Why Are Australian House Prices Still Rising in 2025?

Australians anticipated relief. After two years of aggressive interest rate hikes and mounting affordability concerns, many expected property prices to decline in 2025. Instead, dwelling values continue climbing across most capital cities and regional centres.

This defies conventional wisdom. Interest rates remain at decade highs. Living costs pressure household budgets. Yet auctions attract multiple bidders, and properties sell above reserve prices in suburbs from Perth to Brisbane.

Understanding why Australian house prices are rising in 2025 requires examining the economic forces, demographic shifts, and market dynamics sustaining demand despite challenging conditions. This analysis reveals the factors keeping prices elevated and what they mean for your property decisions.

Economic Conditions Driving House Price Growth

Australia’s economic resilience provides the foundation for continued price growth. Multiple economic indicators support housing demand even as borrowing costs remain elevated.

1. Interest Rate Shifts and Borrowing Behaviour

The Reserve Bank of Australia maintained the cash rate at 4.35% through late 2024, but market expectations shifted dramatically in early 2025. Forward indicators suggest rate cuts may commence mid-year, potentially delivering 0.50-0.75% in reductions by December 2025.

This anticipation changed buyer behaviour. Borrowers who delayed purchases during 2023-2024’s rate-hiking cycle returned to the market. They recognized that waiting for actual cuts means competing against increased demand once rates fall. Pre-emptive purchasing drives current price pressure.

Fixed-rate mortgage products reflected this shift. Three-year fixed rates dropped from 6.5-6.8% in mid-2024 to 5.8-6.2% by January 2025 as lenders priced in expected RBA easing. This 60-70 basis point reduction improved serviceability calculations and brought marginal buyers back into qualification range.

Australian Prudential Regulation Authority data shows home loan approvals increased 8-12% in the December 2024 quarter compared to the same period in 2023. First-home buyer participation rose to 18-20% of all approvals, up from 15-16% a year earlier, enabled by government guarantee schemes and improving confidence.

2. Inflation and Wage Growth

Inflation moderated to 3.2-3.5% by late 2024, approaching the RBA’s target band after peaking above 7% in 2022. This cooling reduced pressure for additional rate hikes and opened the door for eventual cuts.

Simultaneously, wage growth strengthened. The Fair Work Commission’s annual wage review delivered a 3.75% increase to award wages in mid-2024, while enterprise agreements across sectors averaged 3.5-4.0% increases. Public sector wages rose 3-4% following budget allocations in several states.

The Australian Bureau of Statistics reported the Wage Price Index increased 3.8% year-on-year in the September 2024 quarter. This outpaced inflation for the first time since 2021, improving real purchasing power. Higher incomes support larger loan serviceability calculations, expanding the borrower pool.

Professional sectors saw stronger gains. Finance, technology, and healthcare workers—demographics most active in property markets—secured salary increases of 5-7% as skills shortages persisted. This concentrated wage growth in precisely the cohorts driving housing demand.

Combined effects: borrowers accessed larger loans despite high interest rates, offsetting some affordability decline from price increases. A household earning $150,000 in early 2024 may now qualify for $165,000-170,000, supporting higher purchase prices.

Limited Housing Supply and Construction Bottlenecks

Supply constraints represent the most critical factor in why Australian house prices are rising in 2025. Demand could soften significantly, yet undersupply prevents meaningful price corrections.

1. Slow Construction and Rising Costs

Australia completed approximately 165,000 dwellings in 2024—far below the 200,000+ annually required to match population growth. Building approvals tell a concerning story: they declined 20-25% from 2021 peaks and remain depressed.

The Housing Industry Association estimates the construction sector faces a shortfall of 175,000 dwellings accumulated over 2022-2024. This deficit compounds annually as completions lag need. Even if approvals surged tomorrow, the pipeline delay means inadequate supply persists through 2026-2027.

Construction costs remain 30-40% higher than 2019 levels despite some material price stabilisation. Timber framing costs dropped 10-15% from 2022 peaks, but labour shortages keep total project costs elevated. Trades workers command premium wages—electricians and plumbers charge $80-120 per hour compared to $60-80 in 2019.

