Regional housing surge gathers pace as builders warn supply crisis only worsening

Regional property markets are accelerating again, with fresh data showing house prices and rents in non-capital areas are outpacing city capitals.

The growth performance comes as builders warn housing shortages will worsen unless planning bottlenecks and workforce gaps are urgently addressed.

The latest Regional Market Update from Cotality, released Wednesday (18 February), shows dwelling values across regional Australia rose 3.2 per cent in the three months to January, compared with a 2.1 per cent lift across the combined capital cities.

The regional result marks a slight acceleration from 3.0 per cent in October, while capital city growth has slowed from 3.3 per cent.

The figures suggest the momentum that began during the pandemic has not only returned but is broadening geographically.

A lack of housing supply and a continued in-flow of Australians to the regions suggests the strong growth in property price pressure is not about to abate.

Internal migration data indicates Australians continue to leave capital cities for regional centres in significant numbers.

According to the latest Regional Movers Index (RMI), relocations from capitals to regions outpaced moves in the opposite direction by 36 per cent, with capital-to-regional moves accounting for 11.5 per cent of all major relocations compared with 8.4 per cent for regional-to-capital moves.

Net migration to regional Australia rose 11.8 per cent over the year, in one of the strongest results since Covid-era movement peaks.

Affordability reshaping demand

Cotality’s research found almost three in five of the country’s largest regional Significant Urban Areas (SUAs) recorded faster growth than in October, highlighting the breadth of the upswing.

Gerard Burg, Head of Research – Australia at Cotality, said affordability remains central to buyer decision-making.

“Affordability remains a powerful driver of buyer behaviour. With capital city prices still near record highs and stock levels tight, many households are once again looking to regional Australia for greater value and liveability,” Mr Burg said.

He said momentum was building across inland hubs, coastal centres and mining-adjacent regions, reflecting renewed flows of people and capital into markets where budgets stretch further and competition remains strong.

The migration data reinforces that narrative.

Sydney residents accounted for 53 per cent of net outflows to the regions, followed by Melbourne at 33 per cent, while Adelaide and Perth also recorded notable increases in departures.

Liz Ritchie, Chief Executive, Regional Australia Institute, said there were notable shifts emerging beyond traditional lifestyle destinations.

“We are seeing interesting moves in the southern states, with Victoria’s Wodonga seeing the strongest annual net migration growth, while three Tasmainan spots – Latrobe, Devonport and Huon Valley – ranked second to fourth,” Ms Ritchie said.

“Grouped together, these areas saw a five-fold increase in net migration over 12 months. Another Victorian local government area, Colac-Otway, rounded out the top five.”

Queensland’s Sunshine Coast retained the largest overall share of net internal migration, but cooler southern markets are clearly gaining traction.

Western Australia leads real estate price growth

Regional Western Australia recorded the strongest quarterly uplift of any state, with dwelling values rising 6.1 per cent in the three months to January, up from 4.9 per cent previously.

Albany led the state with 7.7 per cent quarterly growth, followed by Kalgoorlie–Boulder at 7.6 per cent and Busselton at 7.0 per cent. Over the year, Albany recorded the highest annual growth nationally at 23.4 per cent.

Wagga Wagga was the strongest individual quarterly performer nationwide, with dwelling values rising 8.1 per cent over the quarter.

South Australia and Queensland also posted solid results, led by Victor Harbor–Goolwa in SA and Toowoomba, Bundaberg and Cairns in Queensland.

By comparison, growth in New South Wales (2.5 per cent) and Victoria (2.3 per cent) was more subdued.

Bowral–Mittagong recorded the weakest quarterly result nationally at -2.1 per cent, while Warrnambool and Batemans Bay both fell 0.4 per cent.

Selling conditions also varied sharply. Albany recorded the shortest median selling time nationally at just 10 days, while Bowral–Mittagong recorded the longest at 70 days.

Rental pressure intensifies

The rental market tells a similarly tight story.

Regional rents rose 1.6 per cent over the quarter, slightly ahead of the 1.4 per cent increase recorded across the capitals. Over the past five years, regional rents have surged 41.9 per cent, far exceeding wage growth of 17.5 per cent.

Only four of the 50 largest regional markets recorded a rental decline over the quarter, underscoring widespread supply strain.

The REINSW Vacancy Rate Survey results for January 2026, released on Tuesday (17 February), show that residential rental vacancies have increased slightly across many regional areas of New South Wales.

Tim McKibbin, CEO, REINSW, said the rise should be viewed in context, noting that it may be short-lived.

“Yes, there have been modest increases across the regions this month, but they are consistent with the typical seasonal patterns we see at this time of year in the residential rental market,” he said.

“These fluctuations occur annually – and the latest survey results are in line with that trend.”

Residential vacancy rates in the Hunter region decreased by 0.2 per cent to be just 1.5 per cent, while the Illawarra region rose by 0.2 per cent to be 1.7 per cent.

Builders warn shortages will deepen

While demand remains strong, the capacity to deliver new homes in regional Australia is under mounting strain.

According to the Housing Industry Association’s 2026 Small Business Conditions survey, small building businesses in regional areas are warning that housing shortages will worsen unless governments tackle planning delays, workforce shortages and rising compliance costs.

HIA Chief Executive Industry and Policy, Simon Croft, said regional small builders are facing unique pressures.

“The survey highlights the unique pressures facing regional small businesses, which are critical to delivering new homes and supporting local jobs. Regional builders don’t have large workforces or spare cashflow to absorb delays,” Mr Croft said.

The survey found 68 per cent of small builders have considered scaling back or closing due to red tape, while 73 per cent do not expect to hire more staff in the year ahead despite ongoing housing demand.

Planning delays were identified as a major constraint, with 88 per cent of builders reporting approval times longer than eight weeks and one in three waiting more than six months before construction can begin.

“In regional towns, a single delayed approval can stall a business for months — that hits cashflow, local jobs and the number of homes that can be delivered in the community,” Mr Croft said.

Workforce shortages are also biting harder outside the capitals, with 67 per cent of small builders struggling to recruit or retain skilled workers.

“Regional builders can’t just pull labour from the next suburb, they rely on local trades and apprentices, and when those workers aren’t available, projects slow or stop,” he said.

The pressures vary by state.

In NSW, seven in ten small builders cite planning time and cost as one of their biggest challenges. In Victoria, more than 85 per cent identify rising insurance costs as a major constraint. Queensland regional builders report some of the most acute labour shortages nationally, while in Western Australia two-thirds say the cost of skilled labour is limiting new work.

In South Australia, more than three-quarters of regional builders report difficulty sourcing skilled labour, directly capping how many homes can be built each year.

The combination of rising regional demand, accelerating price growth and mounting delivery constraints presents a complex picture.

Migration trends and affordability are driving sustained buyer interest beyond the capitals. But without meaningful reforms to ease planning bottlenecks and rebuild the construction workforce, supply risks lagging even further behind demand.

For regional Australia, the boom in popularity is clear. Whether the housing pipeline can keep pace may determine what happens next.