Article written by Matthew Hughes, Capital Property Advisory.
The Australian housing market in 2025 is set to experience diverse outcomes, with Western Australia and Victoria at opposite ends of the performance spectrum. Still, the latter may present an opportunity for bold investors looking for a counter-cyclical play. Insights from the SQM Boom and Bust Report 2025 underline the impact of population growth, rental shortages, and interest rates on property markets nationwide.
Western Australia: Leading the Boom
Western Australia, and particularly Perth, is expected to shine as the nation’s housing market standout. Strong population growth, estimated at 3.1% annually, continues to fuel demand for housing in Perth, far outpacing the available supply. This momentum, coupled with a surge in migration and a shortage of new dwellings, led Perth to record over 20% price growth in 2024, a trend forecast to persist in 2025, albeit at a tapering rate of growth.
Under the base case scenario, according to the report, Perth’s property prices are expected to climb between 14% and 19% next year, supported by limited national rate cuts anticipated in mid-2025. However, softening commodity prices, particularly iron ore, may pose a slight risk to WA’s longer-term economic stability.
Victoria: Struggling to Find its Footing
Victoria presents a contrasting picture, with Melbourne grappling with subdued market conditions. Rising levels of distressed property listings – now exceeding pandemic peaks – highlight the challenges facing the state. Housing prices in Melbourne are forecast to decline by 1% to 5% under the base case, driven by sluggish consumer sentiment and limited interest rate relief in the early half of the year.
Melbourne continues to attract strong migration and the housing supply has not kept pace. Rental markets remain tight, and vacancy rates are likely to stay critically low in 2025. Investor-led buying activity coupled with impending rate cuts could be the catalyst to arrest the slide in Victoria and kick off a slow market recovery.
Broader State Comparisons
Other states are positioned between these extremes:
- Queensland: Brisbane is set to remain a top performer, with price growth forecast between 9% and 14% under the base case, driven by steady population growth and relatively affordable housing.
- South Australia: Adelaide continues to gain momentum, with price growth predicted at 8% to 13%, thanks to strong demand and a competitive rental market. Risks here are low population growth and a better than average recovery of new dwelling starts in comparison to other states.
- New South Wales and Tasmania: Sydney and Hobart are expected to experience modest price declines or stagnation, reflecting ongoing affordability issues and limited stimulus from rate cuts.
- Northern Territory and Canberra: These markets show mixed signals, with Darwin predicted to see moderate growth of 5% to 8% and Canberra likely to decline due to high listings and weaker demand.
National Outlook: A Year of Contrasts
Nationally, population growth remains a critical driver, with migration expected to exceed 500,000 people in 2025. This influx will continue to strain housing and rental markets, despite projected improvements in dwelling commencements. The Reserve Bank of Australia is forecast to deliver early to mid-year rate cuts, which could provide a modest boost to Sydney and Melbourne, though WA and Queensland are likely to see the greatest benefits.
For investors, Western Australia and Queensland offer the brightest prospects, while Victoria faces a pivotal year requiring careful navigation by sophisticated investors. Other states present a mix of opportunities and risks, with each shaped by their own unique market cycles, as well as economic and demographic trends.
