Australian Home Buyers Shift Compromise from Where to What

Homebuyers squeezed by affordability are now compromising on housing typology rather than location in a trend that pre-dates the recent market cool-off. The type of home, rather than where it’s located, is now the primary substitution for budget-conscious buyers, according to new research from Domain. Medium-density housing is rapidly becoming the segment where affordability and demand align. Domain chief economist Nicola Powell told The Urban Developer that “buyer budgets are not able to stretch to detached houses”. “As a society, we have built this view that the first home or the Australian dream is a detached house. This report demonstrates that that has changed over time quite significantly,” Powell said. “We’re seeing that medium-density is increasingly where demand and affordability intersect. “Maybe historically buyers have been pushed to the outer-urban fringe, but more often than not now, buyers aren’t necessarily compromising on the location. Instead, they’ll consider other types of housing in order to stay in their vicinity.” The Matching Demand Report released on September 17 explores the price gap between searches and listings, rather than transacted properties, over the 12 months to July 2026. Detached houses are the most misaligned market segment, with seller premia in the inner ring of every capital. Sellers are asking up to $538,000 more than searchers’ target ranges in Canberra, $440,000 in Melbourne and $400,000 in Sydney. Conversely, a buyer premium exists for outer-ring units nationally. While some markets diverge, Domain found that average buyer budgets are $52,000 higher than seller expectations for those apartments. Townhouse demand has again accelerated , with inner-ring Sydney townhouses evolving from a $200,000 seller premium to a $100,000 buyer premium over the research period. In outer-ring Canberra, buyers are also searching for targets $52,000 above sellers’ expectations. Markets expected to shift again However, Powell said that coming months would continue to reshape market conditions and behaviour, with further interest rate hikes expected. “You would expect listing prices to be nudging downwards. At the same time, we’ve seen borrowing capacity reduce by roughly seven to eight per cent, based on the three rate hikes. “But that’s not necessarily how it’s exactly played out. Because the other thing to layer on is price negotiation. We know that discounting is something that has been on the rise.” ▲ Townhouse demand has again accelerated, the research found, with inner-ring Sydney townhouses moving from a seller to buyer premium. Market activity is paused rather than in freefall, with reduced volume of transactions, market depth and transaction velocity. “New listings in Sydney and Melbourne dropped year-on-year. This signals to me that sellers are holding back, and that dynamic helps create a floor to price,” Powell said. “Clearance rates bottomed out back in June. They’re still weak. They’re still very significantly lower than this time last year. But they’ve moved off of that trough.” Powell said that pent-up momentum typically presages sharp market movements, but that affordability and supply will continue to play a role beyond the current property cycle. “People don’t change their decisions; they just hold off and they wait and see. “You do tend to find that rebounds happen quite quickly. But I wonder whether this one is going to be a little bit different.” However, structural factors will continue to underpin medium-density’s appeal beyond the current cycle. “We don’t have a diverse enough array of housing. Housing aspirations haven’t changed, but we know that purchasing capacity has,” Powell said. “We know that affordability barriers are changing what people can buy. And our cities are swelling; they’re growing. “The Australian dream of the quarter-acre block with a Hills Hoist in the yard is in the past. That’s not what a first home in today’s society looks like.”

Residential
Patrick Lau
Thu 17 Sep 26

Australian Home Buyers Shift Compromise from Where to What

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