounce of early 2025, momentum should continue albeit capped by affordability abc.net.au abc.net.au.
• Affordability Brake: A common theme is that affordability constraints will limit how fast prices climb. As Eliza Owen remarked, even with rate relief, higher baseline prices mean growth “will slow compared to past cycles” because buyers simply hit borrowing or income ceilings sooner abc.net.au. Dr. Shane Oliver of AMP Capital expects prices to end 2025 up around 7% nationally, assuming no major shocks michaelwest.com.au. He then sees 2026 potentially accelerating to +10% gains if interest rates are cut more and government support (like first-buyer schemes) further stoke demand michaelwest.com.au. However, he flags that poor affordability and still-higher-than-2021 interest rates, along with an anticipated slowing in population growth, will act as natural “constraints” on runaway prices michaelwest.com.au. In other words, prices are likely to grind higher, but double-digit annual growth sustained over several years (as we saw pre-2017 or in 2021) is not very likely unless lending standards loosen or there’s a new speculative fervor.
• Interest Rate Trajectory: Virtually all outlooks hinge on the path of interest rates. The baseline scenario many analysts use is that the RBA will deliver additional rate cuts into 2026, but gradually. Markets are currently pricing the cash rate to fall to maybe ~3.0% by mid-2026 abc.net.au. Such an outcome would further reduce mortgage repayments and boost borrowing capacity by perhaps 5–10%. This underpins the forecasted price rises. If, however, inflation surprises to the upside or other central banks keep rates higher for longer, the RBA might pause or slow cuts – that could dampen housing demand more than expected. Conversely, if the economy significantly weakens, the RBA could cut faster and deeper, possibly igniting a stronger housing surge (with attendant risks of a mini-bubble). At present, the “lower for longer” narrative prevails: APRA’s John Lonsdale even noted that with inflation coming down and rates likely to “fall further in 2025”, the regulators are watching for a resurgence of risky lending or high leverage purchasing apimagazine.com.au apimagazine.com.au. This suggests policy makers themselves anticipate a supportive rate environment for housing in the near term.
• Rental Market Outlook: For renters, unfortunately, relief may come slowly. Most forecasts see rents continuing to rise in 2025, though perhaps at a moderated pace if vacancy rates inch up. The National Housing Supply Council expects advertised rent growth to slow compared to the frenzied recent period, as more investors buy properties and new rentals (including build-to-rent units) hit the market nhsac.gov.au. Vacancy rates might rise slightly off rock-bottom levels – we’ve already seen a move from ~1.0% to 1.5% nationally – but are projected to remain very low historically through 2025 abc.net.au globalpropertyguide.com. Accordingly, renters will likely face further rent increases, albeit smaller than the 10–20% annual jumps seen last year. One hopeful sign: the pipeline of apartment construction, which had been very low, has started to recover (approvals for units/apartments have been trending up in 2023–24). If materialised, that could improve rental supply by late 2025 into 2026. Another factor is overseas migration easing – the huge student arrivals of 2023 won’t be repeated at the same scale, which may slightly reduce the pressure. Still, industry bodies like the Real Estate Institute (REIA) caution that vacancy rates around 2% or below mean landlords retain significant pricing power, so meaningful improvement for renters may require vacancy heading back towards 3%+. That probably won’t happen until at least 2026 given current trends, and only if construction picks up markedly nhsac.gov.au.
• Investor & Developer Sentiment: From a broader perspective, investment in property is poised to grow. With interest rates off their peak, institutions are reactivating real estate acquisition plans. The MSCI mid-year report noted that H1 2025 commercial property volumes were up and pending deals imply a stronger H2 rprealtyplus.com rprealtyplus.com. Particularly, foreign investors appear ready to increase exposure, seeing Australia as past the worst of its price correction. For housing developers, sentiment is improving but still cautious – many builders were hit hard by cost overruns in 2022–23. The return of more normal construction cost inflation and the various government incentives (e.g. Home Bonus, first-home schemes, etc.) should encourage new projects, though financing remains a hurdle until presales pick up. A key tell will be housing approvals: they rose in early 2025 (a volatile 12% jump in one month, then −8% the next michaelwest.com.au) but the trend appears to be stabilising upward. Oxford Economics’ Tim Hibbert expects housing commencements to approach 200,000 in 2026, up from ~175k in 2024 michaelwest.com.au michaelwest.com.au. That would still be short of what’s required (he notes it’d be ~40k/year shy of the Accord target rate) michaelwest.com.au michaelwest.com.au, but at least moving in the right direction. His view is that a combination of accumulated rezonings, planning concessions, institutional investment in rentals, and social housing programs “will play a defining role” in lifting supply in the latter part of the decade michaelwest.com.au. If this supply materializes, it could gradually temper the pace of price and rent growth, ushering in a more balanced market by, say, 2026–27.
• Risks and X-factors: No forecast is without uncertainties. One risk is the broader economic climate – if Australia were to enter a recession (for instance, due to a sharp China slowdown or domestic consumer crunch), that could weaken housing demand and even cause price dips in certain areas (especially highly leveraged segments). So far, that’s not the base case, but it’s a risk. Another is credit tightening: should APRA or banks decide to cut loan-to-value ratios or tighten credit materially (for financial stability), borrowing capacity could reduce, dampening prices. On the flip side, a potential upside risk is a return of FOMO and speculative demand if interest rates fall faster than expected. Australia’s housing psychology can swing – if buyers start believing “rates will be 2% by next year, better buy now,” demand could spike and push prices up more rapidly, possibly overshooting fundamentals. Additionally, policy changes could alter the trajectory. For example, if a new government were elected and brought in policies to limit negative gearing or tax investors (as Labor proposed in past elections), that could cool investor demand. Conversely, if governments double-down on incentives (say, expanded grants or another HomeBuilder-style stimulus), that could pump demand further. It’s worth noting an election is due by 2025–26; housing will undoubtedly be a major issue, and both sides may promise new measures, injecting some uncertainty into the policy outlook.
• Expert Insights & Quotes: Many property experts remain generally positive about the resilience of the market but warn about long-term sustainability. For instance, veteran analyst Louis Christopher (SQM Research) has indicated he expects moderate price rises into 2025 under current settings, but is wary of calling a sustained boom given affordability limits and possible rate trough by late 2025. Eliza Owen (CoreLogic/Cotality) emphasizes that listings and supply will be key: if more sellers return in spring and new construction lifts slightly, price growth might moderate, which would be “good news for buyers who currently have limited choice” in the market michaelwest.com.au michaelwest.com.au. Indeed, early spring 2025 is seeing a modest uptick in new listings, though from a very low base michaelwest.com.au. Another perspective comes from Ben Picton, Rabobank’s senior strategist, who worries that policies like the First Home Guarantee, while helping some buyers now, might be “throwing future first-home buyers under the bus” by driving prices higher and exacerbating the bubble abc.net.au abc.net.au. He notes Australia’s housing market is already “overvalued on many metrics” and heavily tied to banking stability, making it “too big to fail” – implying that if prices did ever fall sharply, it would pose broader risks abc.net.au. This underscores that while near-term outlook is for growth, the structural challenges (high household debt, undersupply, affordability) remain unresolved.