Master Builders Australia reports skilled labour shortages across all trades, with 85,000-95,000 unfilled positions nationally. Immigration recovery partially addressed this, but many skilled migrants gravitate toward higher-paying mining and infrastructure projects rather than residential construction.

Development margins compressed severely. Many builders operate on 5-8% profit margins, down from historical norms of 12-15%. This thin buffer discourages new project commencements, particularly in medium-density housing where complexity increases costs.

2024 Building Approval Trends by State

Source: Australian Bureau of Statistics Building Approvals data

2. National Housing Accord and Government Initiatives

The federal government’s National Housing Accord targets 1.2 million new dwellings by 2029—240,000 annually. This ambitious goal combines state and federal efforts, including infrastructure funding, planning reform incentives, and institutional investment attraction.

Practical delivery lags intentions. State planning reforms face local government resistance and community opposition. NIMBY (not in my backyard) sentiment blocks medium-density projects in established suburbs where infrastructure already exists.

Victoria’s housing statement promised 800,000 dwellings over ten years. New South Wales committed to 377,000 new homes by 2029. Queensland announced major land releases and density increases along transport corridors. These initiatives won’t materially increase supply until 2026-2028 as projects progress through approval, financing, and construction phases.

Social and affordable housing programmes received increased funding—$10 billion federally plus state contributions—but this addresses only a fraction of need. Purpose-built rental projects slowly emerge, though tax incentives for build-to-rent developments require years to generate meaningful housing stock.

The gap between policy announcements and dwelling completions sustains price pressure. Buyers compete for existing stock while awaiting future supply that remains 18-36 months away.

Population Growth and Migration Pressure

Australia’s population surged beyond forecasts, creating housing demand that overwhelms supply capacity.

1. Migration Recovery After COVID-19

Net overseas migration reached 280,000-300,000 in 2024, exceeding government targets and pre-pandemic levels. The Department of Home Affairs initially projected 260,000 for the fiscal year, but robust economic conditions and labour market strength attracted higher numbers.

International student arrivals drove much of this increase. Universities enrolled 650,000-700,000 international students by late 2024, approaching record levels. Each student requires accommodation—whether purpose-built, private rental, or shared housing—adding immediate demand.

Skilled migration categories filled rapidly as sectors from healthcare to technology sought workers. The skilled occupation list expanded in 2024, and visa processing times improved, accelerating arrivals. These migrants typically settle in capital cities near employment clusters.

Working holiday makers and temporary residents returned in force. Tourism and hospitality sectors welcomed 150,000-200,000 temporary visa holders who require short-term accommodation, tightening rental markets particularly in Sydney, Melbourne, and Brisbane CBDs.

Permanent migration brought 150,000-180,000 settlers in 2024, most establishing households within 12-18 months of arrival. These households immediately enter purchase or rental markets, concentrating demand in areas with established migrant communities and employment access.

The migration surge caught housing supply unprepared. Historical planning assumed 200,000-220,000 annual net migration, not 280,000-300,000. This 60,000-80,000 person difference requires 25,000-35,000 additional dwellings annually—precisely the shortfall evident in construction data.

2. Urban Demand vs Regional Shifts

Capital cities absorbed 70-75% of migration inflows, with Sydney, Melbourne, and Brisbane receiving the largest shares. This concentration intensifies pressure on already constrained urban housing markets.

Sydney’s population increased approximately 100,000 in 2024, yet dwelling completions totalled only 25,000-28,000. Simple arithmetic reveals a 3-4:1 ratio of population growth to housing supply. Melbourne faced similar imbalances: 90,000 population increase against 28,000-32,000 completions.

Brisbane’s situation proved most acute. Population surged 85,000-90,000 as interstate migrants joined overseas arrivals, while completions reached only 18,000-20,000. This 4-5:1 ratio explains Brisbane’s 7-8% annual price growth—among the nation’s strongest.

