Housing supply essential to financial momentum in our cities

A MAJOR new report examining cities across Australia predicts households and businesses “will remain under pressure” moving into the new year.

The 2026 KPMG Enterprising Cities report, which looks at 12 cities, large and small, across the country, states cost-of-living pressures have remained elevated, with households continuing to feel the effects.

Housing affordability has persisted as a key constraint, with high prices and limited supply continuing to exclude first-home buyers and place pressure on key-worker households, the report said.

At the same time, businesses have faced ongoing skills shortages and rising input costs, weighing on operating margins.

Looking ahead, the report said heightened global uncertainty and the ongoing impacts of the Middle East conflict are expected to
place further upward pressure on energy and input costs, while higher interest rates are likely to dampen spending.

Inflation, which was easing, is now returning with a vengeance, it said. As a result, both households and businesses are
expected to remain under pressure.

Nationally, the commercial feasibility landscape for new housing has shifted sharply since 2020. Construction costs
have risen by 30-40 per cent, while land values have climbed 40–50 per cent.

These rapid cost escalations have heightened commercial uncertainty and contributed to widespread business failures across the construction sector.

The report suggests smaller cities may be feeling these pressures most acutely.

Unlike larger cities, where more diverse development markets and a broader mix of greenfield and infill opportunities exist, smaller cities can have fewer pathways to bring new supply to market.

Fewer housing development pathways can amplify the impact of cost shocks and feasibility constraints.

In 2025, some relief emerged, with construction cost growth moderating and interest rate reductions providing support for both buyers and developers. Higher sale prices also improved feasibility for some projects, the report added.

Building approvals increased in 2025, led by Canberra, which recorded a 99.5 per cent jump from 2024. Darwin (71.4 per cent) and Cairns (67.6 per cent) also posted major year-on-year increases.

Western Sydney (19.4 per cent) and Perth (8.8 per cent) recorded solid recoveries, while Townsville (49.4 per cent) and Wollongong (19.7 per cent) delivered strong growth.

However, not all cities experienced increases in dwelling approvals. Geelong recorded a slight decline (-1.5 per cent), continuing its recent volatility, while the Gold Coast (-0.5 per cent) remained flat. Hobart also showed minimal movement, recording only one per cent growth in 2025.

Despite the rebound observed in many cities during 2025, dwelling approval volumes in several markets remain at, or below, 2022 levels.

In the context of ongoing population growth, this underscores the need for further action to boost affordable housing supply.

Terry Rawnsley, KPMG national lead – demographics and urban economics, said the cities in the report have experienced sharply
different growth trajectories.

“The growth paths across the Enterprising Cities are now more divergent than at any point in the past five years, increasingly shaped by local economic strengths and the capacity to provide sufficient housing for their workforce,” Rawnsley said.

“Housing supply remains central to maintaining economic momentum. Encouragingly, building approvals across the 12 Enterprising Cities rose by over 15 per cent in 2025, indicating additional supply in the development pipeline.

“However, ongoing population growth and tight labour markets mean housing availability remains a constraint, and further action will be required to ensure workers can live close to employment opportunities.”

Rawnsley said resilience in the cities will hinge on the strength of their underlying economic foundations, the availability of housing and infrastructure, and their ability to adapt to shifting global and domestic conditions.

“Resilience in this environment is driven by a focus on core business fundamentals,” he said.

“By strengthening cost discipline, reinforcing supply chain performance, protecting liquidity and pursuing targeted revenue opportunities, businesses can respond more effectively to uncertainty and maintain profitability despite broader economic headwinds.”