Supply shortage underpins shaky growth in home values
Growth in Australian house values accelerated again in January, defying predictions that 2026 would be a softer year for the property market and fears of a Reserve Bank rate hike.
The average home price reached a new national record at $912,465, according to data company Cotality released in its monthly home value index on Monday.
Home values rose 0.8 percent in January; This was faster than the 0.6 percent growth recorded in December.
The real estate market showed signs of slowing in the last few months of 2025, which turned out to be a high year for price growth following three interest rate cuts.
However, Cotality research director Tim Lawless said the central bank was increasingly likely to make a quick return to interest rate hikes and the real estate rebound was not expected to be long-lasting.
“Resilience is probably the key word here, despite headwinds in the housing market,” he told AAP.
Rising expectations about borrowing costs, high inflation and record unaffordability will weaken consumer confidence, while banking regulator APRA’s efforts to clamp down on risky lending will also constrain credit growth.
“But I also think that this undersupply is the main reason why, despite all these challenges, we are still seeing housing values rise,” Mr Lawless said.
“New building supply is still a long way off, at least in terms of any level of significance.
“It is good news that we are seeing increased approvals and a rebound in startups.
“But the missing piece of the puzzle here is completions. And it looks like the construction industry still faces pretty significant feasibility challenges to complete this much-needed housing supply.”
Growth was highest in mid-tier markets; Average prices increased month-on-month by two per cent in Perth, 1.6 per cent in Brisbane and 1.2 per cent in Adelaide.
Values rose slightly in Sydney (0.2 per cent) and Melbourne (0.1 per cent) after both cities fell in December.
Governments both help and hinder affordability.
The federal government announced the first tranche of funding on Saturday as part of a pledge to build 100,000 new homes for first home buyers.
The injection of funds, mostly conditional loans to enable infrastructure and grants for government-run homebuilding programs, will help increase supply but will take time to move through the pipeline.
But demand-boosting policies have had a more direct effect in making homes more expensive.
“The extended deposit guarantee has added some fuel to the demand fire at lower price points,” Mr Lawless said.
While growth between cheaper properties and the upper end of the market already diverged due to affordability restrictions, the Albanian government’s expansion of the first home purchase scheme in October widened the gap.
Cotality analysis shows that in the December quarter, prices increased by 3.6 percent for homes below the price cap, with this rate varying by city and region, while homes priced above this increased by 2.4 percent.
One of the cities where government policies have been more successful is Canberra, and tenants and home buyers are reaping the rewards.
“Canberra’s apartment sector has seen quite a significant increase in supply over the last decade and that’s still continuing,” Mr Lawless said.
“That’s really added a lot to the amount of rental stock and housing stock in general, and you can see that in the pricing numbers.”
Canberra is the only capital city where rental vacancies are above the decade’s average, and it also experienced the lowest rent growth last year.
As well as promoting mid-rise density and targeted upgrades around new light rail infrastructure, Mr Lawless said part of the ACT’s procurement success was due to the region having no layers of local government, which helped streamline approval processes.
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