Australia’s Housing Market: Affordability, Inflation, and the Path Ahead

With Leigh Martinuzzi – MPG – eXp Realty

The Australian property market is facing a unique mix of challenges and opportunities in 2025. While inflation and interest rates remain key concerns, Melbourne has now emerged as the cheapest capital city for housing, opening up new investment opportunities. Meanwhile, housing shortages and population growth continue to push up prices across the country, despite affordability pressures.

The big question now is: are we entering a housing boom, or are we in for a slow and steady market recovery?

Melbourne: Australia’s Most Affordable Capital City

A surprising shift has taken place—Melbourne is now the cheapest capital city for housing. Traditionally, it has been one of Australia’s most expensive markets, but changing economic and population trends have made it more affordable than even Brisbane.

Several factors have contributed to this shift:

• Post-COVID population trends saw Melbourne experience the biggest outflow of residents, many of whom moved to regional areas or interstate.

• Increased housing supply has kept a lid on price growth, with more new homes built compared to other major capitals.

• Investor hesitancy due to tighter rental regulations and higher taxes has reduced demand in the market.

For those looking to buy, Melbourne now offers a more affordable entry point, particularly for investors who had previously been priced out. The key question is whether Melbourne’s property values will start to climb again in 2025 as confidence returns.

Is Inflation Really Under Control?

While the Reserve Bank of Australia (RBA) has recently cut interest rates, inflation remains a pressing concern. Many had hoped for rate relief to provide more borrowing power for buyers, but the RBA is likely to take a cautious approach before making further cuts.

Dr Andrew Wilson has pointed out that inflationary pressures persist, despite recent improvements. The cost of living remains high, and rising rental costs continue to impact household budgets. If inflation doesn’t continue to decline, we could see the RBA delaying further cuts or taking a more measured approach than some expect.

For property buyers, this means that now may be a smart time to act before borrowing power increases. If rates are cut again later in the year, competition in the property market could heat up, particularly in premium locations.

Signs of a Housing Boom? The 7 Key Indicators to Watch

Michael Matusik recently outlined seven critical factors that indicate a market is heading towards a boom. Some Australian markets are showing early signs of fitting this profile:

1. Population Growth – More people moving to an area means stronger demand for housing.

2. Employment Growth – A strong local job market fuels confidence and housing demand.

3. Rising Wages – Higher incomes allow buyers to pay more for homes, supporting price growth.

4. Tight Housing Supply – When stock levels drop below three months of supply, prices tend to rise.

5. Undervalued Properties – Increased investor activity and renovation booms often signal growth.

6. Demographic Balance – A healthy mix of first-home buyers, upgraders, and downsizers keeps a market sustainable.

7. Education & Infrastructure – Proximity to top schools and strong infrastructure investment drive long-term value.

Markets like Brisbane, Perth, and regional areas such as the Sunshine Coast are already displaying several of these signs. With ongoing population growth and limited supply, these areas are likely to see continued demand throughout 2025.

The Housing Shortage: A Crisis That’s Not Going Away

One of the biggest concerns in the property market right now is Australia’s ongoing housing shortage. The latest data reveals that demand for homes far outstrips supply, with a national shortfall of over 61,000 homes per year.

The issue is particularly acute in New South Wales (short 27,500 homes per year) and Victoria (short 30,000 homes per year), with Queensland also facing mounting supply pressures. With Australia’s population growing by 550,000 people in the past year alone, there simply aren’t enough homes to go around.

If supply doesn’t increase and demand remains strong, property values will continue to climb, making it even harder for first-home buyers to enter the market. The government has been discussing solutions, but without meaningful change, the housing shortage is likely to remain a long-term issue.

What This Means for Buyers, Sellers, and Investors

For buyers, this could be the best time to secure a property before borrowing capacity increases with further rate cuts. The premium market may lead the recovery, particularly in cities like Sydney and Melbourne, where high-income buyers will benefit most from rate reductions.

For sellers, the market remains competitive for well-presented properties. With buyer confidence returning slowly, quality homes in desirable locations are still commanding strong prices.

For investors, Melbourne’s affordability presents an interesting opportunity, while Brisbane and Perth remain strong performers due to their economic growth and population increases.

The market is shifting, and staying informed is key. If you’re considering buying, selling, or investing in 2025, now is the time to plan your next move.

📩 Thinking about selling? Get a free property appraisal with Martinuzzi Property Group today! CLICK HERE