Australia’s property market may be cooling, but the imbalance beneath it has not gone anywhere.
Westpac chief executive Anthony Miller expects the current downturn in Australian house prices to be relatively short-lived, forecasting values to return to growth from 2027 as the country’s housing shortage continues to collide with underlying demand.
Speaking to The Australian Financial Review this week, Miller said Westpac expects the current correction to bottom out at around 7 per cent, before national property prices rise approximately 3 per cent in 2027 and a further 8 per cent in 2028.
The reasoning is relatively simple: while borrowing conditions and recent policy changes can influence when people buy, they do not solve the fundamental shortage of homes.
Demand has softened. Supply has not caught up.
Australia’s property market has entered a noticeably different phase following higher interest rates and the Federal Government’s May budget changes targeting property investment.
Westpac has recorded a 26 per cent fall in investor mortgage applications since the budget, while first-home buyer applications are down 30 per cent. Owner-occupier applications, by comparison, have fallen just 2 per cent.
Some buyers are clearly waiting.
But fewer buyers transacting today should not be confused with Australia suddenly having enough housing.
The Federal Government originally targeted the construction of 1.2 million new homes between July 2024 and July 2029. The National Housing Supply and Affordability Council now expects that target will not be achieved until the end of 2030.
That gap is becoming increasingly important.
Miller’s view is that once the present adjustment in borrowing conditions and buyer sentiment passes, the same structural imbalance remains waiting underneath: more people requiring housing than the market is currently capable of delivering.
The real constraint is feasibility
The conversation around housing affordability often concentrates on helping purchasers enter the market.
Miller argues greater attention needs to be paid to the other side of the equation: actually making new housing financially viable to build.
Construction materials, labour, infrastructure and development costs have all increased considerably. Roads, water, sewerage and utility connections alone can represent a substantial portion of the final cost of delivering a new home.
Federal Housing Minister Clare O’Neil similarly acknowledged this week that Australia is facing a housing “feasibility challenge”, with many projects simply unable to make the economics work.
Miller has suggested governments consider directing subsidies toward construction and infrastructure costs rather than continuing to focus predominantly on stimulating buyer demand.
It is an important distinction.
Increasing someone’s ability to purchase a home does little to address affordability over the longer term if the number of available homes remains constrained.
What does this mean for the market?
The immediate property environment remains more nuanced than the headline growth years Australians have become accustomed to.
Higher borrowing costs are affecting purchasing capacity. Investor participation has reduced. Buyers have more reason to be considered in their decision-making and, in some markets, more choice.
That can create periods where prices moderate and properties take longer to transact.
However, property cycles are rarely explained by one variable.
Interest rates move. Lending policies change. Governments introduce and remove incentives. Buyer confidence rises and falls.
Housing supply takes considerably longer to respond.
For existing property owners, that distinction matters.
If Australia continues adding households faster than it can economically deliver new housing, well-located established property remains supported by something far more structural than short-term market sentiment: scarcity.
For buyers, the same argument challenges the temptation to perfectly time the bottom of a cycle. The market may still have further adjustment ahead, but waiting for softer conditions also means weighing that opportunity against a supply shortage that is becoming increasingly difficult to resolve.
The present market may be quieter.
The underlying mathematics are not.
Source: The Australian Financial Review, “Housing shortage will cause prices to start rising again: Westpac boss”, Phillip Coorey, 9 September 2026.
