The Australian housing market is entering a period of steady growth, driven by low supply and a hopeful outlook for rate cuts. As national property values rise for the sixth consecutive month, key trends are shaping the future of both the buyer and rental markets.
For many Australians, the dream of homeownership has long been tempered by rising prices and scarce availability. But as 2025 progresses, a combination of factors is providing both hope and challenges for prospective buyers and renters alike. Property values are climbing, but affordability remains a significant issue. Amidst these trends, the rental market is under increasing pressure, as vacancy rates drop to historic lows.
Property Values on the Rise Amid Tight Supply
The Australian property market continues its recovery, with national property values increasing consistently since February 2025. According to Cotality’s August 2025 report, national property values have risen by 0.6% per month since May, maintaining a stable growth pattern. This growth is attributed to low supply and expectations of future interest rate cuts, which are anticipated to boost borrowing capacity.
One of the primary factors driving this growth is the severe imbalance between the number of homes available and the demand from buyers. National listings remain 20% below the five-year average, indicating a clear shortage of homes on the market. At the same time, sales volumes have risen by 1.9%, showing that demand remains resilient. Auction clearance rates have remained strong, staying above the decade average since mid-May, further reflecting a competitive market environment.
However, while the national market is growing steadily, the gap between house and unit values continues to widen. The national median house value is now 32.3% higher than the median unit value, a gap that highlights the ongoing preference for more space among buyers. This trend is particularly evident in larger cities like Sydney, where house values are substantially higher than units, creating significant affordability challenges for first-time buyers.
Rental Market Struggles: Vacancy Rates at Historic Lows
As the property market recovers, the rental market is experiencing its own set of challenges. Vacancy rates have hit historic lows, with the national rate standing at just 1.7% as of July 2025. This extreme tightness is causing rental prices to accelerate once again, with national rents rising by 1.1% over the past quarter.
Renters are facing increasing financial strain, as affordability becomes a growing concern. According to the report, the median-income household now dedicates around one-third of its pre-tax income to cover rent. This situation is particularly difficult for younger and lower-income renters, who are increasingly feeling the pressure of rising costs. With supply shortages persisting, the rental market is expected to remain tight, further exacerbating housing affordability issues.
