Australia's Residential Property Market Analysis 2025

Affordability constraints moderate the growth of sales prices and rents in the Australian housing market amid the persistent shortfall in new development; government measures to mitigate the undersupply include restrictions for foreign investors.

This extended overview from the 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 in year-on-year terms, although the pace of growth has moderated due to affordability constraints and limited borrowing capacity. By the end of February 2025, the median dwelling value nationwide reached AUD 815,912 (USD 532,277), reflecting a 6.55% year-on-year increase, according to CoreLogic's monthly Hedonic Home Value Index. In capital cities, the combined median value rose to AUD 896,613 (USD 584,924), marking a 6.47% year-on-year growth.

Australia's house price annual change:

Price trends varied significantly across capital cities. The strongest growth was recorded in mid-sized capitals, with Perth leading at a 17.60% annual increase in median house values, followed by Adelaide at 12.07% and Brisbane at 11.03%. In contrast, Melbourne remained stable, registering a marginal year-on-year decline of 0.82%.

Median house value dynamic in state/territory capitals:

Looking ahead, home prices in Australia are expected to rise at a slower pace than previously anticipated, with only modest support from interest rate cuts. A persistent shortage of new housing, combined with a stretched price-to-income ratio following a more than 40% price increase over the past five years, is likely to keep many first-time buyers out of the market. "You have to be middle-aged and above-average earning to enter the housing market," said Johnathan McMenamin from the investment banking firm Barrenjoey, adding that home ownership in Australia remained "a luxury." Housing affordability and supply are expected to be central issues in Australia's upcoming election, with both major parties addressing voter concerns over rising property prices, rental shortages, and homeownership challenges.

A Reuters survey conducted between February 17-26 among 16 real estate analysts projected home prices to rise by 3.7% in 2025, followed by 5.0% annual increases in 2026 and 2027. Prices in the mid-sized capitals - Brisbane, Adelaide, and Perth - are forecast to grow by 5.0-8.0% this year, while Sydney and Melbourne are expected to see more modest gains of around 3.0%.

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 dwelling 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 toward 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.

The year 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 toward 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 CoreLogic and consumer price index):

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

Data Source: ABS.

Demand Highlights:

Strong Housing Demand Amid Stricter Rules on Foreign Investment

According to the latest data from the Australian Bureau of Statistics (ABS), 395,642 dwelling transfers were registered nationwide during the first nine months of 2024, marking an 8.93% increase compared to the same period in 2023. Established houses accounted for 63% of these transfers, reflecting a year-on-year growth of 7.43%, while attached dwellings, comprising the remaining 37%, recorded a more substantial increase of 11.56%.

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

In terms of regional distribution, Melbourne and Sydney reported the highest number of transfers for both established houses and attached dwellings. Darwin saw the strongest year-on-year growth, with transactions rising by 21.14% for established houses and 23.83% for attached dwellings.

Number of dwelling transfers in state/territory capitals:

Despite the increase in housing transactions, buyer sentiment remains weak. The latest Westpac-Melbourne Institute Consumer Sentiment Index, published by the University of Melbourne, places the national 'time to buy a dwelling' index at 87.8 as of February 2025 - well below the long-term average of 117. While sentiment has improved in the past six months, driven by shifting interest rate expectations, affordability challenges due to high property prices continue to dampen confidence.

At the same time, the underlying demand for housing in Australia remains strong, fueled by demographic shifts and a sustained population. With housing supply constraints persisting, these pressures are unlikely to ease in the near term, according to real estate portal Domain.

Foreign investment in Australia's residential real estate market declined in FY24, with the number of approved investment proposals falling to 5,581, representing a 15.13% year-on-year decrease in volume and a 16.46% drop in total value to AUD 6.6 billion, according to data from the Australian Government Department of Treasury. The decline was primarily driven by reduced investment from China, where the number of residential real estate investment approvals fell by 23% from FY23 to FY24, decreasing from 2,601 to 1,998. Nevertheless, China remained the largest source of approved residential real estate investments by value in FY24 (AUD 2.6 billion), followed by Hong Kong, Taiwan, Vietnam, and India, each contributing AUD 0.4 billion.

