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House prices are projected to rise in 2025 despite challenges with affordability, availability, and delayed interest rate cuts.
According to KPMG’s latest Residential Property Market Outlook, house prices across Australia are expected to rise 3.3 per cent over the year, followed by a stronger 6 per cent in 2026.
The report forecasts that unit prices will grow slightly faster than house prices, increasing by 4.6 per cent in 2025 and 5.5 per cent in 2026.
KPMG said affordability constraints in capital cities and rising prices have pushed more buyers towards units as a more accessible option.
City-by-city house growth forecasts
While house price growth is expected to vary across capital cities, Perth is projected to see the highest increase, at 4 per cent, while Darwin is forecast to see the lowest, at 1.2 per cent.
Canberra and Melbourne are expected to rise by 3.5 per cent, Sydney by 3.3 per cent, and Brisbane by 3.1 per cent.
Adelaide and Hobart are forecast to see more modest gains at 2 per cent and 1.8 per cent, respectively.
In 2026, price growth is expected to accelerate, with Sydney taking the lead with a 7.8 per cent increase forecast, followed by Melbourne at 6 per cent and Brisbane at 5.6 per cent.
Unit growth forecasts
KPMG’s report showed a shift in the housing market, with unit prices forecast to outpace house prices over the next two years.
The report said the change in trend is likely due to affordability constraints, particularly in capital cities, where the rising cost of detached houses has made home ownership unattainable for many buyers.
As a result, demand for units is expected to grow, with attached dwellings offering a more accessible entry point into the market.
According to the report, units are comparatively lower-cost alternatives to houses, making them a viable option for a broader range of buyers.
Unit prices are forecast to rise by 5 per cent in Sydney and Perth in 2025.
Conversely, Darwin is expected to see a smaller increase at 3.8 per cent.
By 2026, Melbourne and Sydney will experience the strongest unit price growth at 7.1 per cent and 6.1 per cent, respectively.
Market drivers
KPMG’s chief economist, Dr Brendan Rynne, noted that despite high interest rates and inflation in 2024, housing prices remained resilient due to strong demand and limited supply.
“Even the much-anticipated ‘fixed-rate cliff' – the transition of mortgage holders off lower fixed rates to higher variable rates – had only had a mild impact and households generally coped well with the rate rises, due to a robust labour market and Australia’s historic low unemployment rate,” Rynne said.
Although building approvals are increasing, Rynne added that the lag between approvals and completed housing means supply constraints will persist into 2025 and 2026.
“Despite affordability and availability issues and a delayed interest rate cut, increased investor sentiment and anticipated relaxed lending conditions will help support modest price growth in 2025, and then stronger growth next year,” Rynne added.
Rental market and affordability
Rental price growth slowed from its peak of 7.8 per cent in March 2024 to 6.7 per cent in September.
KPMG projects annual rental increases of 3.5 to 4.5 per cent over the next two years as new dwelling completions rise and migration levels stabilise.
Rynne noted that lower rental growth could help moderate property prices by reducing pressure on renters to enter the housing market.
“The high rents in recent years have pushed more renters to look to buy instead which has added to demand and hence prices,” he said.
“This is one of the factors we see contributing to a more balanced and sustainable rate of price growth over the next one to two years, and more aligned with long-term averages.”
Rynne highlighted that while affordability challenges persist, anticipated interest rate cuts by late 2025 will boost buyer confidence and drive stronger price growth in 2026.
KPMG analysis shows that the performance of the housing market has been mostly in line with our previous forecasts.
In the previous edition of this report, KPMG had forecast national house and unit prices to grow annually by 5.3 per cent and 4.5 per cent, respectively, in 2024 – the actual growth was 5.1 per cent for houses and 4.5 per cent for units.
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