This Housing Number Just Hit a 2-Year High and It’s Bad News | Property Insiders

Headline inflation has eased slightly, falling to four per cent, and normally that would be cause for celebration.

But dig one layer deeper into the recent data and you'll find the number the Reserve Bank actually cares about just hit its highest point in almost two years, and it's still sitting well outside their target band.

At the same time, home building approvals have now fallen for two months running, even as our population keeps growing and the undersupply problem gets worse by the month.

Then there are the auction markets and even though auction clearance rates improved slightly over the past week, they remain well below levels we were seeing a year ago.

Is this just the normal winter slowdown, or are buyers becoming more cautious? And what does all of this actually mean for property investors, and more importantly, what should you be doing about it?

That's what we discuss in this week's Property Insider Chat, with Dr Andrew Wilson, Chief Economist at My Housing Market, and together we're going behind the headlines to explain what's really going on in the Australian property markets and the economy that drives them.

Because the mainstream media headlines rarely tell you the full story, and this week there's a lot more happening beneath the surface than most people realise.

Watch this week’s Property Insider video, then keep reading for my thoughts on what the latest figures mean for property investors.

Inflation has fallen, but the RBA will not be celebrating yet

Australia’s annual headline inflation rate eased from 4.2% to 4.0% in May.

At first glance, that sounds encouraging. However, the figure that will matter most to the Reserve Bank moved in the opposite direction.

Watch this week's Property Insider chat as Dr Andrew Wilson explains that underlying inflation, which strips out some of the more volatile price movements, is generally considered a better measure of persistent inflationary pressure, rose from 3.4% to 3.6%.

That was its highest reading since July 2024 and remains well outside the RBA’s target range of 2% to 3%.

This distinction matters because headline inflation is still being heavily influenced by energy prices and the winding back of government subsidies.

Electricity prices were 21.1% higher over the year, although this was slightly lower than the previous month’s 22.5% annual increase.

Fuel price inflation slowed much more sharply, falling from 18.6% to 7.7%, helped by lower global oil prices. Oil was trading at around US$71.51 a barrel after having briefly risen above US$112 earlier in the year.

However, domestic inflation pressures remain uncomfortable. Rents increased by 3.6% over the year, while the annual rise in new dwelling prices accelerated from 4.7% to 5.6%.

In other words, the cost of housing is still adding to inflation at the same time that higher interest rates are putting pressure on household budgets.

That leaves the RBA in a difficult position when it next meets in August.

Lower fuel prices should help headline inflation over the coming months, but the continued rise in underlying inflation means the Bank cannot assume that inflation is moving sustainably back towards its target.

Electricity prices are distorting the inflation picture

Electricity prices have become one of the most significant and politically sensitive components of Australia’s inflation story.

Government subsidies temporarily reduced measured electricity costs, but as those subsidies have been withdrawn or reduced, electricity prices have risen sharply again.

This does not mean every household suddenly experienced a 21% increase in its underlying energy usage. Part of the movement reflects the way temporary government support affected the measured price index.

Even so, households ultimately pay the bills, and rising electricity costs continue to reduce disposable income.

For property investors, this matters in several ways.

Tenants have less capacity to absorb rent increases when their energy, food, insurance and transport costs are also rising.

Investors are also facing higher maintenance, insurance, land tax and financing costs, meaning the financial pressure is being felt on both sides of the rental relationship.

This is one reason simplistic claims that landlords can simply pass every additional cost on to tenants miss the reality of how rental markets operate. Rents are ultimately constrained by tenants’ ability to pay, even when the supply of rental accommodation remains tight.

Home building approvals fall again

Watch this week's Property Insider chat as we explain that Australia’s chronic housing shortage will not be solved unless we dramatically increase the number of homes being approved, financed and completed.

Unfortunately, the latest figures show we are still moving too slowly.

National dwelling approvals fell by 2.4% in May, following a 2% decline in April.

The headline fall was driven by a 10.4% monthly decline in unit approvals, while detached house approvals rose by 2.8%.

There was some good news in the quarterly trend, with total monthly approvals increasing from around 15,910 in 2025 to 16,571 in 2026.

However, the broader picture remains concerning.

Across the capital cities, annual dwelling approvals are still 24% below their 2016 peak, falling from 189,409 to approximately 143,975.

