Australian Housing and Rental Markets Experience Rising Prices, Strained Affordability, and Regional Divergence

The Australian housing and rental markets are characterized by sustained price increases, record-low affordability, and significant regional variations. While national median home prices have surpassed $1 million across several capital cities, rental costs have increased at a rate more than double that of wages over the past five years. Supply shortages, demographic shifts, and government policies continue to influence market dynamics, with projections indicating further price growth in the coming years.

Australian Housing Market Overview

The Australian housing market has experienced a prolonged growth phase, with national house prices rising for 12 consecutive quarters, marking the longest uninterrupted growth cycle since 2012-2015. Over 2025, national house prices increased by 9.6 percent, or approximately $111,728, with a combined 3.9 percent rise in the December quarter. As of early 2026, the national median property price, including all dwellings, was reported at approximately $922,838 in February.

The national median house price for all capital cities has now surpassed $1 million. Six capital cities—Sydney, Melbourne, Brisbane, Adelaide, Perth, and Canberra—now have median house prices exceeding $1 million.

Combined median home unit prices for Australian capital cities increased by 3.5 percent in the December quarter and 6.8 percent annually, reaching $722,811. Economists anticipate a softer year for house price increases in 2026, particularly if further interest rate hikes occur.

Capital City Housing Trends

Market performance varied across capital cities:

• Sydney recorded the slowest house price growth among major capitals in the last three months of 2025 (2 percent quarterly, 6.4 percent annually), with its median house price approaching $1.76 million. In February 2026, Sydney's prices remained stable, although more affordable properties saw a 0.8 percent gain, driven by first-home buyers.
• Melbourne reached a new median house price record of $1,111,084 in December 2025, increasing by 2.9 percent quarterly and 7.4 percent annually. Despite this, Melbourne's property market demonstrated significantly slower growth compared to other major cities over the past five years (15.5 percent increase versus 80-90 percent in Brisbane, Adelaide, and Perth). Its median house value, at approximately $980,000, is over $600,000 less than Sydney's. Melbourne's higher rate of property construction contributes to more stable prices. In February 2026, Melbourne's prices showed minimal to no movement.
• Perth led the nation in growth at the end of 2025, with an 18.4 percent annual rise in median house prices and a 17.8 percent annual jump in home units. Perth's median house price now exceeds $1 million. In February 2026, Perth experienced a 2.3 percent price increase, attributed to low housing stock (48 percent lower than its five-year average) and high migration.
• Brisbane achieved double-digit annual increases in 2025, with a 4.5 percent climb in the December quarter and a 13.3 percent annual change, bringing its median house price to $1,171,237. In February 2026, Brisbane saw a 1.6 percent price increase, also driven by low housing stock.
• Adelaide experienced a 5 percent quarterly leap and an 11.9 percent annual increase in 2025, reaching a median of $1,094,427 (Domain data). Other reports indicated varying median sale prices for houses in metropolitan Adelaide in the December 2025 quarter, ranging from $925,000 (Valuer-General) to $983,000 (PropTrack). In February 2026, Adelaide's prices rose by 1.3 percent.
• Darwin saw house prices increase by 22.4 percent annually to a median of $690,896 in 2025.
• Canberra house prices rose 3.6 percent to nearly $1.4 million, their highest in two years. However, home unit prices saw a second consecutive quarterly decline, falling 1.3 percent to $611,466.

Regional property prices also performed well, rising by 1.1 percent over the year to February 2026, nearly twice the rate of combined capital cities.

Australian Rental Market Dynamics

The rental market has shown ongoing demand and increasing prices, with a significant number of prospective renters observed queueing for a one-bedroom apartment in Surry Hills, Sydney, listed at $885 per week. National rent prices increased by 5.2 percent over the past year, compared to 4.8 percent in the preceding year.

The national median rent reached $681 per week, marking a 42.9 percent increase since December 2020.

National rental listings were approximately 11 percent lower than a year ago during the December quarter and 17 percent below the five-year average. Vacancy rates decreased to 1.7 percent nationally, which is below the pre-COVID decade average of 3.3 percent.

Rental Price and Vacancy Variations:

• Sydney maintains the highest median dwelling rents among capital cities, averaging $817 per week. Its median house rent was $800 per week, and units $750 in December 2025. Sydney's vacancy rate rose to 1.8 percent in December 2025 from 1.4 percent in November, with 13,252 dwellings available.
• Melbourne became the cheapest capital city to rent a house at $580 per week in December 2025, experiencing a 1.7 percent decrease over the year. Conversely, unit rents in Melbourne increased from an average of $550 per week in December 2024 to $580 a year later, matching house rents. Melbourne recorded the highest vacancy rate among capital cities in December at 1.6 percent, with 10,667 vacant properties, indicating more balanced conditions.
• Hobart recorded the largest national increase in house rents at 7.1 percent over the 12 months ending December 2025 and an annual unit rent increase of 10.0 percent to January 2026. Hobart had the tightest housing market in 2025 with a rental vacancy rate of 0.3 percent, remaining at 0.4 percent in December 2025.
• Brisbane led quarterly increases in house rents (3.1 percent) and saw substantial annual unit increases (8.3 percent in 2025, 7.1 percent to January 2026). Its vacancy rate increased to 1.2 percent in December 2025 from 1.0 percent.
• Perth had a highly constrained rental market with a vacancy rate of 0.5 percent in 2025, holding steady at 0.7 percent in December 2025. Perth rents increased by an average of 6.2 percent in the 12 months ending January 2026. Western Australia recorded the most significant rental growth, with a 66 percent increase over five years to September 2025.
• Adelaide saw its vacancy rate rise marginally to 0.9 percent in December 2025.
• Darwin recorded substantial annual unit rental increases (8.6 percent in 2025, 9.0 percent to January 2026). Its vacancy rate remained steady at 1.0 percent in December 2025.
• Canberra recorded a 1.0 percent monthly decline and a 1.6 percent annual fall in rents to January 2026, with its vacancy rate increasing to 1.9 percent in December 2025.

