Australian Housing Market: A Nation Divided by Affordability, Supply, and Divergent Regional Trends

Australia’s housing market is characterized by a deepening affordability crisis, record-high prices in some regions, and emerging downturns in others. Decades of housing policy, constrained supply, and demographic shifts have created a fragmented national market where homeownership is increasingly difficult for many, while rental costs consume a record share of household incomes.

National Market Overview: Divergent Trends

Performance by Capital City (as of mid-2026)

The Australian housing market is seeing significant divergence.

• Perth leads the nation in growth, with dwelling values rising 26% year-on-year. Properties sell in an average of just nine days.
• Brisbane, Adelaide, and Darwin have also recorded robust annual increases, with Brisbane seeing 19.7% growth.
• Sydney and Melbourne are experiencing price declines, with dwelling values falling 0.6% month-on-month in April 2026. Sydney’s median house price sits at $1.6 million, while Melbourne's is $980,000.
• National median home value has surpassed $1 million across combined capital cities, according to Cotality.

Key Market Drivers

• Interest Rates: The Reserve Bank of Australia (RBA) raised the cash rate to 4.1% in March 2024, with further hikes occurring in 2025 and 2026. These increases have reduced borrowing capacity and dampened demand, particularly in Sydney and Melbourne.
• Supply Constraints: A persistent shortfall in housing supply relative to population growth is a primary driver of price increases in undersupplied markets like Perth, Brisbane, and Adelaide. The Urban Development Institute of Australia (UDIA) forecasts a national shortfall of 380,000 dwellings by 2030.
• Tax Policy: The federal government has proposed changes to negative gearing and capital gains tax discounts, limiting them to new builds. This has created uncertainty for investors, leading to a pullback in investment lending in some states, particularly Victoria.
• First Home Buyer Support: The federal government's First Home Guarantee (5% deposit scheme) has been expanded, supporting demand in lower-priced segments.

Market Projections

• ANZ predicts that median house prices will increase in most capital cities (Perth, Darwin, Brisbane, Adelaide, Hobart) by the end of 2026, outpacing wage growth.
• Sydney and Melbourne are projected to see further declines of 0.7% and 1.7%, respectively.
• KPMG forecasts that all capital city median prices will exceed $1 million by early 2028.

The Rental Market: Worsening Affordability and Record Highs

Tenants now allocate an average of 33.4% of pre-tax income to rent—a record high and above the 30% threshold typically used to define housing stress.

National Trends

• Record High Rents: National median rent has reached $681 per week, a 42.9% increase since December 2020.
• Wage Growth vs. Rent Growth: Over the five years to September 2025, rents rose 43.9%, while wages grew 17.5%. Rents have increased 2.5 times faster than wages.
• Vacancy Rates: The national rental vacancy rate was 1.4% in December 2025, well below the decade average of 3.3%. Markets in Perth (0.5%), Adelaide (0.6%), and Hobart (0.4%) are exceptionally tight.

City-Specific Rental Data

Government Policy Responses

• Rent Assistance: Maximum rates of Commonwealth Rent Assistance have been increased by over 50% since March 2022. The Grattan Institute has called for a further 50% increase for singles, indexed to the cheapest 25% of rentals.
• Renter Protections: The federal government is developing reforms with states and territories, including banning 'no grounds' evictions, limiting rent increases to once per year, and implementing minimum rental standards.
• Victoria: Has introduced 150 rental reforms. An audit found that only 54% of rental properties met the state’s 14 minimum standards between March 2021 and May 2024, with lower compliance in disadvantaged suburbs.
• Queensland: Has banned property owners from accepting rent offers above the advertised amount, with a maximum fine of $8,300.

Homeownership: A Growing Divide

The national price of entry-level houses increased by 68% between 2020 and 2025, while wages grew by only 22% over the same period.

Declining Affordability

• Entry-Level Prices: The national price of entry-level houses rose from $408,000 to $685,000 between 2020 and 2025.
• Deposit Time: Saving for a 20% deposit on a median-priced home now takes nearly six years on average, almost double the time required 30 years ago.
• Repayment Burden: Repayments on an entry-level house in capital cities now average 48.9% of a couple's income.
• Age of First Home Buyers: The average age of a first home buyer is 34, with one in five loans going to people over 40. Homeownership among 25–29-year-olds has fallen from 50% (1971) to 36% (2021).

Impact on Specific Demographics

• Young Australians: Individuals and couples are increasingly priced out of local markets. Reports from Queensland detail a young couple with stable jobs being unable to secure a rental for over six months on the Sunshine Coast due to a vacancy rate of less than 1%.
• Pensioners: A Grattan Institute study found two-thirds of pensioners renting privately live in poverty. One Australian age pensioner moved to Thailand, where his monthly rent dropped from AUD $1,120 to $400, citing an inability to afford living costs in Australia.
• Low-Income Households: Anglicare Australia's 2026 rental snapshot found zero affordable rentals nationally for a single person on Youth Allowance and only one for someone on JobSeeker out of nearly 50,000 listings.
• Renters in WA: Western Australia has the most severe rental growth, with a 66% increase over five years. The median weekly rent is $747, requiring an annual household income of nearly $130,000 to be considered affordable.

Factors Contributing to the Crisis

• Housing Supply: A federal government report anticipates Australia will fall short of its target of 1.2 million new homes by 2029 by over 260,000 units. High construction costs (rising 20-30% in some areas) and planning delays are cited as factors.
• Tax Concessions: The 1999 introduction of a 50% capital gains tax discount for investors is identified by some analysts and advocacy groups as a policy that has shifted housing from a basic need to a vehicle for wealth accumulation.
• Economic Conditions: Rising interest rates, inflation, and global uncertainties are affecting household budgets and buyer confidence.

Outlook and Forecasts

• Property Prices: Most economists and analysts expect a softer year for national price growth in 2026, with some forecasting continued increases in mid-sized cities and declines in Sydney and Melbourne.
• Rental Market: With vacancy rates at historic lows and supply remaining constrained, analysts do not expect rental affordability to improve without a sustained increase in new housing supply.
• Policy Outlook: The federal government has signaled further budget measures aimed at increasing housing supply, including a $2 billion Local Infrastructure Fund. Debates continue over the effectiveness of tax policy changes for investors versus direct investment in social and affordable housing.