Housing Market Trends – Prices, rents and supply pressures
Australia’s housing shortage remains one of the most important drivers of price growth into 2026. KPMG’s January 2026 outlook, reported by realestate.com.au, shows house prices forecast to rise 7.7% nationally this year, with growth in every capital city and standout gains expected in Perth (12.8%), Brisbane (10.9%) and Darwin (10.5%). Unit prices are projected to grow at similar or faster rates in several cities, with Darwin units forecast to jump 13.4% and Perth units 11.6%, as buyers shift towards more affordable apartments.
KPMG notes that rental conditions will remain tight, with rents forecast to rise by around 3.5% a year through 2026 and 2027, staying above long‑run averages as dwelling construction lags population growth. The report warns that recent population increases have far outpaced new housing supply, particularly in the apartment sector, and that rental markets will remain under pressure until construction materially lifts.
Commentary from AMP’s Oliver’s Insights echoes this, noting that national home prices rose around 8.5% in 2025 and are likely to remain in an upswing in 2026, supported by lower mortgage rates, government support for first‑home buyers and the housing shortage. However, AMP expects some slowing in growth to around 5–7% nationally as rate‑cut expectations are pared back, APRA ramps up macroprudential controls and affordability constraints bite.
Interest rates, credit and buyer sentiment
The RBA’s Statement on Monetary Policy – November 2025 reports that total housing credit growth has picked up to above its post‑GFC average, largely reflecting a strong increase in investor housing credit growth. Investor credit has risen to its highest rate since 2015, alongside a pick‑up in housing price growth, while owner‑occupier credit growth has also increased but by less. The RBA notes that investor lending historically responds more strongly and quickly to interest rate cuts than owner‑occupier lending, a pattern evident in the current cycle.
Loan commitments remain robust, and the RBA points to the Australian Government’s expanded 5% Deposit Scheme, an extension of the Home Guarantee Scheme, as a key policy that came into effect on 1 October 2025. The new scheme allows first‑home buyers to purchase with a 5% deposit without paying lenders’ mortgage insurance (LMI), has no income caps or intake limits, and raised price caps to $1 million or more in some markets—factors likely to add further upward pressure on housing demand, credit and prices.
Mid‑year commentary from Mortgage Choice and other market observers reflects these dynamics: 2025 was shaped by easing inflation, rate cuts, government incentives and a rebound in loan approvals that boosted buyer confidence. DPN’s analysis of interest rate cuts and property prices quotes KPMG’s Residential Property Outlook as saying that mid‑to‑late‑2025 rate cuts were anticipated to have a positive impact on house prices through greater credit availability and buyer confidence.
Credit Conditions: RBA Settings and Housing Credit Growth
The RBA’s November 2025 SMP chapter on financial conditions outlines how monetary policy has filtered through to borrowing costs and credit flows. After a series of cuts that brought the cash rate down to 3.6% by August 2025, lower variable and fixed mortgage rates supported a pick‑up in housing credit growth, particularly among investors.
The RBA notes that the current increase in housing credit growth is well within the range observed in previous easing cycles:
- Investor credit growth is at the stronger end of past responses to rate cuts.
- Owner‑occupier credit growth is closer to average, reflecting both serviceability constraints and existing debt levels.
- Strong population growth and rising nominal incomes are also contributing to robust nominal credit growth.
Despite the upswing, the RBA’s October 2025 Financial Stability Review concludes that housing‑related vulnerabilities, while elevated, remain manageable. The Review emphasises that banks have maintained prudent lending standards and hold substantial capital and liquidity buffers, leaving the system well positioned to absorb losses under severe scenarios even if housing prices or employment were to deteriorate.
APRA’s Macroprudential Policy and Debt‑to‑Income Limits
New DTI caps to cool high‑risk lending
To guard against excessive risk‑taking in an environment of rising prices and strong credit growth, APRA is deploying borrower‑based macroprudential tools. In its paper “Activating debt‑to‑income limits as a macroprudential policy tool”, APRA announces that from February 2026, ADIs will be required to limit residential mortgage lending with a debt‑to‑income (DTI) ratio of six times or more to 20% of all new mortgage lending.
Key features of the new DTI limit include:
- The 20% cap applies separately to owner‑occupier and investor portfolios, measured on a quarterly basis.
- Within the cap, banks retain discretion to lend to creditworthy high‑DTI borrowers in line with their risk appetite.
- Exemptions apply for bridging loans for owner‑occupiers and loans for the purchase or construction of new dwellings, to support smooth property transactions and new‑build supply.
- Proportionate treatment is available for smaller banks, with flexibility to smooth through volatility and longer implementation periods where needed.
APRA explains that high‑DTI lending has historically surged during periods of low interest rates and strong housing price growth, such as 2014–15 and 2021–22, contributing to higher household vulnerabilities. The new DTI cap aims to limit the build‑up of risky borrowing while still allowing banks to support creditworthy customers.
