Australia’s housing affordability gap widens, inner-city homes out of reach

Domain's latest Matching Demand Report reveals Canberra has the steepest shortfall, with inner-ring houses listed an average of $712,000 above buyer budgets, while Sydney, Brisbane, and Melbourne all show gaps of more than $300,000.

Townhouses are emerging as the new middle ground in Australia's housing market, offering a balance between space and affordability.

Across most capitals, townhouse prices sit within 5-10% of buyer search budgets in the middle and outer rings, reflecting a closer match between supply and demand.

Units are now the most closely aligned with buyer budgets, with apartment search and listing prices near parity across most capitals.

The trend points to growing demand from buyers priced out of houses and townhouses, as well as a possible shift toward higher-quality apartment options.

Domain's Chief of Research and Economics Dr Nicola Powell said the traditional dream of owning a detached home close to the city is slipping further out of reach, with affordability gaps running into the hundreds of thousands across all capital cities.

"Buyers are shifting towards more affordable, medium-density housing, like townhouses and premium apartments. For developers and policymakers, this signals a pressing need for more supply in these segments to meet real buyer budgets and demand," Dr Powell said.

Affordability gradient across Australia's capitals

While sellers in city centres are demanding more than buyers are prepared to pay, the tables turn on the outskirts, where affordability improves.

The nationwide trend varies by city, shaped by differences in supply, demand, and land availability.

For inner-ring houses, larger disparities appear in Canberra, Sydney, Melbourne, and Brisbane. Meanwhile, Perth, Adelaide, and Hobart show much smaller gaps, usually between $30,000 and $75,000.

Inner suburbs (0-10 km from CBD)

A positive price gap means listings are higher than what buyers are searching for, while a negative gap means listings are below buyer budgets.

Middle-ring areas mark the market's balancing point. The price gap between listings and buyer searches narrows sharply. Sydney still carries a premium of about $150,000, but in most other capitals, the divide has all but disappeared.

Melbourne shows the largest reversal, with buyers searching around $100,000 above listed prices. Gaps in Brisbane and Canberra have eased to below $100,000 and $25,000, respectively, while Perth, Adelaide and Hobart have tipped slightly in favour of buyers.

Middle suburbs (10-20 km from CBD)

In the outer suburbs, Sydney stands out, with listings about $280,000 above buyer budgets - the only capital still carrying a fringe premium. Elsewhere, markets are closer to balance. Melbourne and Perth sit around -$50,000, Hobart slightly below, Brisbane and Adelaide near even, and Darwin holds a modest $130,000 edge.

Outer suburbs (30 km+ from CBD)

The Domain report uses data covering the 12 months to September 2025 for SA3 regions with at least 50 listings. Price gaps compare median listing price guides with buyer search prices, and suburbs are grouped into inner, middle, and outer rings, with city-specific distance thresholds.

There didn't appear to be adjustments for auction results going over their price guide or underquoting.

Lower-value properties outperforming the market

While affordability gaps shape the suburb-level market, lower-value properties are driving much of the national housing gains.

In October, homes within the 5% Deposit Scheme price caps rose 1.2%, outpacing higher-priced properties by 22 basis points. The gap is among the widest in 16 years of data, according to recent Cotality data.

See also: Expanded home guarantee fuelling first home buyer surge

Houses below the caps led the way, up 1.3%, while units saw a smaller 1% increase.

Regionally, Darwin recorded the largest outperformance among lower-value properties (2% versus 1.3% above the caps), followed by Sydney (1% versus 0.5%).

The trend aligns with the suburb-level patterns. Lower-value homes, particularly in middle and outer suburbs, or property priced below the caps, are outperforming pricier ones.

This highlights the ongoing influence of affordable housing on overall market trends, even in cities with high inner- and outer-suburb premiums like Sydney.