Australian House Prices Surge Amid Low Supply and High Demand

Australian house prices rose at their fastest quarterly pace in almost four years in the September 2025 quarter, with every capital city recording a gain. The surge was driven by a combination of strong pent-up demand, inadequate supply, and monetary easing from the Reserve Bank of Australia (RBA), which cut the cash rate three times over 2025. Sydney, Brisbane and Melbourne each posted record or near-record median prices in the period, underscoring how quickly momentum had shifted in the Australian property market.

National Growth in Home Prices

Recent reports reveal that Australian house prices have recorded their highest quarterly and annual increases since 2021. This trend is evident across all eight capital cities, each of which has posted another quarter of price growth. Some of the most striking statistics include:

• Nationally, house prices experienced a rapid quarterly increase.
• All eight major capital cities recorded price gains in the latest quarter.

Regional Highlights: Capital Cities in Focus

Sydney: A New Record High

Sydney, Australia’s largest city, has seen median house prices surge to an unprecedented $1.75 million. In just 90 days, prices have increased by 3.4% (or $58,148), marking the fastest growth observed in over two years. According to Domain’s chief of research at the time, this upward trajectory was expected to continue, with Sydney’s median potentially hitting $2 million by 2027, though growth has since slowed well short of that pace (see the update below).

Brisbane: Surpassing Melbourne

In a significant shift, Brisbane has overtaken Melbourne as the nation’s second-most expensive capital, recording a median house price of $1.1 million. This achievement follows an impressive 11 consecutive quarters of growth, confirming Brisbane’s status as a key player in Australia’s evolving housing market.

Melbourne: A Steady Recovery

Meanwhile, Melbourne’s median house prices have climbed to $1.083 million, recovering to levels not seen in the past 3.5 years and nearing their previous peak. This recovery signals a robust market response driven by renewed buyer confidence and persistent demand.

Other Capitals: Positive Trends

Other major capitals are also witnessing noteworthy growth:

• Perth crossed the $1 million median house price by early 2026, reaching $1.09 million in the December 2025 quarter, as strong demand continued to lift prices.
• Canberra and Hobart have both reached new highs since 2022.
• Darwin reported the strongest quarterly gain at 5.3%.

Drivers of Growth in the Housing Market

Several factors are contributing to this robust growth in the Australian housing market:

• Pent-up Demand: After a period of stagnation, the surge in buyer activity is generating significant upward pressure on prices.
• Monetary Easing: The RBA’s three rate cuts in 2025 lowered borrowing costs, making mortgages more accessible for buyers.
• Rising Consumer Confidence: Increased optimism about the economy is encouraging potential homeowners to enter the market.
• Supply Constraints: A significant shortage of housing stock is creating an unusually tight market, leading to intense competition among buyers for the available properties.

Unit Market Growth: A Shift in Preferences

The unit market is also seeing growth, with prices rising in every capital city except Canberra. This trend is largely attributed to affordability concerns that are driving more buyers towards unit options. Notably, Brisbane, Adelaide, Perth, and Darwin have seen substantial activity in this segment, further illustrating the shifting dynamics of the housing market.

Policy Implications and Affordability Challenges

Despite the positive growth trends, affordability remains a significant challenge for many would-be buyers in Australia. The federal government’s expanded 5% Deposit Scheme, which removed place and income limits and raised property price caps from 1 October 2025, has provided some momentum for first-time buyers, but overall, homeownership is becoming increasingly out of reach for those on lower incomes. Experts highlight that:

• Entry into the housing market is now largely attainable only for above-average earners.
• Housing and rental affordability is expected to be a central issue in the upcoming election.

Future Projections for House Prices

Looking ahead, analysts anticipate that prices will continue to rise, albeit at a moderating pace due to stretched affordability. Projections indicate a potential national increase of 3.7% for 2025, with stronger growth anticipated particularly in mid-sized capital cities. This indicates a continued interest in property investments, albeit with some underlying challenges in terms of budget constraints for many buyers.

Update: The moderation arrived sooner and sharper than these projections suggested. Through early-to-mid 2026 the RBA reversed course and lifted the cash rate three times, and by the June 2026 quarter both Sydney and Melbourne recorded quarterly price falls. The 2026-27 Federal Budget also reformed negative gearing and the capital gains tax discount for residential property investors from 12 May 2026, a change worth understanding before making an investment decision, as we explain in our guide to negative gearing.

In summary, the second half of 2025 was marked by a surge in Australian house prices driven by a combination of low supply and high demand, though that momentum has since eased. The affordability crisis it exposed has not gone away, and continues to pose serious challenges for future market dynamics. As trends continue to evolve, attention will need to be paid to housing policies that could help address the critical issue of affordability for all Australians.

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Disclaimer: This article contains general information only and does not constitute financial, legal or tax advice. It has been prepared without regard to your objectives, financial situation or needs. Tax and superannuation laws change frequently, and the information in this article may not reflect the current law or may become inaccurate over time. Before acting on anything in this article, you should consider its appropriateness to your circumstances and seek advice from a registered tax agent or qualified adviser.