Construction costs ‘main barrier’ to increasing house supply

A LEADING Australian bank expects “further house price declines as interest rates and construction costs weigh on housing market confidence”.

The latest National Australia Banl Residential Property Survey index fell 18 points to -4 in the September quarter.

It was the third consecutive quarterly decline and the first negative result in six years.

NAB chief economist Sally Auld said the survey showed housing market sentiment had weakened across most states and forward-looking measures.

“Property professionals have lowered their expectations for house prices, while rental growth is expected to remain elevated,” Auld said.

“Construction costs and interest rates are also continuing to constrain new housing development.”

Property professionals expect house prices to fall 4.2 per cent over the next 12 months, compared with a 2.5 per cent decline forecast in the June quarter.

Rental growth expectations remained elevated but eased slightly.

Respondents expect rents to rise 3.7 per cent over the next year (down from 3.9 per cent in Q2) and four per cent in two years. 

Construction costs remained the main barrier to starting new housing developments, cited by 77 per cent of property professionals.

The level of interest rates is now cited as the second-largest constraint at 58.3 per cent, ahead of planning permit delays at 54.1 per cent.

The survey also found owner occupiers continued to account for the largest share of buyers in new and established housing markets.

Local investor activity increased slightly during the quarter but remained below levels recorded in late 2025.

Auld said the findings highlighted the pressure facing housing supply and affordability.

“Weaker price expectations don’t remove the underlying supply challenge,” Auld said.

“High construction costs, interest rates and planning delays continue to make new development more difficult.”

Two-thirds of property professionals said stamp duty was a barrier for first or newer home buyers.

Some 61 per cent said it encouraged people to remain in their current home, while 43 per cent said it discouraged downsizing.