The apartment sector is in an even weaker position, with unit approvals around 41.3% below their 2016 level.

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This is especially important because apartments and townhouses are required to accommodate population growth in established parts of our capital cities. We can’t house millions of additional Australians purely by extending the urban fringe.

Greenfield housing has an important role, but it also requires new roads, schools, transport, hospitals and other infrastructure. Well-designed medium-density housing in established suburbs is essential if we are serious about improving affordability and increasing supply.

The difficulty is that apartment development remains challenging.

Construction costs have risen, finance is harder to obtain, labour shortages remain, planning approvals are slow, and many projects do not stack up financially at prices buyers can afford, meaning that just because a new apartment complex gets building approval, it doesn't mean it gets built - currently, many developments are not financially feasible.

As a result, the supply response that politicians keep promising is likely to remain much slower than required.

The building recovery remains uneven across the capitals

The latest approval figures also show that the construction pipeline varies considerably from one capital city to another.

Brisbane recorded the strongest year-to-date growth, with total approvals up 30.3% compared with the same period last year.

Perth approvals increased by 12.1%, while Adelaide recorded modest growth of 2.7%.

Sydney approvals were down 5.1%, despite a 17.4% increase in detached house approvals, because unit approvals fell sharply.

Melbourne’s total approvals were 2.1% lower than the previous year, with both houses and units recording small declines.

Melbourne still recorded the largest total number of approvals among the major capitals, but this needs to be considered in the context of Victoria’s rapid population growth.

The absolute number of approvals matters, but so does the relationship between supply and the number of households being formed.

Even markets with rising approvals can remain undersupplied if population growth and household formation increase more quickly.

Auction markets show early signs of stabilising

While the construction data points to a long-term shortage, auction markets provide a more immediate measure of buyer confidence.

Capital city auction clearance rates improved modestly during the first full week of July, although activity remained subdued because of the usual winter slowdown and school holidays.

The improvement in Sydney and Melbourne suggests the market may be beginning to stabilise after several months of weaker buyer sentiment.

However, the year-on-year comparison remains stark. Sydney’s clearance rate was 80.1% during the same week last year, while Melbourne recorded 72.8%.

Adelaide’s clearance rate was above 81% a year earlier, compared with less than 46% today.

This tells us that buyers have become considerably more cautious.

Higher mortgage rates have reduced borrowing capacity, uncertainty around property taxation has affected investor confidence, and expectations of further economic weakness have encouraged some buyers to delay their decisions.

Winter conditions can create opportunities

Softer auction markets do not necessarily mean that quality property suddenly becomes cheap.

Well-located, investment-grade properties still attract competition because they remain scarce.

However, weaker sentiment can reduce the sense of urgency that encourages buyers to overpay.

Vendors who need to sell may become more flexible, properties may take longer to sell, and buyers can have more time to conduct proper due diligence.

This creates opportunities for strategic investors with secure finances, adequate cash-flow buffers and a long-term plan.

The key is to recognise that a softer market does not make every property a good investment.

Some properties are cheap because they lack scarcity, have poor owner-occupier appeal or are located in areas with weak long-term fundamentals. Those assets may remain cheap for good reason.

Investors should continue to focus on properties in locations where household incomes are rising, supply is constrained and affluent owner-occupiers are prepared to pay a premium.

What this means for property investors

The latest figures reinforce the growing divide between short-term market conditions and long-term housing fundamentals.

Buyer confidence has weakened, and the RBA’s inflation problem means borrowers should not expect rapid relief from higher interest rates.

At the same time, Australia’s housing supply remains inadequate, particularly in the apartment sector.

That combination is likely to produce a more fragmented market.

Some properties will struggle because buyers have less borrowing power and are becoming more selective. Quality properties in desirable locations will remain relatively resilient because their scarcity has not changed.

Over time, the continued shortage of new housing will place further pressure on both prices and rents, although the path will not be smooth and every market will perform differently.

This is why investors need to look beyond the next interest rate announcement or the latest weekly clearance rate.

The most successful property decisions are based on a strategic plan, an understanding of your cash flow and borrowing capacity, and careful selection of assets with the right long-term fundamentals.

There will always be uncertainty in property markets. Today’s uncertainty may be creating a useful window for well-prepared investors, particularly while many buyers remain distracted by short-term headlines.