Melbourne houses and apartments to shine in 2026: KPMG

One of the “Big 4” accounting and advisory firms has significantly upgraded its outlook for price growth this year in the Australian residential property market.

KPMG Australia is also tipping that Melbourne is set to be the best-performing city in Australia in 2026 for growth in both house and unit prices.

The details

KPMG last issued a range of forecasts in January, expecting only modest house price growth in Australia in 2025 of 3.3%.

The company now says earlier-than-expected rate cuts from the Reserve Bank of Australia (in February and May 2025) have “boosted buyer sentiment and turned around the subdued market conditions observed in the second half of 2024”.

It’s now tipping that national house prices will rise a solid 4.9% by the end of the year, before slowing slightly to 4.5% next year.

“We still maintain the view that unit prices are expected to rise faster than house prices, as they offer a more affordable entry point into the property market amidst the current affordability crisis,” say KPMG economists, Brendan Rynne and Brian Tran, in their latest Residential Property Market Outlook.

“Affordability pressures are expected to continue driving buyer demand toward attached dwellings, with units, townhouses, and apartments offering more accessible entry points in increasingly expensive capital city markets.”

That will see unit prices grow by 4.5% this year before accelerating to 5.1% in 2026.

KPMG says 2026 will see a more “balanced” pace of growth nationally, as “lower interest rates, improved supply, and normalised population growth are expected to support market stability.”

But the improvements in housing supply in KPMG’s report are fairly minor.

“We only forecast an average of 160,000 new dwellings per year over the next two years,” say the authors, “30% below the national target of 240,000 homes annually needed to meet the National Housing Accord’s 1.2 million new homes target by mid-2029.”

Aug8-KPMGForecast

Melbourne

Key to KPMG’s more optimistic outlook is the re-emergence of Melbourne as a strong growth market.

“Melbourne has rebounded in 2025 following a prolonged downturn from 2022,” Brendan Rynne and Brian Tran say.

“We forecast moderate to strong growth, supported by its relatively lower house prices compared to other capitals.

“As a key destination for overseas arrivals, demand for Melbourne remains solid, though growth driven by investors is still likely to be moderated by Victoria's land tax regime,” the KPMG economists say.

That will see houses in Melbourne experience solid growth of 5.2% this year, accelerating to 6.6% in 2026, while unit price growth will double from 3.6% in 2025 to 7.1% next year.

Using Cotality data, this would see around $111,427 added to the value of a median Melbourne house between January 2025 and December 2026.

For units, the figure would be $66,545 over the same period.

Sydney

Brendan Rynne and Brian Tran say Sydney’s house and unit prices are at record highs and are expected to grow 5.4% and 4.4% respectively this year.

“Our analysis shows that Sydney is responsive to the rate cuts…enabling a quick recovery and a strong finish to the year.

“Its role as a major hub continues to drive demand and offset affordability challenges.”

However, those "affordability challenges” will see house price growth slow next year in the Harbour City to 4.2%, while cheaper units are expected to see a 6.1% boost.

This scenario would see an eyewatering $144,515 added to the price of a median Sydney house during 2025 and 2026, while the unit median would see a $92,504.26 uplift.

Darwin

KPMG predicts the small Darwin market as seeing the largest price growth in 2025, with a 7% lift in house prices and 8.3% in units.

Next year, growth is expected to moderate to 5.1% for houses and 7.3% for units.

Darwin “has emerged as a key investment hotspot, driven by a robust pipeline of infrastructure projects and attractive rental yields,” Brendan Rynne and Brian Tran say.

“These factors are positioning Darwin for continued growth over the next two years.”