Australia’s housing market is set for another year of solid gains in 2026, with KPMG forecasting national house prices will climb 7.7% despite stretched affordability and rate uncertainty.
KPMG chief economist Brendan Rynne (pictured) said the strength of the market in the second half of 2025 “surprised forecasters”, after an acceleration in demand at the affordable end. The expansion of the federal 5% deposit scheme last year helped pull more first-home buyers and lower-budget purchasers into already tight markets.
“The strong momentum in the first half of 2025 should have moderated as affordability pressures continued to spook buyers,” Rynne said. “But instead, the second half of last year accelerated growth further, especially in already overheated cities.”
In Brisbane and Perth, around two-thirds of annual price growth occurred in the second half of 2025, while close to three-quarters of Hobart and Canberra’s gains were concentrated in the same period, The Herald Sun reported.
Rynne argued Australia’s housing pressures are being driven by deep‑seated supply shortfalls rather than a typical cycle. He described the market as “massively undersupplied, and not as a recent phenomenon, but as the result of decades of compounding structural shortfalls,” particularly in apartments.
Pandemic-era construction cost spikes have eased but not reversed, leaving build prices at a permanently higher base.
“What followed was slower growth, but not deflation,” Rynne said.
Labour shortages and competition from infrastructure and energy projects are also keeping wages elevated.
“Those skills are highly transferable, and we simply don’t have enough qualified tradespeople to materially ease cost pressures,” Rynne said.
Housing Industry Association chief economist Tim Reardon said the tax burden on new housing is further constraining supply, with levies applied at every stage from land release to settlement.
“The worst own goal in housing tax policy has been the taxes imposed on foreign institutions, particularly foreign banks, that build apartment complexes,” Reardon said. “They’ve raised very little revenue, but they’ve stopped an enormous volume of homes from being built.”
HIA estimates about $570,000 in taxes, fees, and charges are embedded in the cost of a typical new house-and-land package.
“When you discourage investors, you don’t free up housing, you stop it being built,” Reardon said, warning that “renters would pay the highest price” if investor participation falls further.
KPMG’s city-by-city forecasts show Perth out in front with house prices expected to rise 12.8% in 2026, followed by Brisbane (10.9%), Darwin (10.5%) and Adelaide (8.2%). Melbourne (6.8%), Sydney (5.8%), Hobart (5.4%), and Canberra (4.7%) are tipped for more moderate growth.
Unit markets are also expected to strengthen as buyers are pushed towards more affordable stock, with Darwin unit prices forecast to jump 13.4% and Perth 11.6%, and solid gains projected across Melbourne, Brisbane, Adelaide, Sydney, Hobart, and Canberra.
Rents are forecast to rise about 3.5% a year through 2026 and 2027, with KPMG warning that population growth has been running ahead of new dwelling completions. Without a sustained lift in construction – particularly apartments – rental conditions are expected to stay tight and affordability pressures to persist.
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