5 factors driving the Australian property market in 2025

As 2025 begins, Australia’s property market is coming off the back of a fascinating year of mixed performances. 

Some markets continued to surge while others slowed under the weight of high interest rates and affordability pressures. Could there be another rebound ahead or will those pressures keep growth to a minimum? 

We spoke with leading property analyst and co-founder of AllenWargent Property Buyers, Pete Wargent, to get his take on the key drivers set to shape the Australian property market in 2025. 

From interest rates to supply shortages, population growth, and affordability constraints, there are a number of critical factors at play. Find out how they might impact sellers in the coming year.

The 2024 property market was a mixed bag

Last year was a story of contrasting performances across Australia’s major property markets — one which Mr Wargent described as a “bifurcated market,” where different cities experienced vastly different conditions.

“Perth, Adelaide and Brisbane all had big years. Perth had 20-plus per cent growth, Adelaide was still booming from 2023, and Brisbane had double-digit growth,” Mr Wargent explained.

These markets saw continued demand fueled by population growth, housing shortages, and relative affordability compared to Sydney and Melbourne.

However, conditions in Australia’s two largest cities were notably cooler. “Sydney and Melbourne were much more subdued throughout the year for different reasons. In fact, towards the end of the year, prices were falling in both cities,” Mr Wargent said.

In Melbourne, mounting state debt and increased land and property taxes created headwinds for the market, while Sydney faced affordability challenges due to its higher price point. Overall, the pace of growth slowed as interest rates stayed high and affordability pressures intensified.

5 key drivers of the property market in 2025

Looking ahead, several major forces are likely to influence the direction of the market throughout the next 12 months.

1. Interest rates and inflation

Interest rates will remain a crucial factor in 2025, with the Reserve Bank of Australia (RBA) holding the cash rate at a high 4.35 per cent since November 2023.

However, inflation has returned to within the RBA’s target range, and forecasters are predicting rate cuts will come within the first half of the year. Mr Wargent noted that “markets are pricing in a rate cut by April and expect around 75 basis points of cuts over the next 18 months.”

While this could provide some relief to borrowers, Mr Wargent tempered expectations: “I think it would be mildly beneficial for the market, but it wouldn’t be a trigger for a boom or anything like that.”

2. Housing undersupply and construction challenges

Australia continues to face a significant housing shortage. Despite strong demand, high construction costs and labour shortages have slowed new builds.

“We’re not really building enough at the moment — we're probably delivering about 40,000 dwellings per quarter. The government would like it to be nearer 240,000, so there's quite a big shortfall,” Mr Wargent pointed out.

The challenge has been compounded by a wave of insolvencies in the construction sector, with over 3,000 firms going into administration during 2024 due to rising costs and shrinking profit margins. While initiatives like Melbourne’s stamp duty cuts on new builds may help, Mr Wargent noted that “Sydney, in particular, is still struggling with housing supply.”

The ongoing strain on housing supply should continue to act as a tailwind for property values around the country. 

3. Population growth and migration trends

Australia has seen a historic surge in population growth since the pandemic, serving to boost property prices as buyer competition increases, though the pace is expected to slow slightly in 2025.

“Population growth has been manic over the past two years with over a million people added — but it’s expected to slow to about 440,000 in this calendar year,” Mr Wargent said.

Interstate migration also continues to impact some markets, particularly in Southeast Queensland which is "still suffering from a shortage of housing. Some coastal areas like the Gold Coast have seen a bit more supply, but Brisbane is still pumping along,” he added.

4. Affordability pressures and their impacts

Affordability remains a pressing issue, one which was originally a bigger problem in Sydney and Melbourne but has since become a growing concern across the country. 

Mr Wargent noted that “it's created a massive amount of competition at the bottom end of the market" as both first-home buyers and investors have been targeting affordable properties.

He highlighted that rising construction costs have made it difficult for new supply to come online at lower price points, further amplifying affordability challenges.

“The cost of building a unit in Sydney or Melbourne now sits around $600,000, making it hard for new supply to meet demand,” Mr Wargent explained.

It's likely, then, that there will continue to be a high concentration of buyer demand for properties listed at lower price points around the country in 2025. 

5. The upcoming federal election

Australia’s next federal election, which will need to be held by May 17th at the latest, could also influence market dynamics.

In terms of policies, Mr Wargent noted the Labor Government has been heavily focused on institutional property developments rather than smaller “mum and dad” investors and will be pushing the build-to-rent sector.

The Coalition, meanwhile, "seems to be more focused on reducing the sort of red tape and letting people build," while also contentiously proposing that first home buyers could dip into their superannuation for a deposit.

Regardless of the outcome, the calling of a federal election typically slows the market for a period as some buyers and sellers wait on the sidelines until the future becomes clearer. Anyone looking to transact within the first half of the year should keep a close eye on potential election dates and plan accordingly.

What could unfold in 2025?

Given these factors, the outlook for 2025 appears mixed in some respects but overall flatter. 

Interest rate cuts may provide relief for borrowers, but they’re unlikely to spark a significant resurgence due to tight lending conditions and high property prices around the country.

The lower-priced ends of our markets may continue to outperform as affordability remains a pressing issue for many buyers. Meanwhile, an ongoing shortage of new builds becoming available will likely keep our markets undersupplied relative to population growth. 

Mr Wargent summarised his expectations: “I would expect a positive year overall, but probably nothing like as strong as it has been."

"Perth, Adelaide, and Brisbane may have some momentum, though they're probably normalising, while Sydney and Melbourne may stay flatter.”

For more on what experts are forecasting for the year ahead, check out our 2025 Australian property market outlook.

Thinking of selling in 2025?

If you're considering getting in on the action this year, it's important to be as prepared as possible in order to cut through the competition and achieve a standout result. 

Step 1: Understanding how your market is performing

Every market is different, and understanding your local market is fundamental to making the right selling decisions. Our guide to tracking market trends and data will help you to get a clear picture of how your market is performing and how that impacts you as a seller. 

Step 2: Know what your property might be worth

Getting a free home value estimate is a great way to set a foundation for your selling expectations and begin planning the path forward.

Step 3: Get a no-obligation market appraisal from a top real estate agent

Understand what your property could sell for in the current market by speaking to the top-performing agents in your suburb. Comparing top agents in your area will help you find the perfect partner for your selling journey and move towards a successful result.

Step 4: Finally, get your property listing-ready

Taking a thorough approach to preparing your home for sale is another critical step. From cleaning, decluttering, painting and performing other cosmetic renovations to home staging, photography and marketing, getting your property to sale-ready condition is a must.