On 16 February 2025, the Government announced that, effective 1 April 2025, foreign persons -including temporary residents and foreign-owned companies - will be temporarily prohibited from purchasing secondary dwellings in Australia unless an exemption applies. The ban, set to remain in effect until 31 March 2027, will be subject to review to determine whether an extension is warranted. This measure is part of broader efforts to address the ongoing housing crisis by reducing competition for limited housing stock, which is believed to contribute to rising prices. Foreign investors will still be permitted to purchase new dwellings to support the supply of new housing.

Additionally, the government will introduce measures to curb land banking by requiring foreign investors who purchase vacant land to develop it within a reasonable timeframe. For new developments, foreign investors will be restricted to owning a maximum of 50% of the property, ensuring local buyers and investors retain a significant share. Properties owned by foreign investors that remain vacant for six months or more per year will be subject to an annual vacancy fee, aimed at discouraging speculative holding of properties that could otherwise be made available to local buyers.

Supply Highlights:

New Approvals Tick Up, But Housing Shortfall Deepens

Despite the growing demand for housing, Australia faces significant challenges in expanding its housing supply. Structural impediments - including planning, zoning, and building restrictions - along with high land development costs and infrastructure gaps, continue to drive up housing supply costs and cause prolonged delays. "Building activities are currently at their lowest in a decade, with delays and difficulties in obtaining approvals from local councils persisting, compounded by community resistance to increased density," states the latest IMF country report. Additionally, high interest rates, rising costs, and labor shortages further undermine the profitability of construction projects, even after securing development approval. This has resulted in a substantial backlog and a sluggish supply response to strong housing demand, intensifying price pressures.

Statistical data reflects this stagnation. According to the ABS, new dwelling completions reached just over 132,000 units between January and September 2024, marking a modest 1.78% year-on-year increase. A similar trend is evident in new dwelling commencements, which remained unchanged year-on-year at 125,400 units for the first nine months of the year.

Data Source: ABS.

At the current pace, Australia is already more than 15,000 homes behind schedule just three months into the National Housing Accord's target of delivering 1.2 million new homes by 2029 - equivalent to 60,000 new homes per quarter. The September quarter figures declined by 0.9% compared to the June quarter, which immediately preceded the Housing Accord period.

Among states and territories, the Northern Territory lags the most, delivering 78.6% fewer homes than required to meet its target of 571 per quarter. In contrast, Victoria is performing relatively well, falling just 0.1% short of its quarterly target of 15,316 units, according to the Property Council of Australia.

The growing shortfall has raised concerns across the housing industry, with experts warning that, at the current rate, the deficit could escalate over the next five years, worsening the nation's housing crisis. Government policy is cited as a primary factor, alongside elevated interest rates, high construction costs, and labor shortages.

Dwelling completions vs housing targets:

On the other hand, a key forward-looking indicator - the number of building approvals - appears to have bottomed out, suggesting the first signs of potential recovery. The ABS data shows that just over 170,700 units were approved in 2024, reflecting a 3.89% year-on-year increase and marking the first positive shift since 2021 following two years of significant slowdown.

"We expect building approvals are at a turning point because dwelling prices have recovered, and the underlying demand for housing remains high, driven largely by the recent spike in population. <…> Construction costs are beginning to moderate. However, this still means only a limited translation of increased approvals into actual housing completions in 2025 and 2026 due to the time lag inherent in the construction process," comments the latest report from KPMG.

Data Source: ABS.

Rental Market:

Recent Boom Well Past Peak, Affordability Drags Rental Growth

In line with expert projections voiced earlier in 2024, rental inflation in Australia continued to slow in the second half of the year, the annual change in the rents component of the Consumer Price Index (CPI) most recently reported by the ABS at 5.8% in January 2025, down from 7.4% observed a year prior and the peak level of 7.8% in August 2023.

The same trend was outlined in the latest Quarterly Rental Review from CoreLogic, which pointed out that while the pace of growth in median rents remains high relative to the pre-pandemic decade average (2.0%), the national rental market has well and truly passed the peak of the recent rental boom.

