Australian Property Will Not Crash in 2026
Conflict in the Middle East, oil prices surging, inflation re-accelerating, and the RBA hiking rates for the second time this year. It’s easy to see why property investors might be nervous in 2026.
But beneath the headlines, the structural foundations of the property market tell a different story. Here are five trends happening right now, and what they tell us about where the property market is heading.
- Financial commitments are surging
When credit expands, property prices follow.
The mechanism is straightforward – property is almost universally purchased with debt, which means the volume of credit flowing into the market directly determines the level of purchasing power available. More credit means more buyers, higher bids, and more money available to fuel rising prices.
The latest ABS data indicates that the total value of new loan commitments have hit record levels heading into 2026, across both owner occupier and investor lending. In the final quarter of 2025, new owner occupier lending surpassed $65 billion, while investor lending was just shy of $43 billion – both a sizable increase upon the COVID-era peak when interest rates were near zero.
This is not the behaviour of a market on the verge of a crash, but a sign of renewed confidence. A market about to fall would exhibit credit contraction and shrinking levels of buyer confidence. Right now, buyers are not retreating but committing capital at record levels.
- Household balance sheets remain strong
A property crash requires distressed sales. Distressed sales require financial distress. And financial distress requires households to be stretched beyond their capacity to service debt. The evidence suggests that Australian households are not near that point.
ABS data shows household wealth reached $18,848 billion by the end of last year – growing by $454 billion in a single quarter. Assets levels are expanding nearly eight times faster than liabilities. The aggregate household debt ratio sits at just 15 cents for every dollar of assets held.
These are the characteristics of an economy that can sustain significantly more house price growth.
Recent data shows total mortgage arrears sat at 1.45% in December 2025, below the long-run average of 1.49% across the full data series, and well down from the post-rate-hike peak of 1.69% recorded in June 2024. Critically, arrears fell in every quarter of last year, suggesting that households had actively strengthened their position ahead of 2026.
- Construction costs have set a new price floor
When the cost of building a new home rises, the value of existing homes cannot fall below it for long. This is the replacement cost principle, which is one of the most reliable forces in property economics.
When construction costs rise faster than market prices, new supply falls, and existing stock becomes scarcer. Developers are not charities!
Since 2019, the cost of building a home in Australia has risen 38% according to ABS measures. That sudden lift in costs around 2021 was driven by the COVID supply shock, which has permanently repriced the baseline cost of residential construction. Construction costs have not retreated once since 2019.
Now, the conflict in Iran is creating COVID-style price action once again.
As reported by the ABC, emergency fuel levies are being applied to everything from sand and concrete to bricks and roof flashings. PVC resin for plumbing pipes has surged approximately 40% in a single month. Freight costs on imported materials have increased tenfold in some cases. Diesel has reached $3.14 per litre nationally.
Critically, official construction cost data has not yet captured the full weight of these recent shocks. The latest data through to December 2025 already showed a slight re-acceleration in costs, but the Iran-driven cost surge will not be reflected in the data until later this year.
COVID demonstrated that the relationship between construction cost increases and supply reduction is not linear but exponential. For example, when costs rise 10%, the impact upon supply is much greater than 10%. During the COVID cost surge, costs rose approximately 30%, and the result was widespread project cancellations, record levels of builder insolvencies, and a total collapse in new supply despite record demand.
The early signs of this impact are significant, and they point in a similar direction. Even at the low end, forecasts indicate a rise in construction costs this year – meaning a rise in the intrinsic, minimum value of every home in the country.
- The supply pipeline is worsening, not improving
Australia needs 60,000 new dwellings completed every quarter to meet the federal government’s Housing Accord target of 1.2 million homes over five years. In the June quarter of 2025, it delivered 40,524. That is a shortfall of nearly 20,000 dwellings in a single quarter, and the trend is moving in the wrong direction.
These are the most recent figures published by the ABS, with September quarter 2025 data not yet available at the time of writing.
Completions have fallen in each of the last two quarters of available data. Both detached and attached dwelling completions are declining simultaneously. The supply of new dwellings is getting worse over time.
Construction insolvencies remain at historically elevated levels, with APRA reporting 2,324 recorded in just the first nine months of the current financial year. Skilled labour shortages persist across every state, and rising construction costs are making once profitable projects unviable. Against the backdrop of elevated population growth, the effect of this deficit continues to compound for every quarter that it is not closed.
- Population growth is overwhelming supply
Property markets are ultimately a function of people, and Australia’s population is growing at a pace that current housing supply cannot come close to matching.
Net overseas migration reached a post-COVID peak of approximately 555,000 in the year to September 2023, which was more than double the long-run average of 248,000. Migration has since moderated but remains well above that long-run average. The latest ABS estimates show net overseas migration of approximately 306,000 in the year to June 2025 – still 23% above the historic norm.
Based on the RBA’s own housing market model, population growth reduces rental vacancy rates, pushes rents higher, and flows directly through to higher housing prices. This mechanism holds regardless of the income profile or visa category of those arriving.
Vacancy rates demonstrate this effect clearly. Every major Australian market sits well below the 3% level considered to represent a balanced rental market. Vacancy rates in cities like Perth, Adelaide and Brisbane have spent extended periods below 1%.
Furthermore, there is a lack of credible push factors that might drive a meaningful reversal of population growth. Australia remains one of the most desirable destination countries in the world with a strong labour market, stable institutions and comparatively high living standards.
Conclusion
The Iran conflict is real, inflation is re-accelerating, and the RBA has hiked rates twice already this year. It would be dishonest to pretend that these forces have no impact.
But property markets are moved by key factors like credit levels, household finances, development economics, supply pipelines and population flows. Across every one of these measures, the structural case for house price growth remains strong:
- New loan commitments have hit record levels across both owner occupier and investor lending.
- Household wealth grew by $454 billion in a single quarter, with a debt ratio of just 15 cents per dollar of assets held.
- Construction costs are 38% above 2019 levels and rising. The Iran shock will push them higher still, raising the replacement cost floor for every existing home.
- Australia is delivering 20,000 fewer dwellings per quarter than its own housing target requires, and the pipeline is worsening.
- Net overseas migration remains 23% above its long-run average, overwhelming a supply base that is already critically undersupplied.
Investors who ignore the data and focus on the headlines will look back on 2026 as a missed opportunity. A reliable principle in investment says that the best time to buy is when others are fearful. If anything, recent developments have only strengthened the outlook for Australian property, and the rewards are there for those paying attention.