Australia's Residential Property Market Analysis 2025

Australian home prices continue to rise, underpinned by demand–supply imbalances and recent monetary easing, though affordability constraints temper the pace of growth, while rental increases have begun to ease from earlier peaks.

This extended overview from Global Property Guide covers key aspects of the Australian housing market and takes a closer look at its most recent developments and long-term trends.

Table of Contents

• Housing Market Snapshot
• Historic Perspective
• Demand Highlights
• Supply Highlights
• Rental Market
• Mortgage Market
• Socio-Economic Context

Housing Market Snapshot

Residential property prices in Australia continue to rise, underpinned by a persistent imbalance between housing demand and supply, although the pace of growth remains moderate due to affordability constraints. By the end of August 2025, the nationwide median dwelling value stood at AUD 848,858 (USD 554,983), a 4.1% increase from a year earlier, according to the Cotality monthly Hedonic Home Value Index. Across the combined regional capitals, the median value reached AUD 932,038 (USD 609,366), up 3.6% year-on-year.

The growth cycle has been gaining momentum since the February rate cut, supported by improved borrowing capacity, real wages growth, rising confidence, and what appears to be a growing sense of urgency amid persistently tight advertised stock levels. "Once again, we are seeing a clear mismatch between available supply and demonstrated demand, placing upwards pressure on housing values," said Cotality Australia's research director, Tim Lawless.

Nevertheless, growth remains more subdued compared with recent cyclical peaks. Affordability pressures, a normalization of population growth, and cautious lending standards continue to restrain demand, while the current cash rate, though easing, is still well above the lows recorded during the pandemic.

Australia's house price annual change:

Note: National House Price Index: Median Dwelling Price in AUD (8-City Composite)
Data Source: CoreLogic.

Among the regional capitals, Darwin led with the strongest growth at 10.2% year-on-year, which, according to Cotality, was underpinned by investor interest driven by lower price points, high yields, and exceptionally low listing volumes. Mid-sized capitals, Brisbane, Perth, and Adelaide, followed as the strongest performers.

Median house value dynamic in state/territory capitals:

Looking ahead, experts project steady gains in an already expensive and supply-constrained market. A Reuters poll of property analysts forecasts Australian home prices to rise by around 4-5% annually over the next three years. While interest rate cuts are expected to stimulate demand, affordability challenges are likely to prevent any sharp acceleration in price growth. "We see a bit of a cap to the pace of home price appreciation in this cycle. <…> While rate cuts would make it slightly easier for some borrowers to service the mortgage, it is quite minimal compared to the 13 rate hikes we've had since 2022, and it's also minimal versus how much prices have gained," said My Bui, economist at AMP.

According to the most recent Reuters poll, conducted between May 16 and June 2 among 17 real estate analysts, home prices are expected to rise by 4.0% in 2025, followed by annual increases of 5.0% in both 2026 and 2027. Among the capitals, Brisbane, Adelaide, and Perth are projected to record growth of about 5.0% this year, while Sydney and Melbourne are expected to see more moderate gains of around 3.5%.

Historic Perspective:

From Regulatory Tightening to Post-Pandemic Adjustments

The 2017-2018 period in Australia was characterized by regulatory interventions aimed at reducing risky lending practices. As a result, borrowing capacity was constrained, contributing to the first major downturn in housing prices since 2008 against the backdrop of a relatively active construction sector. In 2019, the Reserve Bank of Australia (RBA) responded to the slow economic growth by cutting interest rates, which helped to support the housing market. Despite this, the number of dwellings commencements and completions both saw a decline.

At the onset of the COVID-19 pandemic, a significant downturn due to economic uncertainty and widespread job losses was feared. However, contrary to these expectations, the market surged, with nominal median house value rising by 6.95% (6.04% inflation-adjusted). This growth was driven by record-low interest rates, government stimulus measures such as the HomeBuilder grant, and a shift in consumer preferences towards larger homes to accommodate remote work. At the same time, housing completions decreased even further, reflecting the impact of supply chain disruptions.

In 2021, the market experienced an extraordinary boom, with nominal median house value skyrocketing by 23.47% year-on-year, and real indicator increasing by 19.25%. This unprecedented hike was supported by continued low interest rates, high demand for housing, and a supply shortage exacerbated by delays in construction. However, this rapid growth proved unsustainable, and by 2022, the market began to cool. The correction was largely due to the RBA's decision to raise interest rates in response to rising inflation, which increased mortgage costs and reduced housing affordability. Dwelling commencements and completions both dropped, as the construction sector continued to face challenges.

