Australia’s housing market spent most of 2025 finding its footing. Population growth, a resilient labour market, and recovering lending activity all pointed in the right direction. Heading into 2026, though, that recovery is losing momentum. Here is where things stand.

Australia’s economy and housing market experienced a period of stabilisation and modest recovery through 2025. Population growth continued to underpin demand, labour market conditions held up, and lending activity rebounded strongly across both owner occupier and investor segments.

It was a genuine recovery, and for much of the year the trajectory felt encouraging.

Inflationary Pressures Are Re-Emerging

That recovery is now losing momentum. Global supply disruptions and escalating geopolitical tensions are placing renewed upward pressure on energy, materials, and construction costs, creating a more uncertain environment as we move through 2026.

Inflation had shown early signs of easing, but the outlook has become more complex. The risk of persistently higher inflation is increasing, which may keep interest rates elevated for longer and potentially lead to further tightening. That continues to constrain borrowing capacity and weigh on household demand.

The Residential Market Is Highly Fragmented

Not all markets are responding the same way. Perth, Brisbane, and Adelaide continue to outperform, while Sydney and Melbourne have stabilised under affordability constraints. Land values are showing the strongest growth nationally, reinforcing ongoing supply side limitations that have characterised the market for some time.

For developers and investors focused on Victoria, that context matters. Melbourne is navigating its own set of conditions within a broader national picture that is itself uneven.

Lending Has Improved But Demand Remains Defensive

Lending activity improved materially through 2025, with both owner occupiers and investors returning to the market. However, demand remains defensive, concentrated in established housing and more affordable product. Buyers are active, but they are being selective, and that selectivity is shaping where price growth is and is not occurring.

Supply Improved But Delivery Remains Constrained

Supply side conditions improved through 2025, with approvals and commencements lifting, particularly across medium density housing. Despite this, completions remained largely flat, and delivery across detached housing stayed constrained. Approvals moving in the right direction is encouraging, but it has not yet translated into a meaningful increase in stock hitting the market.

Want the Full Picture?

This article draws on findings from RPM Group’s Q4 2025 National Economic Report. Access the complete data and market forecasts in the full report.