HIA says home building to lift in 2026 – but interest rates determine how far and how fast

AUSTRALIA’s home building industry is expected to strengthen through 2026, supported by gradually improving building approval levels and a recovery in demand, but the pace of growth will depend on how quickly interest rates can fall, according to the Housing Industry Association (HIA).

HIA senior economist Tom Devitt said new data on building approvals and inflation, released today, provides an important signal for the housing market as it enters 2026.

“Building approvals are the clearest leading indicator of future home building, and they have been gradually rising over the past year as the cash rate fell,” Mr Devitt said. 

“Building approvals data shows activity has been strengthening over the last couple of years, including a 10.1% increase in house approvals in the last three months compared to the same quarter two years earlier, and a 36.4% increase in multi-unit approvals over the same period. 

“We expect approvals to continue trending upward, which should translate into higher levels of home building activity through 2026, particularly once the impact of earlier rate cuts flows through to construction starts.

“It is anticipated that a recovery will continue in both detached housing and multi-unit construction from 2026 onward, following several years of subdued activity, especially in the apartment sector,” Mr Devitt said.

“After nearly a decade of underbuilding, the foundations are finally being laid for a broader housing recovery in 2026.

“Strong population growth, rising established home prices and an improving approvals pipeline are all pointing toward higher levels of home building over the next few years.

“While the price of land and taxes on housing are the key determinants of the number of homes to be built this year, inflation also remains a risk to a faster recovery in home building,” he said.

“The trimmed mean consumer price index for November came in at an annual rate of 3.2%, indicating that further rate cuts will be delayed.

“A few recent surprises to electricity and rental prices lifted the annual rate of inflation above the RBA’s 2-3% target.

“Property rates have also been accelerating, with each of the last five annual increases larger than the last, increasing by a further 6.2% in 2025.

“There have also been recent pressures in other items like water and sewerage utilities and government excise taxes,” Mr Devitt said.

“Price pressures have eased from their peak and many of the recent upward surprises are driven by temporary factors, like the timing of electricity rebates or domestic holiday activities.

“Nonetheless, CPI inflation is likely to remain elevated in the near term and the RBA is on the lookout for any signs of underlying inflation being reignited.

“The rate cuts delivered in 2025 provided an important tailwind for housing demand and approvals. But without further easing in borrowing costs, the recovery in home building will be more gradual than Australia needs, given the scale of the housing shortfall.”

According to HIA estimates, Australia remains short of its housing needs by close to two million homes, with population growth continuing to outpace new supply.

“This is the central challenge facing the housing market in 2026,” Mr Devitt said.

“A constrained supply of new homes is adding to upward pressure on rents, prices and inflation itself, which in turn feeds back into higher interest rates.”

“It is particularly counterproductive that the shortage of housing supply is putting pressure on inflation and interest rates, further impeding new home building.”

HIA’s outlook shows detached home building strengthening across most states in 2026, led by Queensland, South Australia and Western Australia, with New South Wales and Victoria beginning to recover after lagging earlier in the cycle.

The multi-unit sector is also expected to turn a corner from 2026, as higher established unit prices improve project feasibility and a large pipeline of approved but not commenced projects begins to move. 

“The next housing upswing is taking shape, but it will not reach its full potential unless policy settings support it,” Mr Devitt said.

“Lowering the cost of delivering new homes through planning reform, improved land supply and lower government charges will be critical if Australia is to lift housing supply without reigniting inflation,” he said.

In seasonally adjusted terms, the volume of new home approvals in the three months to November compared with the same quarter two years earlier increased the most in Western Australia, up by 71.3%.

This was followed by Queensland (+33.6%), South Australia (+29.2%), New South Wales (+24.6%), Victoria (+3.7%) and Tasmania (+0.5%). In original terms, the Northern Territory increased by 68.1% while the Australian Capital Territory declined by 47.5%.

www.hia.com.au

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