An ABC News report, “Banking regulator APRA to impose home loan caps amid housing risks”, explains in practical terms that, from early 2026, no more than 20% of a bank’s new loans can have a DTI above six—meaning, for example, that a household on $100,000 borrowing more than $600,000 counts against the limit. The article notes that these “macroprudential” caps are designed to cool high‑risk borrowing without taking credit away from lower‑risk segments.
Macroprudential strategy and ongoing reviews
APRA’s macroprudential policy framework, profiled in international case‑study material such as the BIS paper “Macroprudential policies to mitigate housing market risks – Australia”, outlines how APRA reviews macroprudential settings quarterly in consultation with the Council of Financial Regulators (CFR). Previous measures have included caps on interest‑only lending and investor loan growth, while the latest DTI limits extend this toolkit in line with global practice.
In its July 2025 macroprudential update, APRA confirms that existing macroprudential settings—such as the 3 percentage point serviceability buffer—remain appropriate and that overall risk in the housing and mortgage markets is contained, but notes that it is prepared to adjust tools as needed if credit or price growth re‑accelerates.
How Housing Policy and Credit Policy Interact
Housing market outcomes in Australia are shaped by a combination of monetary policy, financial regulation and housing‑specific policies such as first‑home buyer schemes, planning rules and supply initiatives. KPMG’s housing outlook, cited in realestate.com.au’s coverage of the 2026 housing shortage, argues that government policy—particularly the expansion of the 5% deposit scheme—played a larger‑than‑expected role in accelerating demand at the lower end of the market in the second half of 2025.
The RBA’s Statement on Monetary Policy likewise highlights that the extended Home Guarantee Scheme, with higher price caps and the removal of income and intake limits in the new version, is likely to put at least some further upward pressure on housing credit and price growth, particularly among first‑home buyers who previously faced high deposit and LMI hurdles.
Analysis from Mortgage Choice on factors shaping the 2025 property market notes that these incentives, combined with lower mortgage rates and improving confidence, helped pull forward demand, supporting price growth and loan approvals.
As a result, credit policy (RBA rates and APRA macroprudential rules) is now working alongside housing policy in a balancing act:
- Support housing access for first‑home buyers and essential workers through deposit schemes and targeted grants.
- Avoid fuelling a renewed speculative boom in high‑DTI, investor‑heavy segments that could increase financial stability risks.
- Encourage new dwelling supply through exemptions from macroprudential caps on loans for new construction, acknowledging that supply constraints are a key driver of prices and rents.
Implications for Borrowers and Property Investors
For borrowers, the combination of rising prices, tighter macroprudential rules and changing interest‑rate expectations means that access to credit is becoming more nuanced:
- High‑DTI borrowers (for example, those stretching to buy in expensive markets with small deposits) are more likely to face tighter lender scrutiny and could find approvals harder as banks manage their 20% DTI quota.
- First‑home buyers may benefit from government schemes that reduce deposit and LMI barriers, but still face strong competition and affordability pressures in markets where supply is constrained.
- Investors are seeing renewed access to cheaper credit compared with 2023–24, and investor credit growth has picked up to its strongest rate since 2015, according to the RBA, but face higher regulatory scrutiny and potential future macroprudential adjustments if risk indicators worsen.
Investor‑oriented articles like DPN’s interest‑rate and property price analysis and AMP’s home price outlook suggest that while lower rates and strong demand support further gains in 2026, growth is likely to moderate as regulators lean against excessive leverage and affordability constraints limit how far prices can run.
Outlook: Housing Market Trends and Credit Policy Beyond 2026
Looking ahead, most forecasts suggest that housing prices will continue to grow in 2026, albeit at a slower pace than in 2025, while credit policy remains finely balanced:
- KPMG expects national house prices to rise 7.7% in 2026 (houses) and 7.1% (units), with Perth and Brisbane leading growth, supported by population inflows and tight supply.
- AMP expects national home‑price growth of about 5–7% in 2026, constrained by fewer rate cuts than previously expected, the risk of a rate hike and tighter macroprudential controls.
- The RBA’s Financial Stability Review indicates that banks are resilient and that housing‑related vulnerabilities remain manageable but emphasises that risks could rise if credit growth accelerates or unemployment climbs.
- APRA’s DTI limits and existing macroprudential settings are designed to lean against excessive high‑risk lending, particularly in low‑rate environments, and will be reassessed regularly in consultation with the CFR.
For policy‑makers, the challenge will be to address the structural housing shortage and rental pressures—through planning reform and boosting construction—while using credit policy tools to prevent housing from becoming a significant financial stability risk. For borrowers and investors, understanding how RBA decisions, APRA rules and government schemes interact will be crucial to making informed decisions about timing, borrowing capacity and risk.