According to CoreLogic, affordability is the main driver behind the ongoing slowdown in rental growth, with renters spending approximately 33% of annual pre-tax income to service the median rent as of September 2024 －the highest portion since the company started tracking rental affordability in 2006.

"[The drop in affordability] has potentially seen some prospective renters delay their decision to leave the family home, while others have looked to form larger share households as a way of distributing the additional rental burden, unwinding the previous shrinking in the average household size that was apparent through the early stages of COVID," said CoreLogic economist Kaytlin Ezzy.

Data Source: ABS.

Apart from affordability issues, the market has also been affected by shifts in the demand-supply balance, impacting vacancy rates across the country. On the one hand, the easing of net overseas migration contributes to softer rental demand, and on the other hand, the surge in the value of new investor lending suggests a potential increase in available rental stock. "Together, these factors have supported an easing in vacancy rates over the year, from a low of 1.4% in November 2023 to 1.9% at the end of 2024," Ezzy commented.

In nominal terms, the median weekly rent in Q4 2024 reached AUD 643 (USD 419) nationwide, demonstrating a 0.4% quarter-on-quarter and 4.8% year-on-year growth. The national-level vacancy rate stood at 1.9%. Regionally, the highest median rent level among major cities was recorded in Sydney at AUD 773 (USD 504), and the lowest level was recorded in Hobart at AUD 554 (USD 361). Vacancy rates varied from 1.1% in Adelaide to 2.8% in Darwin.

Median weekly rent per submarket:

Overall, according to CoreLogic, house rents in Australia are now rising faster than unit rents, reflecting lower levels of overseas migration and a trend towards larger households, which skew rental growth in favor of the low-density sector. At the same time, the company's latest reporting sees nationwide rental yields for houses (3.5%) below those for units (4.5%).

The research carried out by the Global Property Guide in February 2025 showed gross rental yields for apartments in Australia average 5.04%, marginally up from 4.98% previously reported in September 2024. Regional performance varied, with the highest yields of 6.86% registered in Darwin, followed by Melbourne (5.60%) and Perth (5.27%).

Mortgage Market:

First Cut in Policy Rate, Surge in New Lending Driven by Investors

After a series of consecutive hikes starting mid-2022, the cash rate target of the Reserve Bank of Australia (RBA) was maintained at the 4.35% mark between November 2023 and January 2025. The first cut signaling the start of monetary policy relaxation was announced by the central bank in February 2025, bringing the cash rate down 25 b.p. to the current standing of 4.10%. At the same time, the overall stance of the regulator remains cautious, with no further moves indicated yet.

Australia's mortgage loan interest rates:

"The Board's assessment is that monetary policy has been restrictive and will remain so after this reduction in the cash rate. Some of the upside risks to inflation appear to have eased, and there are signs that disinflation might be occurring a little more quickly than earlier expected. There are, nevertheless, risks on both sides. <…> If monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range. In removing a little of the policy restrictiveness in its decision today, the Board acknowledges that progress has been made but is cautious about the outlook," said the RBA in a statement on the latest policy decision.

Economists from Australia's largest banks, cited by the financial platform Canstar, anticipate at least one more cut to follow in 2025, with some experts predicting a cut per quarter, with the policy rate reaching 3.35% by the end of the year.

Data Source: RBA.

This very recent shift in the policy rate trend has not yet fully reflected in the average interest rates on new housing loans in the country, which most recently registered at 6.22% for owner-occupied housing and at 6.45% for investment housing in December 2024 - both only marginally down from same period in 2023 and still significantly above the pre-2022 baseline of below 3%. The average interest rates on outstanding housing loans also remain elevated at 6.13% for owner-occupied housing and 6.49% for investment housing, according to the RBA data.

Interest rates on housing loans to individuals:

Despite the elevated interest rates, residential lending activity in Australia picked up after a slowdown in 2023. The ABS reported AUD 330.7 billion (USD 218.2 billion) in new housing loans (excluding refinancing) committed in 2024, which is 19.2% above the 2023 level. The growth was more pronounced in the investor segment (29.8% year-on-year) than in the owner-occupied segment (13.6% year-on-year), with new lending in this segment still below the comparable level two years prior.

