Supply pressures and shipping disruption may worsen affordability despite slower price growth
Australia’s housing market is losing momentum, with monthly gains easing and Sydney among the capitals showing early price declines as higher interest rates and global uncertainty temper buyer confidence.
Yet the softer headline numbers are not translating into improved affordability, according to one economist, who argues that the forces shaping the cost of housing are moving the other way — particularly the expense and risk of delivering new supply.
“The core issue remains supply, and more specifically, the rising cost of building new homes,” said Nerida Conisbee (pictured top), chief economist at real estate agency Ray White. “Over recent years, construction costs have been pushed higher by a combination of labour shortages and supply chain disruptions.”
Construction costs rose sharply through 2022 and 2023, driven by scarce trades and elevated materials pricing. Although growth moderated for a period, Conisbee said costs did not return to typical levels and have since accelerated again, with labour shortages still the primary driver.
The economist also warned that cost pressures are broadening again beyond domestic labour constraints. She said renewed supply chain stress may add a second inflationary layer for building, citing higher fuel costs and disruption to shipping routes linked to conflict in the Middle East, with flow-on effects for materials and delivery costs in coming months.
In the established market, the latest price readings still point to strength in many regions even as momentum cools. Annual growth remains solid across much of the country, Conisbee noted, with Perth and Darwin leading and Brisbane, Adelaide and several regional markets still recording double-digit yearly rises. Where prices have begun to fall, she said the declines have so far been limited and concentrated in areas more sensitive to interest rate settings.
The unit sector, she argued, underscores the supply constraint. Apartment prices have held up better than detached housing in many areas, supported by affordability pressures and first-home buyer incentives, while new apartment construction has remained limited. The result is less relief from the segment that typically absorbs demand when house prices and borrowing costs rise.
Conisbee said the current cooling should be understood as a cyclical slowdown in demand occurring against a structural shortage. Higher rates may reduce activity at the margin — visible in softer price growth and weaker inspection attendance — but demand has not disappeared, and population growth continues to add to housing needs while existing stock remains constrained.
“As a result, affordability is not improving,” Conisbee said. “It is likely to worsen.”
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