Australia’s housing shortage is driving price growth into 2026, with new KPMG forecasts tipping a nationwide surge despite interest rate uncertainty.
House prices are forecast to surge again in 2026 after a late-2025 demand shock caught forecasters off guard, intensifying competition at the affordable end of the market.
For buyers, it means tight conditions are likely to persist even as uncertainty hangs over where interest rates are heading.
New projections from KPMG suggest national house prices will rise 7.7 per cent this year, with growth expected across every capital city despite borrowing constraints and affordability pressures.
RELATED: Celeb suburbs explode as A-listers take over
How Melb Vixens star built property wealth
Beetlejuice star Eddie Perfect sells Peninsula retreat
KPMG chief economist Dr Brendan Rynne said the strength of the housing market in the second half of 2025 surprised forecasters, with government policy playing a bigger role in accelerating demand than anticipated.
The expansion of the five per cent deposit scheme last year turbocharged activity at the lower end of the market, pushing more buyers into competition in cities where housing supply was already tight.
In Brisbane and Perth, around two-thirds of annual price growth occurred in the second half of the year, while close to three-quarters of Hobart and Canberra’s gains were concentrated in the same period.
Housing Industry Association chief economist Tim Reardon warns taxes and charges on new housing are choking supply and worsening Australia’s housing shortage. Picture: Tertius Pickard
Renovation and build costs remain elevated after Covid, with labour shortages and higher material prices keeping pressure on new housing supply. Picture: Getty Images
“The strong momentum in the first half of 2025 should have moderated as affordability pressures continued to spook buyers,” Dr Rynne said.
“But instead, the second half of last year accelerated growth further, especially in already overheated cities.”
Dr Rynne said Australia’s housing problem was not cyclical but structural, driven by decades of underbuilding, particularly in the apartment sector.
“Massively undersupplied, and not as a recent phenomenon, but as the result of decades of compounding structural shortfalls,” he said.
That imbalance has been compounded by construction costs that surged during the pandemic and never returned to pre-COVID levels.
While supply chains have stabilised, build prices have reset at a higher baseline, leaving many projects marginal or unviable.
“What followed was slower growth, but not deflation,” Dr Rynne said.
Labour shortages remain a key constraint, with construction wages under pressure from competition with major infrastructure and energy projects.
“Those skills are highly transferable, and we simply don’t have enough qualified tradespeople to materially ease cost pressures,” Dr Rynne said.
Mortgage Choice broker Rhys Elmi says buyer and investor behaviour is shifting as lifestyle markets and working from home reshape demand.
Mortgage Choice broker Rhys Elmi said investors were increasingly targeting coastal and lifestyle markets, reflecting population shifts and the persistence of working from home.
“The idea of having a holiday house and being able to work from it has really stuck,” Mr Elmi said.
“Experienced investors focus on long-term trends, and if working from home is here to stay, I don’t think we’ll see that demand pattern reverse in a big way.”
Mr Elmi said interest rates were now having a greater psychological impact on buyers than a purely mathematical one.
“One rate rise will have a negative impact, particularly from a borrowing perspective,” he said.
“It creates hesitation. It might not hit every part of the market equally, but it can cause a standstill.”
Industry groups warn that even as demand accelerates, housing supply is being choked by taxation and government-imposed costs that fall most heavily on new construction.
The Housing Industry Association has urged the federal government to rule out further changes to negative gearing and capital gains tax, warning that policy instability risks discouraging the investment needed to deliver new homes.
HIA chief economist Tim Reardon says investors play a critical role in delivering new homes, warning reduced investor participation would tighten rental markets further. Picture: Leighton Smith.
HIA chief economist Tim Reardon said housing was already one of the most heavily taxed sectors in the Australian economy, with charges applied at every stage of the housing lifecycle.
“The worst own goal in housing tax policy has been the taxes imposed on foreign institutions, particularly foreign banks, that build apartment complexes,” Mr Reardon said.
“They’ve raised very little revenue, but they’ve stopped an enormous volume of homes from being built.”
Mr Reardon said cascading fees, infrastructure charges and taxes imposed on land supply had driven land prices to rise at roughly three times the rate of construction costs over the past 25 years.
Those costs are then compounded by stamp duty and GST, further undermining project feasibility.
HIA estimates around $570,000 in taxes, fees and charges are embedded in the cost of a typical new house-and-land package.
Investors commence more than 40 per cent of new homes nationally, and a far higher share of apartments.
“We’re now commencing around half the number of apartments we were building a decade ago,” Mr Reardon said.
“When you discourage investors, you don’t free up housing, you stop it being built.”
Mr Reardon warned renters would ultimately pay the highest price if investor participation in new construction fell further.
“Renters would pay the highest price,” he said.
“The goal should be a minimum three per cent rental vacancy rate, and we only get there by reducing the upfront tax burden on new housing, not increasing it.”
By the numbers
KPMG’s forecasts show price growth will remain uneven across the capitals in 2026, with the strongest gains concentrated in markets where population growth and supply constraints are most acute.
Perth is expected to be the standout performer, with house prices forecast to rise 12.8 per cent in 2026, followed by Brisbane (10.9 per cent) and Darwin (10.5 per cent). Adelaide is tipped to record growth of 8.2 per cent, while Melbourne (6.8 per cent), Sydney (5.8 per cent), Hobart (5.4 per cent) and Canberra (4.7 per cent) are forecast to see more moderate gains.
KPMG forecasts show house and unit price growth across Australian capital cities in 2026, with Perth, Brisbane and Darwin leading gains.
Unit prices are projected to rise at similar or faster rates than houses in several cities, led by Darwin (13.4 per cent) and Perth (11.6 per cent).
Melbourne units are forecast to increase 7.3 per cent, Brisbane 7.8 per cent, Adelaide 6.6 per cent, Sydney 5.3 per cent, Hobart 5.1 per cent and Canberra 4.9 per cent, as affordability pressures continue to push buyers toward apartments.
Rents are forecast to rise by around 3.5 per cent a year through 2026 and 2027, remaining above the long-run average as housing supply continues to lag population growth.
KPMG said rental conditions would remain tight until dwelling construction materially lifted, warning that population growth over recent years had far outpaced the delivery of new homes, particularly in the apartment sector.
Without a sustained increase in new supply, the consultancy said rental growth was likely to remain elevated relative to wages, prolonging affordability pressures for tenants and reinforcing the structural challenges facing the housing market nationally.
Sign up to the Herald Sun Weekly Real Estate Update. Click here to get the latest Victorian property market news delivered direct to your inbox.
How Melb Vixens star built property wealth
david.bonaddio@news.com.au
English (US) · 