Australia's housing crisis: What 2026 might look like

Australia's housing market has spent the past few years rising through interest rate hikes, inflation, and construction bottlenecks.

As 2026 approaches, new forecasts show a market split in two: wealthier buyers with equity and family support on one side, and a growing "rental generation" on the other.

Fresh modelling from SQM Research suggests prices will continue lifting into next year, even as affordability hits breaking point and supply continues to lag.

Here's what the data, industry groups and brokers say is coming.

Prices are still rising

SQM Research's Housing Boom and Bust Report 2026 forecasts another year of gains, led by Brisbane, Perth, Adelaide and Darwin.

Those cities could see dwelling values rise by up to 16% under SQM's base case. Nationally, prices are tipped to rise between 6% and 10%, assuming:

• Rates remain on hold until mid-2026
• Modest population growth
• A slowing economy followed by possible rate cuts late in the year

Despite inflation ticking up, SQM expects the momentum from late 2025 - driven by strong migration, earlier rate cuts and changes to the First Home Buyer Deposit Scheme - to carry into 2026.

Louis Christopher, SQM Research managing director, says the outlook is highly dependent on how economic conditions evolve.

"From a sluggish economy to sticky inflation delaying rate relief, or even a global slowdown - our scenarios highlight the market's sensitivity," he says.

Even so, SQM's modelling shows Perth, Brisbane and Adelaide recording double-digit growth in every scenario.

Australia still can't build enough homes

While demand remains strong, the real pressure point is supply, and industry groups warn the bottleneck is worsening.

The Housing Australia Future Fund (HAFF) has received new funding, but progress on the ground remains slow.

Despite supporting 18,650 homes in the first two rounds, only 889 have been completed so far.

"That figure reflects potential funding, not completed dwellings," says Housing Industry

Association managing director Jocelyn Martin.

She warns of ongoing roadblocks:

• Planning delays
• A lack of serviced land
• Workforce shortages
• Construction costs still sitting well above pre-COVID levels

"We're still a long way from 40,000 finished homes," Martin says. "The intent behind the HAFF is right... but Australia doesn't need more press releases, it needs more homes."

Meanwhile, the people building the homes share the concern.

Developers say the numbers now 'don't stack'

Property developer and Tallpopie co-founder Darragh Heard says government fees, regulatory complexity, insurance requirements and construction costs have pushed margins "to the brink".

"Developers have the land and the vision, but the numbers simply aren't stacking up," Heard says.

Profit margins on many apartment projects now sit below 5%, leaving almost no buffer for rising costs or delays.

According to Tallpopie, other pressure points include:

• High-density approvals dragging on - in Sydney, fewer than one in four councils meet approval timeframes
• Average wait times hitting 173 days, with some stuck for over 250
• Construction costs rising 30% since 2018
• The cost of a mid-rise apartment in Sydney jumping from $666,000 to $905,000

This has all resulted in smaller, affordable units near transport - the stock first-home buyers need - becoming increasingly unviable to build.

"The cost to build the type of affordable housing Australia says it needs most is spiralling exponentially," Heard says. "This is why we're seeing an exodus of first-time buyers from the apartment market."

Three property trends in 2026

Trend one: First-home buyers will increasingly need generational wealth

With entry-level apartments now around $1 million on the city fringe and up to $1.5 million further out, first-home buyers are being priced out of what used to be the "starter" segment.
"The most active market segment by far are baby boomers who've already built substantial equity," Heard says. "They're snapping up larger apartments as they right-size - and that further constricts options for younger buyers."

Mortgage broker Rebecca Jarrett-Dalton, founder of Two Red Shoes, says the gap between those with family backing and those without is widening fast.

"Intergenerational wealth is now the dividing line," she says. "If your parents own a home, you can do it too. Without that support, many young families face a lifetime of renting."

Trend two: Parents are prioritising their kids' future over their own retirement

On the other side of the equation, many parents are rethinking how they use their wealth as deposits rise and wage growth stalls.

"Heavy housing costs mean hard work alone isn't enough to save for a deposit," Heard says.

"When around 40% of earnings go toward housing, plus schooling, groceries and insurance, the only way in for many is parent funding."

Jarrett-Dalton says investor behaviour is shifting too: "The primary reason many investors are entering the market now is to create financial security for their children, not for their own retirement wealth."

"Our job as brokers is no longer just about securing a rate," she adds. "It's about constructing pathways - navigating family wealth, rentvesting, and shared ownership."

Trend three: The rise of the rental generation

With buying out of reach for many, more Australians will rent long-term, and in some cases indefinitely.

Heard warns that this shift has wide ripple effects: "A generation being denied access to the housing market will cause reverberations through the entire system," she says.

"When first home buyers can't buy, investors can't exit. When renters can't find homes, essential workers leave the city. And when developers can't make projects viable, the pipeline of new housing dries up."

While many point to tax policies such as negative gearing and the capital gains tax exemption as exacerbating the housing crisis, Jarrett-Dalton says the public conversation about investors also needs to change:

"With the rental market at crisis point, demonising landlords only worsens pressure. If we have no housing, you can't rent. Investors are an essential part of supply."

Where does that leave 2026?

The picture for next year is a mix of rising prices, inadequate supply, and growing inequality between those with family support and those without.

If SQM's forecasts play out, many potential buyers will fall even further behind - not because of lack of effort, but because entry costs continue to climb faster than incomes.

For now, both industry and policy experts agree on one thing: Unless Australia can build more homes, faster and more affordably, the divide in the housing market will only deepen.

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