Perth experienced parallel dynamics. Western Australia’s mining boom attracted workers, students, and migrants. Perth’s population grew 65,000-70,000 while completions lagged at 12,000-14,000 dwellings. This supply-demand disconnect drove Perth’s exceptional 11-12% price growth.

Regional centres benefited from overflow demand but capacity limits constrained their relief valve function. Cities like Newcastle, Wollongong, Geelong, and Sunshine Coast absorbed spillover from capital cities, yet their housing industries lack scale to rapidly increase supply. Regional price growth of 5-8% reflected this constrained expansion capacity.

Infrastructure investment patterns reinforced urban concentration. Major transport projects—Sydney Metro, Melbourne’s Suburban Rail Loop, Brisbane’s Cross River Rail—improved accessibility but also increased nearby property values, offsetting affordability benefits.

Investor Confidence and Market Psychology

Investor behaviour creates self-reinforcing price momentum that sustains growth beyond fundamental factors alone.

1. Investor Return to Market

Property investors returned to active purchasing in late 2024 after a 2023 hiatus. Australian Prudential Regulation Authority lending data shows investor loans increased 15-18% in the December 2024 quarter compared to the previous year.

Rental yields improved as rents surged faster than prices. Gross yields reached 3.8-4.2% in many suburbs—still modest by historical standards but improving from the 3.0-3.5% range prevalent in 2021-2022. Combined with strong capital growth expectations, these yields attract investment despite negative cash flow at current interest rates.

Tight rental vacancy rates provide confidence. National vacancies hovering near 1.0-1.3% guarantee tenant demand. Investors recognise that even if capital growth slows, rental income remains secure and growing. Many cities recorded 8-12% annual rent increases through 2024, improving investment returns.

Tax advantages remain despite ongoing policy debate. Negative gearing allows investors to offset rental losses against other income, reducing tax liability. Capital gains tax discounts (50% for assets held 12+ months) enhance after-tax returns. These settings encourage long-term investment particularly among higher income earners.

Foreign investors re-emerged selectively. Tighter regulations and additional taxes imposed 2017-2020 reduced foreign buying significantly, but wealthy migrants and diaspora investors maintain interest in Australian property as a stable asset class. Chinese, Indian, and Southeast Asian buyers focus on new developments in Sydney and Melbourne.

2. FOMO and Market Expectations

Fear of missing out drives purchasing decisions as Australians internalise decades of price growth. Most adults witnessed property values double or triple over their lifetime, creating embedded expectations that “property always goes up.”

This psychology sustains demand through challenging conditions. Buyers reason that delaying purchase means facing higher prices in 12-24 months. Even if prices dip 2-3%, they could rise 10-15% over the following 3-5 years, making short-term timing less critical than market entry.

Auction clearance rates demonstrate this sentiment. Major cities maintained 60-70% clearance rates through 2024 despite high interest rates. Competitive bidding pushed 25-30% of properties above reserve prices. Buyers with pre-approved finance moved quickly, fearing limited stock and competing bidders.

Media coverage reinforces growth expectations. Headlines emphasising price increases, housing shortages, and market strength shape perceptions. Social media amplifies success stories of buyers and investors profiting from property, while negative experiences receive less attention.

Generational wealth transfer accelerates purchasing. Baby boomer parents provide deposits or guarantees for millennial children, enabling purchases that wouldn’t otherwise qualify. This family assistance—estimated at $30 billion-$40 billion annually across Australia—represents a significant demand factor immune to interest rate sensitivity.

Key Behavioural Drivers of Continued Price Growth:

• Anticipation of future rate cuts triggering pre-emptive buying
• Limited stock creating competition among qualified buyers
• Rental income security attracting investors despite negative gearing
• Historical price growth patterns shaping expectations
• Parental financial assistance enabling purchases
• Media narratives reinforcing growth outlook

Regional Markets Outperforming Major Cities

Regional Australia delivers surprising strength, with some centres recording growth exceeding capital cities.

1. Affordability and Lifestyle Shifts

Regional property markets benefited from pandemic-era migration that continued into 2024-2025. Remote work normalisation, though less prevalent than 2020-2021 peaks, still enables location flexibility for 15-20% of workers.

