Late-2025 demand surge sets up another year of gains, KPMG forecasts show
Australia’s housing market is expected to notch another year of strong growth in 2026, with KPMG warning that a late-2025 surge in demand has deepened competition, particularly at the lower end of the price spectrum.
The consultancy forecasts national house prices will climb 7.7% in 2026, with all capital cities recording gains despite higher borrowing costs and strained affordability.
The rebound in the second half of 2025 caught many forecasters by surprise, according to KPMG chief economist Brendan Rynne, who said government initiatives had a larger-than-expected impact on demand.
The expansion of the 5% deposit scheme in 2025 is understood to have driven more first-home buyers and lower-deposit borrowers into the market, adding extra pressure in cities where listings and new construction remain limited.
In Brisbane and Perth, roughly two-thirds of annual price growth was recorded in the second half of 2025, while about three-quarters of Hobart and Canberra’s gains were registered over the same period.
“The strong momentum in the first half of 2025 should have moderated as affordability pressures continued to spook buyers,” Rynne (pictured right) said. “But instead, the second half of last year accelerated growth further, especially in already overheated cities.”
Rynne argued that the imbalance between housing demand and supply is long-standing rather than cyclical, with a particular shortfall in apartments. “Massively undersupplied, and not as a recent phenomenon, but as the result of decades of compounding structural shortfalls,” he said.
Higher construction costs since the pandemic have added to those pressures. While global supply chains have largely stabilised, build costs have settled at a higher level, leaving many proposed projects only marginally viable or shelved altogether. “What followed was slower growth, but not deflation,” Rynne pointed out.
Labour capacity remains another constraint, with tradies being drawn to large infrastructure and energy projects, keeping building wages elevated. “Those skills are highly transferable, and we simply don’t have enough qualified tradespeople to materially ease cost pressures,” Rynne said.
Perth is projected to lead house price gains with a 12.8% rise in 2026, followed by Brisbane at 10.9% and Darwin at 10.5%. Adelaide is forecast to grow 8.2%, while Melbourne (6.8%), Sydney (5.8%), Hobart (5.4%) and Canberra (4.7%) are expected to see more moderate increases.
Unit values are forecast to grow at similar or faster rates than detached houses in a number of cities, as borrowers shift towards relatively cheaper stock. KPMG projects unit prices to rise 13.4% in Darwin and 11.6% in Perth. Forecast gains for units are 7.8% in Brisbane, 7.3% in Melbourne, 6.6% in Adelaide, 5.3% in Sydney, 5.1% in Hobart and 4.9% in Canberra.
On the rental side, KPMG expects rents to rise by about 3.5% per year through 2026 and 2027, remaining above long-run averages as dwelling completions fail to keep pace with population growth. The consultancy noted that rental markets are likely to stay tight until housing construction increases meaningfully, particularly in the apartment segment.
KPMG warned that without a sustained lift in new supply, rental growth is likely to outstrip wages, prolonging affordability pressures for tenants and reinforcing the structural nature of Australia’s housing challenges.
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