Victoria Still Lags Australia’s Home Building Recovery

Why It Matters

Builders and investors face prolonged headwinds in Victoria, while the broader Australian housing market remains on an upward trajectory, shaping supply‑demand dynamics and regional policy priorities.

Key Takeaways

• Victoria's new‑home starts flat through 2026
• Construction costs outpace existing house price growth
• Per‑capita builds highest, yet cheaper to buy existing
• Population and job growth lag national trends
• Recovery expected in 2027 as price dynamics shift

Pulse Analysis

Victoria’s housing market is an outlier in Australia’s post‑pandemic recovery. While the national outlook points to a steady rise in dwelling commencements, driven by population inflows and resilient employment, Victoria’s detached‑house sector remains stagnant. The state’s per‑capita construction volume is the highest in the country, yet a combination of subdued population growth, modest job creation, and limited rental‑price appreciation has dampened demand for new builds. Builders confront a paradox: they are active, but the economics of construction have shifted, making it cheaper for buyers to purchase existing homes than to commission new ones.

Cost dynamics underpin the slowdown. Over the six‑year span from 2019 to 2025, new‑home construction costs in Victoria surged 20.4 percentage points above the rise in established‑home prices, reversing the traditional cost advantage of new builds. This disparity, coupled with flat building approvals and sales, has redirected consumer preference toward the resale market. The situation contrasts sharply with South Australia, where new‑home construction remains cheaper than buying an existing property, and with NSW’s multi‑unit sector, which benefits from the Pre‑Sale Finance Guarantee Scheme that accelerates off‑the‑plan development.

Looking ahead, Reardon anticipates a modest rebound in 2027 as established‑home price appreciation narrows the cost gap and continued migration into Melbourne fuels demand. However, the outlook remains contingent on stable construction material prices and sustained population inflows. Policymakers may need to consider targeted incentives or zoning reforms to revive builder confidence, while investors should monitor the evolving price elasticity between new and existing homes. The broader Australian market, buoyed by demographic trends and a gradual interest‑rate trajectory, suggests that Victoria’s lag is likely temporary, but the timing and scale of the catch‑up will depend on both macro‑economic and state‑specific factors.