2023 brought signs of recovery, with nominal median house value increasing by 6.93% (2.79% inflation-adjusted). However, the pace of dwelling commencements and completions continued to slow, with only about 165,000 units commenced and 175,000 units completed. Persistent supply constraints, coupled with steady demand, sustained upward pressure on prices, resulting in a 7.53% year-on-year increase in home values by December 2024 (4.99% inflation-adjusted). Nevertheless, the pace of growth began to moderate towards the end of the year, constrained by affordability challenges and limited borrowing capacity.

Annual median house value price change (based on year-end Hedonic Home Value Index by Cotality and consumer price index):

Construction activity dynamic (commenced and completed housing units, seasonally adjusted):

Data Source: ABS.

Demand Highlights:

Confidence Improves as Monetary Policy Supports Demand

According to the latest data from the Australian Bureau of Statistics (ABS), 106,767 dwelling transfers were recorded nationwide in the first quarter of 2025, a 15.97% decline compared to the same period in 2024. Established houses accounted for 64% of all transfers, down 15.01% year-on-year, while attached dwellings, making up the remaining 36%, fell by 17.62%.

Note: Attached dwellings include flats, units, and apartments, and semi-detached, row, and terrace houses.
Data Source: ABS.

Melbourne, Sydney, and Brisbane registered the highest number of transfers across both established houses and attached dwellings. Darwin was the only regional capital to record growth, with transactions rising by 34.90% for established houses and 19.54% for attached dwellings.

Number of dwelling transfers in state/territory capitals:

However, these ABS figures only reflect activity between January and March 2025 and do not capture the impact of monetary policy easing. With three rate cuts delivered in February, May, and July, borrowing costs have since fallen, lending greater support to buyer sentiment in the following months. More recent Cotality estimates put the rolling 12-month national residential sales count at 526,747 as of July 2025, broadly unchanged from a year earlier (0.4%) and 1.9% above the five-year average. Across the combined capitals, sales were down 0.9% year-on-year but 3.7% above the historical average, while regional sales rose 3.0% over the year but remained 1.2% below average.

At the same time, the Westpac-Melbourne Institute Consumer Sentiment Index, published by the University of Melbourne, placed the national "time to buy a dwelling" index at 97.8 in August 2025 - the highest reading in four years and 37% higher than a year earlier, though still well below the long-run average of 120.

Foreign investment in Australian residential real estate remains below pre-pandemic levels. Commonwealth Treasury figures cited by KPMG Australia show that in the first quarter of FY25, 1,123 residential real estate investment proposals were approved, with a combined value of AUD 1.3 billion. Investors from China accounted for the largest share (AUD 0.4 billion), followed by Taiwan, Hong Kong, Vietnam, and Indonesia (each AUD 0.1 billion).

"While this quarterly figure provides an early snapshot, it represents only around 20% of the full-year outcomes recorded in FY22 to FY24, suggesting that foreign investment may continue to be subdued unless momentum picks up in the remaining quarters of FY25," commented KPMG, pointing to policy and regulatory headwinds likely to dampen investor sentiment.

On 16 February 2025, the Government announced that from 1 April 2025, foreign persons, including temporary residents and foreign-owned companies, would be temporarily prohibited from purchasing secondary dwellings unless exempt. The measure, running until 31 March 2027 and subject to review, is intended to ease the housing crisis by reducing competition for limited stock. Foreign investors may still purchase new dwellings to support supply.

In addition, foreign-owned residential properties left vacant for more than 183 days a year are now subject to a vacancy fee equal to twice the original application fee. Stricter compliance rules also require the timely development of foreign-owned vacant land, particularly for commercial and large-scale residential projects. These measures aim to curb land banking, improve housing availability, and support long-term stability.

Supply Highlights:

Construction Activity Rises, Yet Completion Challenges Limit New Supply

Australia continues to face significant challenges in increasing its housing supply, which has been consistently lagging behind steadily increasing demand. According to the ABS, housing construction activity remained weak throughout 2024, with 177,856 dwellings completed during the year, virtually unchanged from 2023. Completions stayed near their lowest level in over a decade and were well below the 2018 peak of nearly 220,000. Early 2025 has shown slight improvement, with new dwelling completions rising marginally by 3.70% year-on-year to 43,517 units in the first quarter.

Data Source: ABS.

The National Housing Supply and Affordability Council (NHSAC) projects that gross new housing supply will remain subdued from 2025 through early 2027, averaging around 183,000 dwellings annually. Over the five-year Housing Accord period, total output is expected to reach 938,000 dwellings, falling short of the 1.2 million target by approximately 262,000 units. The weakest target attainment rates are anticipated in the Northern Territory, Tasmania, and New South Wales.

