Housing’s deeper challenge
While housing price growth has softened, supply constraints are likely to keep upward pressure on prices over the medium term.
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Housing price growth in Australia has softened. The Cotality national Home Value Index fell by 0.4% in June, the largest monthly decline since December 2022. This has been led by Sydney (-1.2%) and Melbourne (-1.0%), while the once-booming markets of Brisbane and Perth have slowed to monthly gains of 0.3% and 0.7% respectively.
That is a notable shift after years of healthy price growth, occurring at a rare moment when fiscal and monetary policy are pulling in the same direction on housing demand.
For most of the past few decades, government policy has propped up demand. The 2026-27 Federal Budget delivered a substantial tax package with a strong focus on housing. This included limiting negative gearing to new builds and replacing the capital gains tax discount with cost base indexation, subject to a 30% minimum tax rate. Additionally, a $2 billion Local Infrastructure Fund was announced to support local governments and state-owned utilities to deliver essential infrastructure that supports housing development.
Together, these measures aim to shift the tax system’s advantage away from investors competing for existing homes and improving access for first home buyers.
These fiscal reforms have landed against the backdrop of tightening monetary policy. The Reserve Bank has raised the cash rate three times this calendar year as it works to bring inflation back under control. One outcome of higher interest rates is restricted borrowing capacity and dampened confidence.
The combined effect of tighter monetary policy and investors’ initial reaction to the tax changes has been a softening in the housing market.
However, this change of momentum in the market is very likely to be a short-term story. Cotality’s Home Value index shows that dwelling values are still up 7.3% over the year, and Treasury’s modelling of the Budget’s tax reforms suggest that they will slow the rate of house price increases by just 2 percentage points over the next year or two. Improved affordability remains a long way off, and the structural challenge remains supply.
At face value, the forward pipeline looks to be expanding strongly. According to the Australian Bureau of Statistics (ABS), on a 12-month rolling sum basis, residential building approvals rose 16.6% in the year to May. But this equates to around 203,000 residential properties approved – well short of the 240,000 approvals needed each year to meet the National Housing Accord’s target of 1.2 million homes over five years.
Compounding this problem, an elevated number of approved houses have yet to break ground. As reported by the ABS, the average number of houses approved but not yet commenced over a 12-month period rose to around 12,100 in the year to March 2026, up 8.0% from three years prior. This reflects ongoing capacity constraints within the construction sector.
The number of other residential buildings – which include all ‘non-house’ dwellings such as apartments and townhouses – that have been approved but not yet commenced is trending downward. However, this reflects weaker approvals feeding fewer projects into the pipeline rather than a genuine clearing of the backlog. Large apartment projects often rely on strong off-the-plan sales to secure finance and commence construction, meaning weaker buyer confidence and expectations of slower price growth could also delay new supply.
Fiscal and monetary policy are acting together to soften housing prices. But higher interest rates are cyclical, and Treasury’s modelling suggests the long-run effect of tax changes will be modest. This means that until the supply side catches up, softer prices are likely to be a temporary phenomenon and will offer only limited relief for buyers from an affordability crisis that remains, at its core, unresolved.
This newsletter was distributed on 16th July 2026. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Dan Kelly (Economist, Deloitte Access Economics)
Click on the links below to read our previous Weekly Economic Briefings:
- Deloitte Access Economics' Business Outlook: Oil price retreats, domestic pressures persist (10 July 2026)
- Rates on hold as the RBA balances inflation risks and slowing growth(18 June 2026)
- CFO Sentiment: Holding firm in a crisis (5 Jun 2026)
- 2026-27 Federal Budget: A step forward, but short of ambition (15 May 2026)