The surge in new lending is seen to be mainly driven by first-home buyers and investors eager to enter the market. "Fear of missing out as house prices rise is driving first home buyers to take the plunge," said Canstar finance expert Steve Mickenbecker, quoted by the mortgage and finance news outlet Australian Broker. "Rising house prices and an expectation of lower interest rates are encouraging investors into the market in gold rush proportions," he added.

Loans for investment properties make up 37.8% of the total amount of new lending committed in 2024, and the remaining 62.2% are loans for owner-occupied properties. In both segments, the dominating borrowing purpose is the purchase of existing dwellings (80.9% of investment loans and 83.7% of owner-occupied loans), followed by the construction of dwellings, new dwellings, residential land, and alterations and repairs.

During 2024, 3,244 new housing loans for AUD 2.5 billion (USD 1.6 billion) were committed to non-residents, according to the ABS data.

Note: Pure new loans, excluding refinancing.
Data Source: ABS.

According to the 2021 Census data, 35% of Australian households own their residences with a mortgage. The average loan size for the owner-occupied dwelling was most recently reported by the ABS at AUD 666 thousand (USD 434 thousand) nationwide, with the highest average level among the states recorded in New South Wales at AUD 811 thousand (USD 529 thousand).

The total value of outstanding housing loans in Australia demonstrated moderate 4.7% and 4.6% annual growth in 2023-24 and 2022-23, respectively (compared to 8.2% in 2021-22 and 5.5% in 2020-21) and reached AUD 2.4 trillion (USD 1.5 trillion) in January 2025. Represented as a percentage of GDP, outstanding housing loans dropped from over 93% in 2020-21 to about 90% in 2021-22 and currently 86.3% in 2023-24. Of the total outstanding amount, 67.9% is made up of loans on owner-occupied housing and 32.1% by loans on investment housing.

Note: Credit stock vs Annual GDP in current prices, reporting for financial years ending in June.
Data Source: RBA, ABS.

Socio-Economic Context:

Moderating Growth and Slowed Disinflation

Over the last year, Australia's economy slowed down further, but the real GDP growth remained in the positive territory, moderating from 3.9% in 2022 to 2.0% in 2023 and 1.2% in 2024, according to the International Monetary Fund (IMF). According to the IMF 2024 Article IV staff report, the dynamic was underpinned by weaker private consumption growth (with high inflation eroding real wages), while public demand buoyed economic activity. In 2025, the growth is projected to pick up, reaching 2.1%, as the expansionary State and Commonwealth 2024-2025 budgets are expected to fuel strong public demand in addition to supporting consumption through transfers and tax cuts. Private demand is also expected to benefit from gradual monetary policy easing and a rebound in dwelling construction after the resolution of bottlenecks.

Consumer Price Index (CPI) inflation in the country continued to moderate from a peak of 6.6% in 2022 to 5.6% in 2023 and 3.3% in 2024, most recently reported by the ABS at 2.5% in January 2025. At the same time, the IMF analysis points out that the underlying price pressures persist, especially in non-tradable sectors, notably insurance, education, health, and housing. Inflation is anticipated to return to the RBA's target range only by the end of 2025, while a potential stall in disinflation poses a significant risk to the macroeconomic outlook.

Data Source: IMF.

Australia's labor market has demonstrated remarkable resilience during the monetary tightening cycle, easing only gradually amid strong job creation. The nationwide seasonally adjusted unemployment rate was most recently reported by the ABS at 4.1% － still well below pre-pandemic levels and around the historical lows. The indicator is projected to rise gradually in the upcoming periods before stabilizing at around 4.5%.

According to the IMF, labor supply in the country continues to be bolstered by migration inflows and record-high labor force participation, while vacancies have continued to decline.

At the same time, overseas migration, as reported by the ABS, has eased significantly in the financial year 2023-2024, with migrant arrivals dropping by 10% while migrant departures increased by 8% year-on-year. Net overseas migration reached 446 thousand people, down from a record 536 thousand registered a year prior. Among the top countries of birth for overseas migrants were India, China, the United Kingdom, and New Zealand. 

Data Source: ABS.