Geelong exemplifies this trend. Located 75 kilometres from Melbourne, it offers median house prices around $700,000-750,000 compared to Melbourne’s $880,000. Strong local employment—manufacturing, education, healthcare—combined with coastal lifestyle appeal drives consistent 5-7% annual growth.

Sunshine Coast attracts Brisbane residents seeking beach lifestyle and space. Prices averaging $850,000-950,000 represent value relative to Brisbane’s premium suburbs. Population growth of 3-4% annually—among Australia’s highest—supports property values. Infrastructure investment including rail upgrades and hospital expansions reinforces long-term prospects.

Newcastle benefits from proximity to Sydney (160 kilometres) while offering median prices $400,000-500,000 below Sydney levels. University presence, medical precincts, and port-related employment create economic diversity. Prices increased 6-8% in 2024 as Sydney buyers sought affordability without sacrificing amenity.

The Mornington Peninsula, Wollongong, and Central Coast similarly attract capital city residents. These markets share characteristics: 60-90 minute commutes to major employment centres, established infrastructure, and lifestyle benefits. Median prices 25-40% below their parent cities provide entry points for first-home buyers and downsizers.

Regional rental markets tightened dramatically. Many centres recorded vacancy rates below 1%, with some towns at 0.3-0.5%. This extreme shortage pushed rents up 10-15% annually, attracting investor interest and supporting price growth.

2. Infrastructure and Job Growth

Government infrastructure spending targeted regional areas, creating employment and supporting property markets. Major projects include:

• Queensland: Inland Rail construction, Bruce Highway upgrades, renewable energy projects in central and northern regions. These projects employ thousands and attract workers to regional centres like Toowoomba, Rockhampton, and Townsville.
• New South Wales: Snowy Hydro expansion, Pacific Highway completion, regional health facility construction. Towns like Wagga Wagga, Dubbo, and Port Macquarie benefit from sustained construction employment and population inflows.
• Victoria: Fast Rail projects connecting regional cities to Melbourne, renewable energy investments in western Victoria. Ballarat, Bendigo, and Shepparton see improved connectivity supporting property values.
• Western Australia: Mining expansion, Port Hedland and Pilbara infrastructure, Perth-Bunbury transport corridor improvements. Regional WA experienced some of Australia’s strongest price growth—10-15% in mining-exposed towns.

Remote work hubs emerged in larger regional centres. Cities with populations 50,000-150,000 developed coworking spaces, improved telecommunications, and lifestyle amenities targeting professional workers. This infrastructure investment signals confidence in regional futures, attracting residents and property investment.

Agricultural commodity prices remained strong through 2024, supporting farming communities and regional economies. High wheat, beef, and wool prices improved farm incomes, which flow through to local businesses and housing markets in agricultural regions.

Top Regional Growth Markets (2024-2025)

• Toowoomba (QLD): +8-9% – Infrastructure projects, agricultural hub
• Geelong (VIC): +6-7% – Melbourne proximity, manufacturing base
• Busselton (WA): +9-10% – Perth migration, lifestyle appeal
• Orange (NSW): +7-8% – Agriculture, regional services centre
• Hobart (TAS): +5-6% – Tourism recovery, mainland migration
• Cairns (QLD): +7-8% – Tourism rebound, infrastructure spending
• Ballarat (VIC): +6-7% – Fast rail, Melbourne overflow

Source: CoreLogic regional indices, PropTrack analysis

What It Means for Buyers and Investors

Understanding why Australian house prices are rising in 2025 provides strategic advantage whether you’re buying a home or building an investment portfolio.

For home buyers:

Waiting for major price drops appears increasingly unlikely given supply constraints and demographic demand. Modest corrections of 2-5% may occur in overheated pockets, but broad-based declines seem improbable unless unemployment surges or a severe recession hits.

Focus on serviceability rather than peak market timing. If you can comfortably afford repayments at current rates plus a 2% buffer, purchase when you find suitable property. Interest rate cuts during 2025-2026 will improve your position through refinancing opportunities.