The increase in vacancy rates in December 2025 was largely seasonal, with rental pricing data suggesting renewed upward momentum entering 2026. The national combined weekly rent averaged $684.62 in January 2026.

Affordability Challenges

Housing and rental affordability in Australia have reached record lows. Households allocated an average of 33.4 percent of their pre-tax income to rent as of September 2025, a record high. This figure is above the property management guideline of not exceeding 30 percent to mitigate housing stress. Some tenants reportedly allocate 60 to 70 percent of their income to rent.

Over the past five years, Australian rents increased by 43.9 percent nationally, while wages grew by 17.5 percent, meaning rents rose 2.5 times faster than wages. In Western Australia, rents surged by 66 percent compared to 18.5 percent wage growth over the same period, a rate over 3.5 times faster.

For prospective homeowners, affordability has also deteriorated significantly:

• Repayments on an entry-level house in capital cities average 48.9 percent of a couple's income, a 24 percent increase over five years. For units, this figure is 30.9 percent.
• The national price of entry-level houses increased by 68 percent between 2020 and 2025, rising from $408,000 to $685,000, while wages grew by approximately 22 percent.
• It takes an average of five years to save for a 20 percent deposit for a house nationally, and three years and six months for a unit deposit.
• The average age of first-time homebuyers is increasing, with the average age reported at 34.

Analysis suggests that an average couple seeking their first home cannot afford an entry-level house in any Australian city, a decline from five years ago when only Sydney was considered unaffordable.

The average full-time salary of $106,657 is insufficient to purchase a median-priced house in Australia's largest state capital cities. Only fly-in fly-out miners, with an average salary of $165,069, can reportedly afford a typical $1 million home with a 20 percent mortgage deposit independently. Melbourne's dwelling price-to-income ratio stands at around 7.1, compared to Sydney's 10, positioning it as one of the more affordable major capital cities in terms of income.

Factors Influencing Markets

Several factors contribute to the current market conditions:

• Supply Shortages: A decrease in available rental properties and tight housing supply continue to fuel price increases. KPMG projects housing supply to fall short of targets by approximately 30 percent over the next two years.
• Population Growth and Migration: High demand driven by interstate and international migration, particularly in Perth, Brisbane, and Adelaide, has intensified competition.
• Interest Rates: Three interest rate cuts in 2025 improved borrowing capacity and contributed to market momentum. However, an interest rate increase occurred in February 2026, and further hikes are anticipated mid-year or by August, which could impact affordability and potentially slow the pace of price growth.
• Government Policies: The national first-home buyers scheme, allowing a 5 percent deposit, has reduced demand for rentals as more tenants pursue property ownership and has impacted the lower end of the market, which saw over a 12 percent increase over the past year. In Victoria, state taxation changes, including increased land taxes, have reportedly led to some investors divesting properties, contributing to a lower proportion of investment in the state.
• Investor Activity: Property investor loans surged by nearly 8 percent over the past year, exceeding the 6 percent increase for owner-occupied housing. However, some investors are selling properties due to rising cost-of-living pressures, while others are reportedly returning to Victoria due to its relative affordability.
• Economic Conditions: Strong labor market conditions and solid wage growth have supported buyer activity, though wage growth has not kept pace with housing and rental price increases. Rental costs also contribute to the Consumer Price Index (CPI), impacting inflation and cash rate outlook.

Outlook and Projections

The rental market is showing signs of rebalancing, with prices flattening in some capital cities as tenants approach affordability limits. However, the rebound in advertised rents suggests that the late-2025 softening in rental growth is likely temporary, with affordability pressures expected to continue into 2026 without a sustained increase in new rental supply.

KPMG forecasts significant increases in Australian home prices by early 2028, with median prices in all major capital cities projected to exceed $1 million. National home prices are expected to rise by an average of 7.7 percent over 2026, with similar growth anticipated for 2027.

Specific city projections for early 2028 include:

• Sydney: Median house price of $1.81 million.
• Brisbane: Median house price of $1.388 million.
• Melbourne: Median house price of $1.16 million.
• Perth: Median house price of $1.2 million.
• Adelaide: Median house price of $1.08 million.
• Hobart: Median house price of $825,000.

Brisbane's real estate market is expected to remain robust, driven by positive net migration, a tight rental market, and infrastructure investments associated with the 2032 Olympics and Paralympics. While experts anticipate property prices to continue growing, the pace could slow in some cities, particularly if further interest rate hikes occur.