'Really problematic': Australians are rejecting the very homes the country needs

Buyers appear to be rejecting newly-built homes, sparking concerns Australia's property market slowdown could worsen a chronic housing shortage.

Sales of new homes fell 10 per cent nationally in August and were 19.3 per cent lower in the three months to August compared with the previous quarter, according to new data from the Housing Industry Association (HIA).

Sales have now fallen for four consecutive months to their lowest level in more than a year.

The slowdown was recorded across all five mainland states included in the HIA survey, which tracks sales by large-volume home builders and is considered a leading indicator of future detached home construction.

Victoria recorded the sharpest quarterly decline, with sales down 27 per cent, followed by Queensland at 20.2 per cent, NSW at 17.5 per cent, South Australia at 10.8 per cent and Western Australia at 8.2 per cent.

HIA chief economist Tim Reardon said the deterioration meant the recovery in new home building seen earlier this year had been interrupted.

"Today's new home sales are tomorrow's housing commencements," he said in a statement.

"The decline in sales through the middle of 2026 will mean fewer homes commencing construction in 2027."

Why are Australians pulling back?

Independent property economist Cameron Kusher told SBS News that a combination of higher borrowing costs and low confidence was making it increasingly difficult to buy a new home. But he warned that if sales continued to decline leading to fewer builds, it could lead to even higher prices in the future.

"We're seeing really weak confidence around the housing market generally at the moment," he told SBS News.

Tim Lawless, the research director at property data firm Cotality, said the slowdown was also evident across the broader property market, although new homes appeared to have been hit harder.

Cotality estimates home sales across the broader market were about 15 per cent lower over winter than a year earlier and 11 per cent below the five-year average.

"It does look like new home sales have been hit a little bit harder," Lawless said, pointing to higher interest rates, weaker confidence, reduced investment and affordability and serviceability constraints.

The slowdown has been particularly pronounced in Sydney, Brisbane and Perth, where Cotality estimates home sales fell by more than 20 per cent over winter compared with the same period last year.

Lawless said Brisbane and Perth were coming off relatively strong levels of activity, while Sydney's decline was more reflective of severe affordability constraints.

Kusher said new homes typically carried a premium compared with established properties, making older homes more desirable as household borrowing capacity comes under pressure.

"Buyers are asking themselves: "Am I prepared to pay the premium for a brand-new home when I can get an older home, an established home, cheaper?"

"I'm not surprised that we're seeing these ongoing falls, but obviously that's really problematic when you need to be building more homes."

The HIA data does not provide a detailed breakdown of the types or price points of detached homes experiencing the greatest decline.

But Kusher said affordability was clearly becoming a bigger constraint.

Higher interest rates mean some prospective buyers simply aren't able to borrow enough to buy the homes they otherwise might have considered.

HIA has also pointed to rising construction costs, taxation and broader economic uncertainty as factors weighing on the sector.

Reardon said builders were reporting fewer people visiting display sites, declining enquiries and preliminary commitments, and rising cancellation rates.

Lawless agreed, telling SBS News that higher material, labour and other construction costs were also making new homes less competitive with established properties.

Why today's sales matter for tomorrow's housing supply

Government figures show there were 244,000 dwellings under construction in the March quarter of 2026, the most since records began in 1984.

The deterioration in sales is unlikely to immediately show up in housing commencements this year.

The problem comes further down the pipeline, with the impact of weaker sales expected to become more apparent in 2027.

Lawless said some projects may have become financially unviable as construction and labour costs increased, while others may not have secured enough pre-sales to trigger financing.

"Typically most developers would need to have a minimum level of pre-sales before a lender is going to be becoming active in the credit supply," he said.

Kusher said most builders sought to secure a buyer before starting construction rather than building homes speculatively and hoping to sell them afterwards.

Financing speculative construction was particularly difficult when both borrowing and construction costs were high, he said.

That means the relationship between weaker sales and fewer future homes is relatively straightforward.

"If people aren't buying homes, you're not likely to get many homes built," Kusher said.

In 2024 the National Housing Accord commenced with an aspirational target of 1.2 million new, well-located homes over the five years to June 2029.

The target was agreed between federal, state and territory governments, local government and industry in an effort to substantially increase housing supply.

Government figures show this is already behind targets and likely won't be met until the end of 2030, and Kusher warns it could get blown out further still.

Australia needs homes — but at what price?

The slowdown creates a difficult contradiction for Australia's housing market.

Demand has not disappeared simply because fewer people can afford to buy a newly built home.

"The thing with the shortage of supply in housing is that price matters," Kusher said.

"We need more houses, but they need to be at a price that people can afford."

Lawless described the construction sector as being caught "between a rock and a hard place".

"A builder or a developer, obviously, they're not going to be building homes if there's no profit to be had, and consumers or households aren't going to be buying new homes if they're too expensive to purchase," he said.

HIA similarly warned the decline in new home sales was occurring without an equivalent decline in Australia's underlying need for housing, pointing to population growth, low unemployment and the existing shortage of homes.

What could turn the market around?

HIA has warned that further interest rate rises would place additional pressure on a new home market already struggling with weaker demand.

"This is not the time for another rate rise," Reardon said.

Kusher, however, said getting inflation under control was ultimately necessary to restore stability to the housing market — even if doing so meant households faced more financial pressure in the short term.

He said longer-term improvement depended on bringing inflation under control, allowing greater certainty to return to the economy and eventually creating scope for borrowing costs to fall.

"Now that means higher interest rates, and that means it's going to be hard for people."

But he said easing inflation could ultimately provide the conditions needed for both property prices and borrowing costs to stabilise, "and that's when you'll start to see things improve."

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