Gross new housing supply by state and territory vs housing targets:

Nonetheless, the national housing supply outlook remains uncertain, and recent data suggests that conditions may be improving more than earlier projections indicated. Leading indicators for 2025 are positive: the ABS data shows building approvals rose 17.80% year-on-year in the first half of the year, with 96,198 dwellings approved between January and June. Similarly, new dwelling commencements increased 17.33% year-on-year to 47,645 in Q1 2025, the latest available reporting period, pointing to the possibility of upward revisions to previous forecasts.

Data Source: ABS.

At the same time, industry experts caution that increased residential approvals and commencements do not necessarily translate into completions. "While the sector is successfully initiating new projects and maintaining strong commencement activity, it's clear the industry is still battling completion timelines," said RSM Australia economist Devika Shivadekar. "This is likely influenced by ongoing supply chain and labor market dynamics affecting the industry's ability to finish projects at pace."

Rental Market:

Affordability Pressures Persist Amid Slower Price Gains

Rental inflation in Australia continues to ease, with the annual change in the rents component of the Consumer Price Index (CPI) reported by the ABS at 4.2% in June 2025, down from 7.1% observed a year prior and the peak level of 7.8% in August 2023.

Australia's rent price index:

Data Source: OECD.

The latest Quarterly Rental Review from Cotality highlights that this moderation in rent growth has occurred despite persistently low rental supply and is instead driven by softening demand. "The slowdown in rental growth continues to be driven by a tempering in demand, with the normalization of net overseas migration and a rise in average household size helping to dampen rental demand," commented Cotality Economist Kaytlin Ezzy.

Data Source: ABS.

While this easing offers some relief to tenants, rents are still rising, and affordability remains a significant concern. According to Cotality's estimates, rents have surged by 42.7% nationally over the past five years, adding almost AUD 200 (USD 128) per week to the median rent. On an annual basis, this equates to an additional AUD 10,350 (USD 6,630) in rental expenses. "Considering wages, as measured by the ABS wage price index, are up less than half this rate (15.8%) over the five years to March 2025, it's no wonder household formation trends are skewing larger as a way of spreading out the additional rental cost," added Ezzy.

In nominal terms, the median weekly rent in Q2 2025 reached AUD 663 (USD 425) nationwide, demonstrating a 1.6% quarter-on-quarter and 3.4% year-on-year growth. The national-level vacancy rate stood at 1.6%. Regionally, the highest median rent level among major cities was recorded in Sydney at AUD 792 (USD 507), and the lowest level was recorded in Hobart at AUD 580 (USD 372). Vacancy rates varied from just 0.3% in Canberra to 2.2% in Hobart.

Median weekly rent per submarket:

Both the detached housing and unit sectors saw a deceleration in rental growth in Q2, though unit rents grew slightly faster at 3.7% year-on-year, reaching AUD 631 (USD 404) per week, compared to house rents, which rose 3.3% to AUD 678 (USD 434) per week. Nationwide rental yields were reported at 3.5% for houses and 4.6% for units.

The research carried out by Global Property Guide in August 2025 showed gross rental yields for apartments in Australia at the average level of 4.92%, marginally down from 5.04% previously reported in February 2025. Regional performance varied, with the highest yields of 6.77% registered in Darwin, followed by Melbourne (5.43%) and Canberra (5.20%).

Mortgage Market:

Easing Rates Support Renewed Lending Momentum

After a prolonged cycle of sharp rate increases, followed by a year of policy stability in 2024, the Reserve Bank of Australia (RBA) began monetary policy easing in February 2025. Since then, the cash rate has been lowered three times, amounting to a cumulative reduction of 75 basis points. The most recent cut of 25 basis points in August brought the rate to 3.60%.

Australia's mortgage loan interest rates:

Data Source: The Reserve Bank of Australia.

"With underlying inflation continuing to decline back towards the midpoint of the 2-3 per cent range and labor market conditions easing slightly, as expected, the Board judged that a further easing of monetary policy was appropriate," the RBA noted in its statement on the latest policy decision. The Board also highlighted elevated uncertainty around both aggregate demand and potential supply and reaffirmed that monetary policy remains well positioned to respond decisively to international developments should they materially affect activity and inflation in Australia.

Economists from Australia's largest banks, cited by the financial platform Canstar, expect at least one additional cut in 2025. Forecasts indicate the policy rate may fall to 3.35% by the end of the year and to 3.10% by early 2026.

Data Source: RBA.

The easing cycle has begun to filter through to housing finance, with average interest rates on new housing loans edging lower. Nevertheless, they remain significantly above the pre-2022 baseline of below 3%, standing at 5.75% for owner-occupied loans and 5.94% for investment loans in June 2025. Rates on outstanding housing loans have also moderated slightly but remain high, at 5.76% for owner-occupied and 6.02% for investment housing, according to the RBA data.

Interest rates on housing loans to individuals: