The next 12 months are expected to bring a more complex period for the Australian economy. Persistent inflation, global volatility and domestic pressures are likely to create an increasingly fragmented property market. What are the key forces shaping the outlook, and how can Australians position themselves to remain financially resilient amid continued uncertainty?
The macroeconomic factors that will change the property landscape in 2027
Domestic factors
Interest rates
Australians have faced not one, not two, but three interest rate hikes in 2026 alone. The cash rate, currently at 4.35%, is expected to remain relatively stable over the next 12 months. However, there is still a 20% chance of another increase next month if inflation rises again in July. A further rate hike would place additional pressure on residential borrowing costs and could weaken investor confidence over the short to medium term.
Population increase
Australia’s population grew by 412,500 people, or 1.5%, in 2024–25. Net overseas migration remained the primary driver, contributing 306,000 people (or 73%) of total growth, although this was significantly lower than the 429,000-figure recorded in 2023–24.
Capital cities accounted for 324,700 additional residents, representing growth of 1.8%. Overseas migration contributed 258,100 people, while natural population growth added 96,300. These gains were partially offset by a net internal migration loss of 29,800 people.
Melbourne recorded the largest numerical increase, adding 105,000 residents, while Perth achieved the fastest growth rate at 2.4%. Despite Melbourne’s strong population growth, its property market has softened, while Perth has experienced a substantial price boom. The contrasting performance of these two cities highlights the influence of broader economic conditions beyond population growth alone pointing to mounting challenges within Melbourne’s economy.
Regional Australia also expanded, adding 94,700 residents (or 1.1%) during 2024–25. This trend could accelerate as worsening affordability encourages more Australians to relocate from expensive capital cities such as Sydney and Melbourne.
Continued population growth across both metropolitan and regional Australia will place significant additional pressure on an already constrained housing supply, intensifying demand for new homes and supporting property markets where supply remains limited.
Vacancy rate
The national residential vacancy rate rose to 1.3% for June, up from 1.2% in May. Capital cities remain tight with Darwin recording just a 0.3% vacancy rate meaning only 64 dwellings were available according to SQM Research.
The following table breaks down the change in vacancy rate and number of dwellings by capital city for the periods of June 2025 and June 2026.
| City | Vacancy Rate June 2025 |
Vacancies June 2025 |
Vacancy Rate June 2026 |
Vacancies June 2026 |
Change in Vacancies from 2025-2026 |
|---|---|---|---|---|---|
| Sydney | 1.6% | 11,482 | 1.6% | 11,957 | 4.1% increase |
| Melbourne | 1.8% | 9,414 | 1.6% | 8,640 | 8.2% decrease |
| Brisbane | 0.9% | 3,147 | 0.9% | 3,065 | 2.6% decrease |
| Perth | 0.8% | 1,457 | 0.6% | 1,247 | 14.4% decrease |
| Adelaide | 0.8% | 1,268 | 0.7% | 1,096 | 13.6% decrease |
| Canberra | 1.5% | 920 | 1.7% | 1,063 | 15.5% increase |
| Darwin | 0.5% | 115 | 0.3% | 64 | 44.3% decrease |
| Hobart | 0.6% | 175 | 0.7% | 185 | 5.71% increase |
| National | 1.3% | 39,229 | 1.3% | 39,027 | 0.51% increase |
Source: SQM Research
If current trends continue though to June 2027, the following outcomes may emerge:
- Sydney, Brisbane and Hobart are expected to record only marginal movements in vacancy rates, ranging from 0.0 to 0.2 percentage points compared with June 2026.
- Melbourne’s available dwelling supply could decline by a further 5–10%, potentially reducing its vacancy rate to between 1.4% and 1.6%.
- Perth’s vacancy rate is likely to remain under downward pressure, supported by strong residential property investment and the state’s rapid annual population growth of 2.2%.
- Adelaide may experience a modest increase or decrease in available rental dwellings, reflecting mixed investor sentiment and relatively stable population growth.
- Canberra’s vacancy rate could rise above 2%, following a 9.58% increase in available dwellings between May and June 2026 alone.
- Darwin’s rental market is expected to remain exceptionally tight. An undersupply of new housing contributed to a 44.3% decline in available dwellings over the previous 12 months. If this trend persists, the number of vacant properties could fall to single digits, placing further upward pressure on rents and encouraging landlords to reprice properties in response to historically low availability.
Housing supply
It is a fundamental principle of economics: when demand increases without a corresponding rise in supply, prices come under upward pressure. Against this backdrop, the government’s proposed restriction of negative gearing benefits to newly built properties, together with the replacement of the 50% capital gains tax discount with a minimum 30% tax rate and cost-base indexation, has unsettled existing investors and weakened confidence across many property markets.
Reduced investor participation is further constraining the supply of rental properties at a time when tenant demand continues to grow. Meanwhile, uncertainty among prospective buyers and investors could also weigh on new housing demand, placing future dwelling approvals and construction activity at risk.
Higher rent price and yields
The undersupply of housing will see rent prices increase. Investors will look towards undersupplied capital cities and regional areas that are predicted to see increased yields.
Cost-of-living and household pressure
Persistent inflation has placed considerable pressure on Australian households, with the cost of mortgages, fuel, electricity, groceries, healthcare, entertainment and insurance continuing to rise. Combined with the RBA’s three interest rate increases in early 2026, these tighter financial conditions are likely to keep economic growth subdued as households reduce discretionary spending and seek to minimise the impact of rising bills.
Unemployment and wage growth
The labour market is beginning to soften, with overall employment growth slowing and wage growth remaining contained. A decline in job advertisements across platforms such as LinkedIn, SEEK and CareerOne points to weaker hiring demand, while unemployment is projected to rise from 4.4% in 2026 to 4.8% by 2028. This trend is likely to be driven partly by growing cost pressures on businesses already facing compressed profit margins.
For the investment property market, the effects are likely to be reflected in weaker investor confidence. Entry-level investors may also delay investment decisions and instead prioritise purchasing and servicing their own homes.
Global factors
Global growth vs. Australia
As Australian households continue to face cost-of-living pressure, the global market has remained resilient in early 2026 with growth supported by AI-driven demand.
AI and data centres
The rapid integration of artificial intelligence into the way we work and live is accelerating demand for new data centres to support expanding digital, commercial and industrial activity. Increased investment in these facilities including the electronic infrastructure and equipment required to operate them is contributing to stronger production, trade and export activity, particularly across Asia.
Australia’s major capital cities are also emerging as important data centre hubs with Sydney home to almost 100 operational or planned facilities, while Melbourne has approximately 56 operating data centres and nearly 30 additional projects in the development pipeline.
The economic benefits of these data centres are currently short-term for the construction industry as maintenance for these data centres require vastly less full-time workers.
Geopolitical conflict and tariff policies
The conflict between the United States and Iran has contributed to a sharp rise in fuel prices. With tensions between the two countries continuing to fluctuate, however, the outlook for fuel costs over the next 12 months remains highly uncertain.
Adding to this pressure is the Australian Government’s withdrawal of fuel subsidies, which reportedly contributed to a 16-cent-per-litre increase during the first week of July. A further 16-cent increase could take effect in early August, potentially pushing prices at the pump to $2 per litre.
Fuel costs could face additional upward pressure following US President Donald Trump’s introduction of a toll on vessels passing through the strategically important Strait of Hormuz. The Trump administration has also imposed a temporary 10% global import surcharge on most Australian goods entering the United States and suspended the de minimis exemption. As a result, all shipments to the US, including low-value parcels worth US$800 or less, are now subject to applicable tariffs.
These measures have created substantial challenges for Australian businesses, particularly small e-commerce operators that have historically relied on a significant US customer base.
Despite these pressures, Australia’s economy remains resilient, supported by a broad network of free-trade agreements with major international partners, including the United States.
What’s the verdict on these impacts on Australia?