Overall, the Australian authorities and the IMF staff view the country's economy as being on a narrow path toward a soft landing, whereby inflation returns to target without a sharp rise in unemployment. However, the timing of the pick-up in household spending and the extent to which tax cuts will be spent or saved to rebuild buffers and reduce interest costs remain uncertain.

External risks to the outlook include weakness in major trading partners, geoeconomic fragmentation affecting global trade, as well as rising shipping costs and volatile energy and food prices amid escalating geopolitical tensions, which could also complicate the disinflation process.

In November 2024, Fitch Ratings affirmed Australia's "AAA" standing with a stable outlook, noting its strong institutions, high income per capita, and sound medium-term GDP growth outlook, with gradual economic rebound anticipated in 2025 and 2026.

Sources:

1. Australian Bureau of Statistics (ABS)
   1. Total Value of Dwellings: https://www.abs.gov.au/
   2. Building Approvals: https://www.abs.gov.au/
   3. Building Activity: https://www.abs.gov.au/
   4. Australian National Accounts: https://www.abs.gov.au/
   5. Government Finance Statistics, Australia: https://www.abs.gov.au/
   6. Lending Indicators: https://www.abs.gov.au/
   7. Housing: Census: https://www.abs.gov.au/
   8. Monthly Consumer Price Index Indicator: https://www.abs.gov.au/
   9. Labour Force: https://www.abs.gov.au/
   10. Overseas Migration: https://www.abs.gov.au/
2. Reserve Bank of Australia (RBA)
   1. Cash Rate Target: https://www.rba.gov.au/
   2. Lenders' Interest Rates: https://www.rba.gov.au/
   3. Financial Aggregates: https://www.rba.gov.au/
   4. Economic and Financial Statistics: https://www.rba.gov.au/
   5. Statement by the Reserve Bank Board: Monetary Policy Decision: https://www.rba.gov.au/
   6. Measures of Consumer Price Inflation: https://www.rba.gov.au/
   7. Exchange Rates: https://www.rba.gov.au/
3. Australian Government Department of Treasury
   1. Quarterly Report on Foreign Investment, 1 July to 30 September: https://foreigninvestment.gov.au/
   2. Albanese Government Clamping Down On Foreign Purchase Of Established Homes And Land Banking: https://ministers.treasury.gov.au/
   3. Delivering the National Housing Accord: https://treasury.gov.au/
4. International Monetary Fund (IMF)
   1. Country Overview: Australia: https://www.imf.org/
   2. 2024 Article IV Staff Report: https://www.imf.org/
5. CoreLogic
   1. National Rental Market Passes Peak of the Recent Rental Boom: https://www.corelogic.com.au/
   2. Hedonic Home Value Index: https://www.corelogic.com.au/
6. Property Council of Australia
   1. 15,000 Homes Behind Just Three Months Into National Housing Target: https://www.propertycouncil.com.au/
7. KPMG Australia
   1. Australia Economic Outlook Q4 2024: https://kpmg.com/
   2. Residential Property Market Outlook, January 2025: https://assets.kpmg.com/
8. University of Melbourne
   1. Westpac-Mi Consumer Sentiment Bulletin: https://library.westpaciq.com.au/
9. Fitch Ratings
   1. Fitch Affirms Australia at 'AAA'; Outlook Stable: https://www.fitchratings.com/
10. Domain Research
    1. Domain Forecast Report Financial Year 2025: https://www.domain.com.au/
11. Canstar
    1. Interest Rate Forecast and Predictions for 2025: https://www.canstar.com.au/
12. Reuters
    1. Aussie Home Prices to Rise Only Modestly This Year as Affordability Bites - Reuters Poll: https://www.reuters.com/
13. Rent.com.au
    1. January 2025 Rental Market Snapshot: https://www.rent.com.au/
14. Australian Broker
    1. Home Loan Market Surges: https://www.brokernews.com.au/
15. Business Standard
    1. Australia to Ban Foreign Investors from Buying Existing Homes for Two Years: https://www.business-standard.com/
16. Realestate.com.au
    1. Australia Home Building Targets…: https://www.realestate.com.au/