Australia’s Housing Market Continues to Split Into Two Speeds

Australia’s Housing Market Continues to Split Into Two Speeds

Over the past twelve months, we’ve observed a significant increase in home values across the country. However, this growth isn’t uniform across all locations; we’re currently experiencing a two-speed national market. While many smaller capital cities are seeing prices rise quickly, the pace in Australia’s largest metropolitan areas is starting to level out, leaving the national median dwelling value at a record high.

It is helpful to think of the current landscape as a collection of markets within markets. We have seen exceptional annual growth in Perth, Brisbane and Adelaide, fueled largely by a shortage of available listings and a steady stream of interstate migration. In contrast, the Sydney and Melbourne markets are cooling slightly, with monthly median values softening as more homes become available and buyers work with tighter budgets.

Interestingly, the affordable housing segment is currently outperforming the luxury sector. High borrowing costs have funneled demand from first home-buyers and investors into entry-level properties. This concentration of activity maintains price floors at the lower end of the market, even as the premium sector begins to lose steam.

Global geopolitical tensions, particularly in the Middle East, are also influencing domestic consumer sentiment. Rising fuel costs are impacting construction logistics and keeping inflationary pressures high. Consequently, there is an increasing expectation that the Reserve Bank of Australia will maintain elevated interest rates for a more extended period than previously forecast.
The five-year performance of Perth and Brisbane has been nothing short of extraordinary. Since 2021, Perth values have soared, supported by a robust resources sector, while Brisbane has seen massive growth driven by high migration and major infrastructure projects tied to the upcoming Olympics.

The regulatory and economic environment is tough, particularly for investors. The Victorian Government has imposed a heavy tax burden and significant tenancy reforms, making investing in Victoria a much less attractive proposition. This includes the COVID Debt Repayment Plan, the lowering of the land tax threshold, surcharge payroll tax, vacant residential land tax, windfall gains tax and the emergency services levy. With Victoria’s property taxes accounting for roughly 50 per cent of all state tax revenue and dampening consumer and investor confidence, investors are selling properties to the owner-occupier market, which removes rental stock and is placing pressure on rental supply.

Government initiatives like the five per cent deposit scheme have provided a clear boost to the more affordable end of the market. Following policy updates in late 2025, eligible properties saw a sharp price increase in just six months, significantly outperforming homes that didn’t qualify for the program. While this has certainly helped first home-buyers get a foot in the door, it has also led to much stiffer competition for entry-level properties.

Regional markets are also showing plenty of resilience, with values recently outgrowing the combined capital cities. Regional Western Australia, Queensland and South Australia remain particularly popular with investors looking for better rental returns and more affordable entry points.

With several cities hitting record highs, it is natural to wonder if we have reached a market peak. While the rapid growth may be tapering off, current valuations are underpinned by a genuine shortage of housing, with some regions seeing significantly fewer homes for sale compared to last year.

Notwithstanding the headwinds, we anticipate some moderate growth across the capital cities throughout 2026. Barring a significant rise in unemployment or further interest rate hikes, the Australian property market appears well-positioned to maintain its current stability.