Australian homeowners and prospective buyers are bracing for another year of property price growth, with economists forecasting a minimum 5% increase in residential values over the next 12 months. This follows a significant national upswing of 8.6% in 2025, marking the largest annual rise since 2021 and intensifying the nation's housing affordability crisis.
Capital Cities Lead the Charge
Data from property analytics firm Cotality reveals that every single state and territory capital city recorded price increases last year. The gains were far from uniform, with Darwin leading the pack with a dramatic 18.9% surge. Perth followed closely with a 15.9% rise, and Brisbane values climbed by 14.5%.
Sydney, Australia's most expensive property market, experienced a more moderate increase of 5.8%, yet its median dwelling value now sits above $1.28 million. Despite the strong annual result, the pace of growth showed signs of slowing towards the end of 2025 as market conditions shifted.
Market Forces: Demand, Supply, and Interest Rates
Most property analysts anticipate continued national price growth in 2026, primarily driven by demand persistently outstripping supply. However, they warn that severe affordability constraints and the potential for interest rate hikes will likely cap the gains.
Tim Lawless, Cotality's Research Director, noted that market momentum has cooled. "A 'higher for longer' setting on interest rates, alongside a resurgence in cost-of-living pressures and worsening affordability pressures, looks to have taken some heat out of the market," Lawless stated. He added, however, that a significant supply response is unlikely in 2026, which should help prevent a major slowdown in price growth.
The interest rate outlook is a key uncertainty. Two of the four major retail banks expect the Reserve Bank of Australia (RBA) to hike rates at its first meeting in February 2026, with none currently forecasting further cuts. Forecasts for 2026 price growth vary:
- SQM Research predicts capital city price rises of 6% to 10%, led by double-digit gains in Perth, Brisbane, Adelaide, and Darwin.
- Shane Oliver, AMP's Chief Economist, expects more modest growth in the 5% to 7% range.
The Deepening Generational Divide
The relentless climb in property values is cementing a stark generational gap, pushing home ownership increasingly out of reach for younger Australians. Analysis by financial comparison site Finder highlights the dramatic shift:
- Just over 40 years ago, the average home cost 3.3 times annual income.
- Today, that ratio has ballooned to more than 10 times annual income.
- The price of an average city home has soared from around $64,000 to almost $1 million in that period.
Taylor Blackburn, Finder's personal finance spokesperson, contrasted the eras. "For previous generations, home ownership was achievable with steady work and discipline. Today, Aussies face more years of saving, higher deposits and larger debt, all while pay packets haven't really kept up."
The pressure is compounded in the rental market, where national rents increased by 5.2% in 2025, averaging 7.4% annual growth over the past five years. With property price increases consistently outpacing wage growth, the ability for younger adults to purchase a home is now often determined more by parental wealth than their own income.
A Look at the Long-Term Trend
The current cycle is part of an extreme longer-term boom. Over the past five years, national property values have soared by 46.8%, with Perth and Brisbane skyrocketing by 89% and 86.7% respectively. This surge occurred amid relatively low borrowing costs and chronic supply shortages.
Investor activity has also played a major role, fuelled by tax policies like negative gearing and capital gains discounts. 2025 saw an explosion in lending to investors, which increased competition and kept many would-be owner-occupiers in the rental market. As 2026 begins, the fundamental imbalance between housing demand and supply continues to underpin the Australian property market, promising further challenges for affordability and access.
