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I’m John Bekiaris, Investment Analyst at Equitifund. With a background in property economics, market research and investment analysis, I spend my time analysing the economic forces shaping Australia’s housing market. Each quarter, I’ll share my perspective on the trends I’m watching and what they could mean for buyers, investors and the broader property market.
Fewer Homes Today, Higher Rents Tomorrow
Australia’s housing market has slowed. Buyer confidence has weakened, borrowing activity has softened and dwelling values are falling in some of the country’s largest markets.
At first glance, this may appear to be good news for housing affordability. However, the same conditions placing downward pressure on property prices are also making it harder to deliver new homes. Rising construction costs, weaker development feasibility and softer investor demand could reduce the number of properties added to Australia’s housing and rental markets over the coming years.
With rental vacancy rates already extremely low, today’s housing slowdown may be laying the foundations for another period of increased rental pressure.
Construction costs are rising again
New dwelling costs rose 5.8% over the year to June 2026, up from 5.6% in May, while Rawlinsons forecasts construction costs could rise by a further 7% over the next 12 months.
As labour and material costs increase, developers face a growing gap between project costs and what buyers can afford to pay. With property prices softening, poor market sentiment and borrowing capacity constrained, many projects cannot simply pass these costs on.
The result is weaker feasibility, with some developments likely to be delayed, redesigned or abandoned. Rather than improving affordability, today’s softer market may reduce future supply, as projects that no longer stack up fail to reach completion.
Approvals remain below the pace required
The latest ABS Building Approvals data reinforces this concern, with a total of 17,019 dwellings approved in May 2026, down 1.1% from the previous month. While private house approvals increased, approvals for apartments, townhouses and other higher-density dwellings fell 10.4% to just 6,034.
At May’s rate, approvals would annualise to approximately 204,000 dwellings- well below the 240,000 homes Australia needs to complete each year to meet the National Housing Accord target of 1.2 million new homes by June 2029.
Approvals do not translate directly into completions, and some projects will be delayed or never proceed, meaning actual delivery is likely to be lower again.
CBA’s latest projections suggest Australia will build 315,000 fewer homes than targeted by 2028–29, a shortfall of 26%.
With construction costs continuing to rise and development feasibility weakening, the risk is that even fewer projects move from approval to construction, further reducing the supply of new homes in the years ahead.
The rental market has very little room to absorb another supply slowdown
Australia is entering this period with rental availability already severely constrained. According to SQM Research, vacancy rates were just 0.3% in Darwin, 0.6% in Perth, 0.7% in Adelaide and 0.9% in Brisbane, while Sydney and Melbourne both recorded 1.6%. Every capital city remained below 2% – well under the equilibrium rate of 3%.
With renters competing for a limited pool of available properties, rents continue to rise. SQM’s national asking rent measure increased 8.1% over the year to June.
Rental demand continues to exceed supply. If fewer projects commence today, fewer homes will enter the rental market in the coming years, keeping vacancy rates low and placing further upward pressure on rents.
Investor behaviour is also changing
The rental market relies heavily on private investors, yet elevated interest rates, higher holding costs, negative gearing changes, weaker capital growth expectations and insufficient rental yields have already weighed on purchasing activity.
When property prices are stagnant or falling, investors are less willing to accept low yields in anticipation of future capital growth. As a result, yields will likely need to improve through higher rents, lower property prices or a combination of both
Until that adjustment occurs, investor demand, and therefore growth in the rental supply is likely to remain weak.
Price weakness does not necessarily mean the housing shortage is being solved
Falling property prices may offer some short-term relief for buyers, but they don’t solve Australia’s underlying supply problem. In fact, weaker prices, rising construction costs and softer investor demand make it harder to deliver the homes the market needs.
The impact won’t be immediate. Projects delayed or abandoned today will translate into fewer homes reaching the market in the years ahead. With vacancy rates already extremely low, that shortfall is likely to keep upward pressure on rents.
The result will be a period of softer property prices but rising rental yields, driven by rising rents, lower purchase prices or both. For investors, the point at which yields approach their peak has historically presented some of the best buying windows, before confidence returns and prices begin to recover.
Disclaimer: This article is intended to provide general information and market commentary only. It does not constitute financial, legal, taxation or investment advice and has been prepared without considering your personal objectives, financial situation or needs. Information may change over time, and while we aim to keep our content accurate and up to date, we cannot guarantee its completeness or currency. Before making any financial or property-related decision, you should obtain independent professional advice relevant to your individual circumstances.
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