Home prices in Australia are expected to rise again in 2026 following an unexpected demand shock that emerged at the end of 2025, which disrupted forecasts and intensified competition for affordable properties.
For buyers, conditions will remain challenging, especially as uncertainty continues over the future direction of interest rates.
According to estimates by KPMG, house prices in Australia are projected to increase by 7.7% this year, with growth recorded across all capital cities despite borrowing constraints and ongoing affordability pressures.
Dr. Brendan Rynne, the firm’s Chief Economist, explained that the strong performance of the property market in the second half of 2025 came as a surprise, with government policies playing a prominent role in pushing demand beyond expectations.
The expansion of the 5% deposit scheme last year boosted market activity in lower-priced housing segments, raising levels of demand and competition in cities already suffering from limited housing supply.
In cities such as Brisbane and Perth, most of the annual increase occurred in the second half of the year, while cities such as Hobart and Canberra achieved more than 70% of their gains during the same period.
Dr. Rynne noted that earlier forecasts had pointed to a slowdown in market activity after the first half of 2025 due to affordability pressures, but developments turned out differently, with the second half seeing stronger price growth, particularly in cities that were already experiencing high prices.
The pandemic has also significantly worsened the crisis, especially as construction costs surged during the COVID-19 period and have remained elevated. Although supply chains have partially recovered, building costs continue to hinder many projects due to weak profitability and limited economic viability.
Dr. Rynne also confirmed that growth in the residential market will continue, but at a slower pace, with no signs of a sharp downturn. He pointed out that labor shortages represent a major challenge, as large infrastructure and energy projects are putting pressure on the construction sector, driving wages higher and increasing overall building costs. The technical skills required in the sector are highly transferable, further intensifying the shortage of qualified workers.
Meanwhile, Reece Elmy, a broker at Mortgage Choice, said there is growing investor interest in coastal property markets and lifestyle-focused regions, driven by shifting population patterns and the continued adoption of remote work. He noted a rising trend among investors to purchase homes that combine personal use with remote working capabilities.
