Key takeaways
Australia’s housing shortage is getting worse, with the government already falling almost 55,000 homes short of its annual housing target. Persistent undersupply continues to support long-term property values.
Building new homes remains financially difficult because construction costs, interest rates, and land prices are all rising. Many projects simply don’t stack up commercially for developers.
The labour market is softening, with unemployment rising to 4.5% and jobs falling in April. However, workforce participation remains historically high, showing the economy still has underlying resilience.
Auction markets are softer but far from collapsing, despite higher interest rates and recent property tax changes. Buyers are becoming more cautious and selective rather than disappearing altogether.
Short-term sentiment is being challenged by higher rates and policy uncertainty, but long-term property fundamentals remain strong. Periods like this have historically created good opportunities for strategic investors.
Australia’s property market has just been hit by a fresh wave of uncertainty.
Last week, Dr Andrew Wilson and I discussed the Federal Government’s major property tax changes, and as we said at the time, these changes matter because they alter the rules for investors, but they don’t magically fix the deeper problems in our housing market.
And this week, the data makes that even clearer.
Because while politicians are trying to steer investors towards new dwellings, the latest numbers show building costs are rising again, land prices are still climbing, and the Federal Government’s 1.2 million home target is already well behind schedule.
In fact, the first year of the government’s new housing target has delivered 185,088 dwelling completions, leaving a shortfall of 54,912 homes - around 30% below where we need to be.
That’s a very big miss after just one year.
And at the same time, the labour market is starting to show some cracks, with unemployment rising to 4.5% in April, jobs falling by 18,600 over the month, and the number of unemployed Australians rising by 33,000.
Yet participation remains historically high at 66.7%, so this isn’t a simple “weak economy” story either.
So in today’s Property Insiders chat, Dr Andrew Wilson and I unpack what’s really happening beneath the headlines.
Are auction markets already reacting to the Budget changes and higher interest rates?
Are buyers pulling back, or are they simply becoming more selective?
And most importantly, if government policy is trying to encourage more new housing, what happens when the economics of development still don’t stack up for many builders and developers?
Because that’s the part of this story many commentators are missing.
It’s one thing to offer tax incentives for new dwellings. It’s another thing entirely to create enough feasible projects, at prices buyers can afford, in locations people actually want to live.
The labour market is still holding up, but cracks are appearing
Watch this week’s Property Insider chat as Dr Andrew Wilson discusses the latest labour market data.
The April unemployment rate rose to 4.5%, jobs fell by 18,600 over the month, and the number of unemployed Australians rose by 33,000.
That suggests the economy is gradually softening under the weight of higher interest rates.
But this isn’t a simple weak-economy story either.
Participation remains historically high at 66.7%, which means more Australians are still either working or actively looking for work.
What that means is that more Australians are actively engaged in the workforce than at almost any previous point in our history.
So while the unemployment rate is drifting higher, it's partly a reflection of more people entering or staying in the labour force, which is actually a sign of underlying confidence in the economy rather than the reverse.
Over the year to April, total employment was still up 0.9%, even though the number of unemployed has grown by 12.3% over the same period.
That combination - growing employment alongside a faster-growing pool of job seekers - is what happens when participation rises. It's not a contradiction, it's just how the maths works.
None of that is to dismiss the April numbers entirely. There is genuine softness emerging in the labour market, and three consecutive monthly interest rate rises from the RBA have clearly started to weigh on business confidence and hiring decisions.
Dr. Wilson's view is that higher rates will continue to put pressure on employment through 2026, and that's a reasonable expectation.
That’s important because a strong labour market has been one of the key supports underneath the housing market over the last few years.
People can complain about higher rates, and understandably so, but while most people keep their jobs, most homeowners can keep meeting their mortgage repayments.
Of course, if unemployment continues to rise, that changes the mood and consumer confidence weakens, borrowers become more cautious and banks become more conservative.
And buyers start taking longer to make decisions.
That’s why we will be watching the labour market closely over the next few months.
However, the latest unemployment figures will most certainly make the Reserve Bank pause the thought of any interest rate hikes in the near future.
The housing target is already missing the mark
In mid-2024, the Federal Government announced an ambitious five-year target of 1.2 million new dwellings, requiring 240,000 completions per year across the country.
The latest ABS dwelling completions data for 2024-25 - the first full year of that target period - shows that Australia completed 185,088 new homes.
