The real reasons property prices look set to climb again in 2026

Apart from hot roast meals or buckets of cold seafood, Christmas presents and songs like Dreaming of a White Christmas (don’t we all?), the other entrenched Christmas season tradition is to predict the housing market movements for the year ahead.

Rather than start with guessing where house prices are heading, I’m going to have a stab at guessing the direction of the forces that drive prices. You can then draw your own conclusions.

First, there’s the rule of demand and supply.

We seem to have fallen into the trap of thinking this is now the law of supply (“just build more and that will fix everything” is the narrative pushed by advocacy groups and the political class). But there is no denying the massive impact of demand via population growth.

In Australia, we are breeding less - our rate of natural population growth is practically nil - so nearly all growth is due to immigration, and we have recently been running at historically very high levels (double or even occasionally triple historic norms) as a result of government policy.

So, the question is, “Do you think the Albanese Federal Government will radically reduce immigration numbers in the year ahead?”

If you answered ‘no’ then that means more demand into already heated markets, so more upward pressure on prices.

What about the red tape strangling our supply side?

The number of planners for every home built has increased almost seven-fold over 30 years, according to housing supply advocate and Lead Organiser at YIMBY Melbourne, Jonathan O'Brien.

We hear every week of some new, prescriptive and irritating regulation imposed on new housing projects – we almost never hear of regulations being removed to make supply easier or less costly to deliver.

Here the question is, “Do you think the planning and development red tape that entangles the supply of new housing is going to radically be reduced in the year ahead?”

If you answered ‘no, possibly the opposite’ to this question, you’re predicting more upward pressure on prices.

What about the costs of basic services to prepare a block of land for sale?

In November, Colliers Engineering revealed the cost of civil infrastructure per lot in South East Queensland was now around $180,000. That’s not including the land – or the house – it’s just the cost of bringing services (water, energy, wastewater etc) to the site, and the local roads, plus increasingly contributions to upgrade of infrastructure outside the development.

It’s broadly the same elsewhere in the country.

Do you foresee a year ahead where the monopolies that govern the provision of utilities will be opened to competition? Or do you think the gold plating of civil infrastructure will in the year ahead be replaced by more practical performance-based standards? Yeah nah, me neither. Another force exerting upward pressure on prices.

Higher energy costs, more property price power

Now what about the property taxes that are buried into the cost of every new dwelling, whether a house or unit?

Countless studies by groups like the Property Council, UDIA, HIA or others confirm that around one third to nearly half the cost of a new home can be attributed to various taxes, charges and regulatory costs.

That includes the GST (10 per cent, and only applying to new housing supply, not existing housing), plus infrastructure levies, planning fees and so on.

Do you think all three levels of government will move to substantially reduce their taxes on new housing? Do you think even one of them will reduce their taxes on new housing? Nup, never happened before and unlikely in the year ahead is what I think most Australians would sadly conclude. Another upward force on prices.

Then there’s the outlook for building costs. What do you foresee here?

We get a torrent of news about ‘trades shortages’ and rising material prices.

Do you know of many tradies struggling to find work right now? Do you think prices for things like concrete will fall? Keep in mind that making cement is highly energy dependent – it requires a lot of heat, which means big power bills and they’re going up and up.

That same energy issue is driving up the cost of steel. Copper prices for wiring are surging too. And so is construction timber. Do you realistically think any of these drivers of construction costs are going to reverse in the year ahead? Me neither.

Finally there’s mortgage costs.

Earlier this year there was hope we’d see a falling trend for interest rates. But recent RBA decisions to hold the line were in part based on stubbornly high inflation numbers.

Those numbers were in turn being driven in part by high energy costs (which flow through to pretty much everything else), a strong jobs sector and lagging productivity.

But the irony with falling interest rates – should they occur in 2026 – is they usually flow into higher real estate prices.

So for you to predict downward price pressure, you’d be expecting interest rates to climb significantly. And on that, you’d be very much on your own – stable or maybe falling seems the consensus outlook.

Now do your tally of the various forces exerting pressure on housing costs and property generally. How’d you go?

Happy crystal balling!