An assessment of the broader macroeconomic landscape reveals a varied outlook across Australia’s capital cities. Selected markets may offer opportunities for both short and long-term growth, while other areas are better suited to investors with a longer investment horizon. Some locations may present less favourable conditions over the next 12 months and warrant a more cautious approach.
Assessment of market price growth
| City | Past Month |
Past 3 Months |
Past 12 Months |
Projected Next 12 Months |
Buy Now? |
|---|---|---|---|---|---|
| Sydney | -1.2% | -3.2% | 0.3% | -3.3% | No |
| Melbourne | -1.0% | -2.6% | -0.9% | -4.4% | Yes* |
| Brisbane | 0.3% | 1.3% | 17.4% | 5.5% | Yes |
| Adelaide | 0.0% | 1.3% | 11.6% | 6.0% | Yes |
| Perth | 0.7% | 2.0% | 23.9% | 7.4% | Yes |
| Canberra | -0.6% | -1.3% | 2.9% | -2.0% | No |
| Darwin | 1.4% | 5.0% | 19.8% | 6.5% | Yes |
| Hobart | 0.6% | 1.4% | 9.3% | 5.8% | Yes* |
*Yes for Melbourne and Hobart but only with a long-term view and plan to hold the property for 7-10 years.
- Sydney: Stretched affordability and the sensitivity of its premium market leave Sydney more exposed to changing economic conditions. As a result, price growth is likely to remain fragile and limited over the next 12 months.
- Melbourne: Despite strong population growth, relatively high vacancy rates and a larger housing supply are expected to constrain property price growth.
- Brisbane: Continued population growth, tight vacancy rates and limited property listings are likely to maintain upward pressure on values.
- Adelaide: Tight rental conditions and relative affordability continue to offset slower population growth, supporting Adelaide’s resilience and appeal to property investors.
- Perth: Perth currently demonstrates some of the strongest market fundamentals, including rapid population growth, low vacancy rates, limited listings and sustained price momentum.
- Canberra: Canberra is expected to remain stable rather than deliver substantial growth, reflecting balanced vacancy conditions and softer cyclical drivers.
- Darwin: A comparatively low entry price, strong rental yields and exceptionally tight vacancy conditions provide the foundation for further price growth and attractive investment opportunities.
- Hobart: Tight rental conditions remain supportive; however, weaker population growth and the city’s geographic isolation may limit the potential for sustained market acceleration.
What else could change this outlook?
There are upside and downside risks when predicting the property market for the next 12 months ahead. These are the factors that will influence changes in property prices.
Upside risks
- Earlier interest-rate reductions: Inflation returns to the target range sooner than anticipated, allowing interest-rate cuts to be brought forward and improving borrowing capacity.
- Stronger first-home buyer demand: Government support schemes generate greater-than-expected demand for affordable houses and apartments.
- A worsening supply shortage: Elevated construction costs, planning delays and labour shortages keep new housing supply below government targets, placing further upward pressure on established property prices.
- Sustained population growth: Strong migration and limited housing availability intensify competition across both rental and owner-occupier markets as population growth remains elevated.
- Faster investor adaptation: Investors adjust to policy changes more quickly than expected, reducing the potential impact of budget reforms on property demand.
Downside risks
- Further rate increases or delayed cuts: Persistent inflation could lead to additional interest-rate rises or postpone anticipated reductions, further constraining borrowing capacity.
- A sharper-than-expected investor withdrawal: Changes to negative gearing and capital gains tax arrangements could trigger a more substantial decline in investor activity, particularly in New South Wales.
- Rising unemployment: A weakening labour market could undermine consumer confidence, reduce demand for new borrowing and increase the risk of distressed property sales.
- A faster recovery in housing supply: If new housing supply improves more quickly than anticipated, price pressures could ease across previously high-growth markets.
- Prolonged buyer caution: Continued cost-of-living pressures and broader economic uncertainty may cause prospective buyers to delay purchasing decisions for longer than expected.
What can I do?
Book your complimentary 60-minute consultation to gain a clearer understanding of the property investment market through transparent, data-driven insights. We will help you identify the practical first steps towards building long-term wealth and achieving greater financial freedom.