Understanding the Real State of Australia’s Property Market
Australia’s property market is never far from the headlines, and in 2025, it’s once again a focal point of debate among buyers, sellers, and policymakers. While some analysts warn of affordability constraints and possible downturns, others highlight structural undersupply and the impact of falling interest rates as reasons for continued growth.
The truth, as always, lies somewhere in between. Our housing market is not broken, but it is deeply complex. To understand where we stand today, it helps to look beyond the noise and focus on the data. Seven key charts released by Dr Shane Oliver, Chief Economist at AMP, shed light on what is really driving Australia’s housing trends right now.
1. The Property Cycle Is Turning Up Again
After a brief slowdown earlier in the year, the property cycle has shifted upward. CoreLogic reported that national home values rose by 0.6% in June 2025, marking the fifth straight month of positive growth following a dip in late 2024.
Importantly, this is not just confined to the strongholds of Brisbane, Adelaide, and Perth. Previously lagging markets such as Melbourne, Hobart, Canberra, and Darwin have now joined the upswing. This broad-based recovery signals a genuine shift in the cycle, rather than a one-off spike.
For investors and homeowners alike, this turning point matters. Property cycles typically create opportunities for those who act strategically rather than emotionally.
2. Interest Rates Remain a Major Driver
It’s no secret that interest rates are a powerful force in the Australian housing market. When rates fall, borrowing power increases, and demand rises.
The Reserve Bank of Australia (RBA) began easing rates in mid-2025, with reductions in August and November, and more expected in early 2026 if labour market conditions soften further. Historically, in five out of the last seven RBA rate-cutting cycles since 1982, home values have climbed in the 12–18 months that followed, provided the economy avoided a recession.
We are already seeing this play out in 2025, with buyer sentiment improving. Lower rates are fuelling competition, especially in well-located suburbs. However, the benefits are uneven. The type of property, its location, and broader affordability pressures all influence how much a rate cut will help.
3. The Undersupply of Housing Is the Elephant in the Room
For years, debates about housing affordability have focused on investors, taxation, and speculation. Yet the fundamental issue is supply. Australia simply does not have enough homes.
Since the mid-2000s, population growth has surged, largely through migration, but housing completions have not kept pace. Estimates suggest a shortfall of 200,000–300,000 dwellings nationwide.
This shortage is the structural driver of long-term price growth. When more people need housing than there are homes available, values inevitably rise. Addressing this imbalance is one of the greatest challenges facing policymakers, and without significant reform, undersupply will continue to support higher prices.
4. Home Building Times Are Blowing Out
Building more homes sounds simple, but in practice, the process has become slower and more expensive.
Over the past decade, average house construction times have risen by 57%, and apartment completion times have blown out by 65%. Factors include planning delays, higher material costs, and shortages of skilled labour.
Governments have pledged to accelerate construction through the National Housing Accord, with a goal of building 1.2 million new homes over five years. However, meeting that target will require serious reform. Faster approval systems, innovative construction methods, and greater use of alternative materials such as timber could help reduce costs and timelines.
Without these changes, undersupply will persist, prolonging affordability challenges.
5. Property Is Expensive, but That’s Only Part of the Story
There is no denying that Australian property is expensive by international standards.
Today, it takes the average household close to a decade to save a 20% deposit for a home, compared to just four years in the 1980s. Price-to-income ratios and house price-to-rent ratios are both well above long-term averages, creating real challenges for first-home buyers.
But high prices don’t necessarily signal an imminent crash. Instead, they highlight vulnerabilities in the system. With households already carrying high levels of debt, any rise in unemployment could trigger mortgage stress.
For investors, the takeaway is caution rather than panic. Strong equity positions and cash flow buffers are essential. Buying the right asset, rather than simply chasing short-term growth, remains the most sustainable approach.
6. It’s Not One Market, It’s Many
Talking about “the Australian property market” is misleading. What we really have are hundreds of localised markets, each influenced by its own economic and demographic conditions.
Dr Oliver’s research shows clear differences in valuation across sectors. Houses appear to be around 30% overvalued on a price-to-rent basis, while units are only about 1% overvalued. This suggests that, in relative terms, apartments may offer better value in the current cycle.
Geographically, Perth and Melbourne are now among the least overvalued capitals, particularly in the unit sector. For investors, these differences present an opportunity. Success does not depend on waiting for the “national market” to rise; it depends on choosing the right city and the right property type.
7. Mortgage Arrears Remain Low
Despite ongoing talk of mortgage stress, the actual data show that arrears remain very low, below 1% on average. Even for borrowers with high loan-to-value ratios or debt-to-income levels, arrears rates remain contained.
The savings buffers built up during the COVID-19 pandemic
Prudent lending standards have been introduced over the past decade
Unless we see a sharp deterioration in the job market, a widespread wave of forced sales is unlikely. That stability should help maintain confidence in the housing market even as affordability remains stretched.
Where to From Here?
Based on current settings, Dr Oliver’s base case is that national property values will rise by 5–6% in 2025. The combination of falling interest rates and a persistent supply shortage will underpin growth, but affordability constraints will cap the upside.
Risks remain in both directions. If unemployment rises or the RBA delays further rate cuts, growth could stall. On the other hand, another wave of buyer competition, driven by easier lending and fear of missing out, could push prices higher than expected.
What is clear is that strategy matters more than speculation. For homeowners and investors alike, the focus should be on:
Choosing quality locations with strong long-term fundamentals
Avoiding overleveraging, especially in high-debt environments
Considering value opportunities in less overvalued markets, such as units in certain capitals
Australia’s property market is not cheap, but nor is it on the verge of collapse. With thoughtful planning, there are still opportunities for growth and wealth creation.
The Australian housing market in 2025 is shaped by a mix of cyclical and structural forces. Interest rates are easing, demand continues to outpace supply, and affordability challenges persist. Yet, despite these tensions, arrears remain low, and the overall system has shown remarkable resilience.
For buyers and investors, the lesson is clear: focus on fundamentals, look for value in less overheated markets, and prepare for both risks and opportunities.
Contact Monopoly Wealth
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