Housing affordability across Australia and New Zealand deteriorated further in 2025 despite housing price growth moderating from the rapid increases of previous years, as income growth failed to keep pace and rental markets remained under severe pressure.

Australian capital city median house prices increased approximately 4.2% in 2025, according to CoreLogic data, a significant deceleration from the 8-10% annual growth rates seen in 2023-2024. However, this modest price growth occurred against essentially flat real income growth, meaning affordability continued worsening.

Sydney median house prices reached approximately $1.32 million by end-2025, up from $1.27 million at the start of the year. While the 4% increase is modest in recent historical context, it takes prices to levels that are simply unattainable for median-income households. A household earning the Sydney median income of around $110,000 can’t service a mortgage on the median house without substantial deposit assistance.

Melbourne prices showed similar dynamics, reaching around $920,000 by end-2025. The Victorian capital saw slightly faster price growth of approximately 5.5% during the year, driven partly by interstate migration from Sydney and strong population growth from immigration.

Brisbane’s housing market remained relatively stronger, with prices increasing 6.8% to reach a median of approximately $780,000. The Queensland capital continues to benefit from interstate migration and a persistent housing supply deficit that’s proving difficult to address despite increasing construction activity.

Perth experienced the strongest price growth among major capitals, up 8.2% in 2025 to reach around $640,000 median. Western Australia’s economic outperformance driven by resources sector strength has translated directly into housing market dynamics, with demand outstripping supply additions.

Adelaide and Hobart both saw modest price gains of 3-4%, while Darwin and Canberra were essentially flat. The variation across cities reflects different supply-demand balances and local economic conditions.

New Zealand’s housing market told a somewhat different story. National median house prices declined approximately 2.5% in 2025, the third consecutive year of declines from the 2021 peak. Auckland median prices fell 3.2% to around NZD 1.05 million, while Wellington dropped 4.1% to NZD 880,000.

However, New Zealand’s price declines haven’t translated into improved affordability in any meaningful sense. Mortgage interest rates rose during much of 2025, offsetting the impact of lower house prices on serviceability. A household buying at lower prices but facing 6.5-7.0% mortgage rates isn’t necessarily better off than one buying at higher prices with 5% rates.

Rental markets in both countries remained extremely tight throughout 2025. Australian rental vacancy rates averaged just 1.2% nationally, with many capital city areas experiencing vacancies below 1%. This imbalance between rental supply and demand drove significant rent increases.

Sydney median rents increased 9.2% in 2025, reaching around $700 per week for houses and $630 for apartments. Melbourne rents rose 8.5%, Brisbane rents jumped 10.3%, and Perth saw extraordinary rent growth of 14.2%. These increases substantially exceed wage growth, meaning renters are dedicating larger portions of income to housing costs.

New Zealand rental markets faced similar pressures. National median rents increased 7.8% in 2025, with Auckland rents up 8.5% and Wellington up 7.2%. The healthy homes requirements and other regulatory changes have reduced rental supply in some areas as landlords exit the market, exacerbating tightness.

First home buyer activity showed interesting patterns in both countries. In Australia, first home buyers represented approximately 27% of purchases in 2025, up from 24% in 2024. However, this increase was driven primarily by parents providing deposit assistance rather than improved fundamental affordability.

The bank of mum and dad functioned as one of Australia’s largest mortgage lenders in 2025, with an estimated $35 billion in parental assistance provided to help children purchase homes. This intergenerational wealth transfer is creating a two-tiered system where those with parents able to provide assistance can access the market while others can’t.

Housing construction activity increased modestly in 2025 but remained insufficient to address accumulated deficits. Australian dwelling completions totalled approximately 168,000 units, up from 162,000 in 2024 but well below the estimated 200,000+ annual requirement to keep pace with population growth and household formation.

New Zealand housing construction was similarly insufficient. Around 38,000 dwellings were completed in 2025, against an estimated requirement of 45,000-50,000 to adequately house the population. The country continues to fall further behind on accumulated housing deficits.

Planning and approval systems remain significant constraints on housing supply in both countries. Development applications often take 12-24 months to progress through various approval stages, adding costs and uncertainty that discourage construction. Reforms to planning systems have been discussed extensively but implementation remains limited.

Construction costs remained elevated throughout 2025, though the extreme escalation of 2021-2023 moderated. Labour shortages in construction trades continue constraining industry capacity, with many builders reporting they could build more homes if skilled workers were available.

Social housing waitlists grew longer in both countries during 2025. Australia’s social housing waitlist exceeded 200,000 households by year-end, while New Zealand’s public housing register reached around 25,000 applicants. Government investment in social housing increased but remained insufficient to meaningfully reduce waitlists.

The build-to-rent sector expanded in Australia during 2025, with several large-scale projects reaching completion and leasing. This institutional investment in rental housing should help increase rental supply over time, though current projects represent just a small fraction of total housing stock.

Innovative housing models received increased attention in 2025. Shared equity schemes, co-housing developments, and modular construction all gained traction, though remain niche solutions rather than mainstream approaches. The industry continues searching for methods to deliver housing more efficiently and affordably.

Looking at affordability metrics, the ratio of median house prices to median household income deteriorated further in most markets. Sydney’s price-to-income ratio reached approximately 12:1, while Melbourne sat at 8.5:1 and Brisbane at 7.2:1. These ratios are well above the 3-4:1 levels historically considered affordable.

The outlook for 2026 doesn’t suggest meaningful affordability improvements. Most forecasters expect modest house price growth to resume across Australian markets, while New Zealand prices may stabilise after their recent declines. Without substantial income growth or major housing supply increases, affordability will remain challenged.