- Also read:Why Australia’s Housing Crisis Just Got More Complicated | Property Insiders
- Also read:This week’s Australian Property Market Update – Latest Data, State by State May 26th 2026
- Also read:Latest Property Price Forecasts. Australian Property Market Outlook 2026: Where To Now After The Rate Rise & Budget Changes.
- Also read:Adelaide housing market update | May 2026
- Also read:National Weekly Auction Report – May 23rd 2026 | Auction Numbers Rise and Clearance Rates Steady
That's a shortfall of 54,912 in year one alone, sitting 30% below the annual target.
In this week's Property Insider chat, we explain that this housing shortfall will not be fixed by tax changes on the demand side, and that, for property investors, this persistent undersupply is an important fundamental underpinning of our housing markets.
Population is growing, household formation is continuing, and new supply is consistently falling short of what's needed. That combination has historically been very good for the values of well-located existing properties over time.
The economics of building still don’t stack up
Watch this week's Property Insider chat with Dr. Andrew Wilson reports that national house building costs are rising again, with building costs dramatically higher than they were before the pandemic.
The annual growth rate in national house building costs has also risen again, sitting at 4.5% over March after the extraordinary surge we saw through the pandemic building boom.
This means that, at the moment, the feasibility of many new housing projects remains very challenging.
Now, of course, 4.5% is nowhere near the 23.2% annual increase Andrew’s chart records during the peak of the building cost spike.
But the important point is that costs are still rising from a much higher base and that matters because developers don’t make decisions based on political ambition.
They make decisions based on whether a project is financially viable.
If construction costs are too high, interest costs are too high, presales are too slow, and end buyers can’t afford the finished product, then the project simply doesn’t proceed.
And no tax change for buyers can fully solve that.
Land prices are another part of the problem
It’s also worth remembering that construction costs are only one part of the supply challenge.
The cost of land is another, with house building block prices still rising strongly in a number of capital city markets, as Dr Andrew Wilson explains in this week’s Property Insider chat.
The annual rises in some markets were striking with Brisbane building block prices up 30.6% over the year, while Perth surged 53.9%.
What all of this tells us collectively is that the cost of acquiring a block of land on which to build a home is rising sharply across most of the country, and that rising land cost is one of the two key pressures - alongside labour and materials costs - making it so difficult to deliver the new housing supply that Australia desperately needs.
Auction markets are softer, but not collapsing
The latest auction results also tell an interesting story.
Capital city auction numbers bounced back this week, while clearance rates were broadly steady overall despite the mixed response to the Federal Budget changes and the pressure from three consecutive monthly RBA interest rate rises.
The national weekend auction market reported an average clearance rate of 52,.% over the past week, which was lower than the 54.7% reported over the previous week – due to a very low result from Brisbane - and again well below the 63.5% reported over the same week last year.
Auction markets are likely to continue to come under pressure following the property tax changes announced in the Federal Budget, together with the impact on affordability of the three consecutive monthly rises in RBA interest rates, results so far have been relatively steady.
What this week's data really means for your investment strategy
When I pull all of this together, a consistent theme emerges - Australia has a housing shortage that is getting worse, not better.
The Government's supply target is already 30% behind in year one, building costs are at record highs and still rising, and land prices across most of the country are appreciating at a pace that reflects a fundamental scarcity of developable land in the locations where people actually want to live.
That dynamic is the bedrock of why well-located residential property in Australia has been such a reliable long-term wealth builder, and nothing in this week's data changes that underlying reality.
At the same time, the market is navigating genuine short-term headwinds.
Higher interest rates affect borrowing capacity and monthly cash flow. The Budget changes have created uncertainty that will take time to digest. And the broader global economic environment remains volatile enough to keep consumer confidence cautious.
In other words, while the long-term fundamentals are sound, the short-term sentiment is challenged.
Interestingly, that combination describes almost every good buying opportunity I've seen in fifty years of property investment.
The investors who do well over time are the ones who understand the difference between the short-term noise and the long-term signal.
They use periods of uncertainty to research carefully, get their financial structures right, and position themselves in the kinds of assets - well-located, investment-grade, owner-occupier quality - that will benefit when the cycle turns, as it always does.
If you'd like to talk through what all of this means for your specific investment strategy, the team at Metropole would be happy to help you think it through. Just click here now and organise a wealth discovery chat with one of our wealth strategists.