In conclusion, the rest of 2025 is expected to bring continued growth in the Australian property market – likely a steady, unspectacular rise in home values rather than a meteoric boom, alongside ongoing tight rental conditions. Analysts broadly foresee the market strengthening further if interest rates keep easing, with the potential for new price peaks in 2024–26 abc.net.au abc.net.au. However, this growth will occur under the shadow of affordability concerns and will be tempered by how effectively supply can respond. The housing market’s perennial cycle – swinging between fears of collapse and fear of missing out – seems to be tilting toward optimism again in late 2025. Barring any external shocks, Australia appears headed into 2026 with housing prices gradually climbing, rentals still in high demand, and policymakers under pressure to deliver longer-term solutions even as they manage short-term market forces. As the saying goes, “history is repeating and house prices are set to rise — again” abc.net.au, but with the lessons of the past decade in mind, stakeholders are watching carefully to ensure this next chapter of the property cycle is a more sustainable one.

Sources:

• ABC News – Home prices keep rising in ‘seller’s market’ as new property listings below average abc.net.au abc.net.au; Property prices tipped to hit record highs in 2025-26, bringing pain for buyers and a boom for sellers abc.net.au abc.net.au; National cabinet sets new housing target and touts “better deal for renters” abc.net.au abc.net.au; Government’s $10bn Housing Australia Future Fund passes parliament abc.net.au.
• CoreLogic (Cotality) / Reuters – Market commentary and data on home values, rents, and forecasts abc.net.au globalpropertyguide.com globalpropertyguide.com globalpropertyguide.com.
• National Housing Supply and Affordability Council – State of the Housing System 2025 report findings on supply shortfall, demand, and affordability metrics nhsac.gov.au nhsac.gov.au nhsac.gov.au.
• Australian Associated Press (via Michael West News) – Home prices continue rising amid supply-demand mismatch (Sep 2025) michaelwest.com.au michaelwest.com.au.
• Property Council of Australia – Media release on housing targets and supply reforms propertycouncil.com.au propertycouncil.com.au.
• KPMG – Commercial Property Market Update – June 2025 on office, retail, industrial fundamentals assets.kpmg.com assets.kpmg.com.
• RBA / APRA communications – APRA decision on serviceability buffers and comments on housing risks apimagazine.com.au apimagazine.com.au.
• REIA (Mortgage Magazine) – Q1 2025 housing affordability report mpamag.com mpamag.com.
• Domain / CoreLogic pain & gain reports – stats on profitable resales and regional gains abc.net.au abc.net.au.
• MSCI / InvestorDaily – H1 2025 commercial market volumes and foreign investment trends rprealtyplus.com rprealtyplus.com.