Australia’s housing market is becoming increasingly divided, with property valuers reporting a growing gap between headline house prices and what buyers can actually afford, as higher interest rates, affordability pressures and investor uncertainty reshape the market.
New analysis from property valuation firm Herron Todd White suggests a “genuine two-speed housing market” is emerging across the country, with many buyers compromising on land size, dwelling quality, location and renovation potential to remain within budget, while prestige buyers become more selective and investors reassess their positions.
Peter Maloney, chief executive of Herron Todd White, said the changes were becoming apparent across multiple segments of the property market.
“What our valuers are seeing is a genuine two-speed housing market emerging, where affordability constraints are fundamentally changing the type of property buyers can access at the median price point.”
The findings come as households continue to grapple with elevated borrowing costs and cost-of-living pressures, while uncertainty surrounding future property investment settings weighs on investor sentiment.
According to Herron Todd White’s national review, headline median prices are increasingly failing to capture what buyers are actually purchasing in local markets.
“Headline median prices often fail to tell the full story of what buyers are actually purchasing on the ground in local markets.”
Across many parts of Australia, buyers are compromising on land size, dwelling quality, location or renovation potential simply to remain within budget
“Across many parts of Australia, buyers are compromising on land size, dwelling quality, location or renovation potential simply to remain within budget.”
The result is a housing market where median price growth can mask declining purchasing power, particularly for first-home buyers and middle-income households.
At the investor end of the market, higher interest rates and policy uncertainty are creating fresh challenges.
“Australia’s property market is now facing a rare convergence of pressures, with higher interest rates colliding directly with major policy reform targeting property investors at a time when housing supply is already critically constrained,” Maloney said.
“The risk is that we unintentionally discourage investment in established housing stock precisely when the rental market can least afford to lose supply.”
He said conditions varied considerably between cities and regions.
“What we’re seeing nationally is a market becoming increasingly fragmented. Borrowing costs, affordability pressures and policy uncertainty are all reshaping buyer and investor behaviour in very different ways across the country.”
“Prestige buyers remain active, but they’ve become significantly more selective. Properties requiring substantial renovation, carrying unrealistic price expectations or lacking true scarcity are taking longer to transact.”
The divide is also becoming evident in Australia’s prestige housing market.
Herron Todd White’s Prestige Property Index fell from 65 to 61, with Sydney and Melbourne slipping below the balanced midpoint as wealthy buyers become more selective and cautious.
“Prestige buyers remain active, but they’ve become significantly more selective. Properties requiring substantial renovation, carrying unrealistic price expectations or lacking true scarcity are taking longer to transact.”
“The easing in the HTW Prestige Property Index from 65 to 61 reflects growing caution among high-net-worth buyers as economic uncertainty, Federal Government policy changes to negative gearing and holding costs increasingly influence purchasing decisions.”
“Luxury buyers today are prioritising quality, location and turnkey appeal. They’re willing to pay for exceptional assets, but they’re far less willing to absorb renovation risk or overpay in uncertain conditions.”
Beyond housing, the report points to broader structural changes in the economy. Demand for artificial intelligence infrastructure and large-scale data centres is creating new competition for industrial land in Sydney and Melbourne, adding pressure to already constrained commercial property markets.
“The industrial market is entering a new phase where hyperscale data centres and AI infrastructure operators are now competing directly with traditional logistics and warehousing users for strategic land holdings,” Maloney said.
“Large-scale data infrastructure demand is adding another layer of pressure to an already supply-constrained industrial market, particularly across Sydney and Melbourne.”
“Large-scale data infrastructure demand is adding another layer of pressure to an already supply-constrained industrial market, particularly across Sydney and Melbourne.”
“The long-term implication is that prime industrial land will become increasingly scarce and strategically important, especially where power access, connectivity and transport infrastructure align.”
Meanwhile, agricultural producers are also feeling the effects of global uncertainty, with cotton growers facing higher fuel and fertiliser costs linked to disruptions in the Middle East.
“Global geopolitical instability is increasingly flowing directly into Australian agricultural markets, with fuel and fertiliser costs once again becoming a major concern for cotton producers.”
“The disruption through the Strait of Hormuz has the potential to materially impact diesel and fertiliser pricing, which places additional pressure on already tight operating margins.”
For home buyers, however, the central message from valuers is closer to home. Australia’s housing market may still be producing strong headline numbers, but the type of property available at those prices is changing, creating increasingly different experiences for buyers depending on their budget, borrowing capacity and location.
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