KPMG Residential Property Market Outlook

Domestic inflation and renewed inflationary pressures contributed to three consecutive cash rate increases, while 2026–27 Federal Budget changes to capital gains and negative gearing weakened investor sentiment. Together, these factors reduced borrowing capacity and buyer confidence, resulting in a softer housing market.

Rental conditions continue to support housing demand, despite easing population growth and migration. National vacancy rates remain low at 1.2%, while rents increased 3.6% over the year to June 2026. Rental affordability has deteriorated significantly, with households now spending around 33% of median income on rent compared with 27% in 2021. Supply shortages are expected to keep rent growth above its long‑term average through the remainder of 2026.

Housing approvals, particularly for higher‑density developments, are showing signs of improvement. However, dwelling completions remain well below the levels required to meaningfully reduce Australia’s housing shortfall. KPMG forecasts suggest new housing supply will continue to fall materially short of National Housing Accord targets, with the structural imbalance between housing demand and supply expected to persist without further policy intervention.

While housing approvals increased over the past year, the pace of growth has begun to flatten and dwelling completions continue to lag. At the same time, construction cost growth has accelerated to a six-quarter high, driven by labour shortages, higher material prices and ongoing supply chain pressures. Higher interest rates and elevated development costs are expected to continue constraining new supply.