Consider emerging suburbs over established premium locations. Growth areas offer better value and potentially stronger capital growth as infrastructure develops. Research population projections, planned transport upgrades, and employment centre proximity.

Government assistance programmes expand your capacity. First Home Guarantee and Help to Buy schemes reduce deposit requirements and loan sizes. Check eligibility criteria and application windows—these programmes often have limited places that fill quickly.

For property investors:

Target markets with strong rental fundamentals: vacancy rates below 2%, population growth above 1.5% annually, and diverse employment bases. These characteristics sustain rental income and capital growth through various economic conditions.

Regional centres offer superior cash flow than capital cities. Yields of 4.5-5.5% in regional markets compare favourably against Sydney’s 3.0-3.5% or Melbourne’s 3.2-3.8%. Combined with solid growth prospects, they deliver better total returns.

Maintain adequate cash reserves. Interest rates could stay higher longer than current forecasts suggest. Hold 12-18 months’ expense buffers to weather potential rental vacancies or unexpected maintenance costs.

Diversification reduces risk. Rather than concentrating in one city or property type, spread across 2-3 locations and consider mixing houses, townhouses, and apartments. Different segments perform differently through market cycles.

Critical factors sustaining price growth:

• Severe housing shortage requiring 60,000-80,000 additional annual completions
• Population growth of 280,000-300,000 annually overwhelming supply
• Improving wage growth supporting borrowing capacity
• Expected interest rate cuts releasing pent-up demand
• Investor confidence returning as rental yields improve
• Regional affordability attracting capital city residents

Monitor these indicators for early warnings of shifting conditions: building approval trends, net migration revisions, unemployment rate changes, and RBA policy statements. Adjust strategies as data evolves rather than committing to fixed long-term assumptions.

Conclusion

Australian house prices continue rising in 2025 because fundamental supply-demand imbalances overwhelm interest rate headwinds. Population growth surges while construction lags. Buyers anticipate future rate cuts and compete for limited stock. Investors return as rental markets tighten. Regional centres attract residents seeking affordability and lifestyle.

These forces create self-reinforcing momentum unlikely to reverse without significant economic disruption. Supply constraints require years to resolve. Migration settings sustain demand. Market psychology reinforces growth expectations built over decades.

For Australians navigating property decisions, this environment demands careful analysis rather than assumptions of imminent price corrections. Buy when your finances support it and you find suitable property. Invest where fundamentals support long-term growth. Stay informed through reliable sources—RBA statements, ABS data, CoreLogic research—rather than anecdotal market commentary.

The Australian housing market remains complex and regional variations matter enormously. Understanding why prices rise helps you make decisions aligned with your circumstances and goals.

FAQs

Why are Australian house prices still increasing in 2025?

Australian house prices continue to rise in 2025 because of limited housing supply, strong migration, and renewed buyer confidence. Despite high interest rates, demand still exceeds available homes, keeping prices elevated across most cities.

How does migration affect house prices in Australia?

High levels of overseas migration have increased housing demand, particularly in major cities like Sydney, Melbourne, and Brisbane. With not enough new homes being built to match population growth, prices continue to climb.

Are high interest rates slowing down property prices in 2025?

Not significantly. While higher rates have reduced borrowing power, steady employment, wage growth, and the expectation of future rate cuts have helped sustain market activity. Many buyers are purchasing before prices rise further.

Which Australian cities are seeing the fastest house price growth in 2025?

Cities like Perth, Brisbane, and Adelaide are leading growth due to affordable housing, population inflows, and limited new supply. Sydney and Melbourne are growing more slowly but remain high-value markets.

Will Australian house prices ever fall in 2025?

A major drop appears unlikely in 2025. Most experts forecast stable or modest growth as strong demand and undersupply balance out economic headwinds. However, specific suburbs or luxury markets may experience corrections.

What can first-home buyers do in a rising market?

First-home buyers can explore government programs like the First Home Guarantee and Help to Buy scheme, consider regional areas, and focus on long-term affordability rather than short-term price movements.