Downsizing the Australian dream: Homebuyers adjust expectations in hot housing market
Australians are more fond of budget-friendly townhouses and units as homes remain in short supply. (AAP: Darren England)
In short:
A new report from property website Domain has found Australian homebuyers are increasingly abandoning their dreams of a freestanding house for more budget-friendly townhouses and units.
While Australians' borrowing capacity has increased, homes remain in short supply due to population growth, the report says.
Houses in the inner ring of cities are priced way above buyers' search budgets in the 12 months to September 2025.
A new report from property website Domain has highlighted the affordability gap in the Australian housing market, with would-be homebuyers increasingly abandoning their dreams of a freestanding house for more budget-friendly townhouses and units.
The report compared buyer searches in the 12 months to September 2025 — including location, type of dwelling, and upper limits on their desired price range — with the prices of homes listed for sale.
While Australians' borrowing capacity has increased, population growth means homes remain in short supply, the report found.
Detached houses — standalone residences — remained the "most aspirational, but least attainable", and the closer to city centres, the larger the disparity, it said.
But the report also suggested the traditional divide between expensive inner-city and affordable outer-suburban markets was becoming less black and white, with demand growing out from city centres and into higher-density homes.
Pressure highest in inner city
Houses in the inner ring of cities were priced way above buyers' search budgets, Domain said in the report.
The biggest gaps were in high-value suburbs with "limited stock, entrenched wealth and low turnover", it said.
Canberra was home to the largest chasm overall, with listings $712,000 higher than what buyers were searching for — "a reflection of limited supply and premium detached housing stock in a compact market".
Sydney, Melbourne and Brisbane came next, each showing inner-ring gaps of around $300,000.
Moreover, Sydney's eastern suburbs recorded a whopping price gap of $2 million.
The disparities were much smaller in Adelaide, Hobart and Perth, where buyers were much more likely to find their desired house within $75,000 of their budget.
Bridging the 'missing middle'
As buyers dreaming of a detached house are priced out of their aspirations, the Domain report found medium-density housing had become "the bridge between space and affordability".
It was this kind of housing that had been touted as one solution to the housing crisis, it said.
Houses in the inner ring of cities are priced way above buyers' search budgets, the report finds. (AAP: Jono Searle)
According to Domain, townhouses recorded the smallest misalignment between buyers' budgets and reality, with new medium-density supply "bringing price alignment to the middle and outer rings".
It found that in most capitals, townhouse prices were within 5 to 10 per cent of buyer search medians through the middle and outer rings, reflecting "a growing balance between supply and demand".
Sydney and Melbourne were exceptions, with listings consistently priced above buyer searches due to higher land costs, limited supply and strong demand from downsizers.
The report noted policymakers should take heed of "the growing importance of medium-density supply in maintaining balance across urban markets".
"For developers and vendors, they underline a market … increasingly defined not by scarcity alone, but by how closely new stock meets the budgets, locations and lifestyles that buyers are already searching for."
It comes after a push by the Grattan Institute to allow three-storey unit blocks and townhouses to be allowed on all residential land in Australian cities, declaring our cities some of the least dense in the world.
Grattan housing program director Brendan Coates argued, "the equation is simple: If we build more homes where people most want to live, housing will be cheaper and our cities will be wealthier, healthier, and more vibrant".
Unit is a buyer's market
The report also showed a growing acceptance of apartment living across Australia as people — by choice or otherwise — downsize.
Unlike detached homes, Domain search budgets for units matched or exceeded median listed prices across most capital cities — bar Sydney and Melbourne.
In Brisbane, Adelaide and Darwin, buyers searching for units set their budgets at a median $50,000 above the median sale price.
Domain has suggested that this represents two trends — not only are people turning to apartments after being priced out of more expensive types of homes, but they may not be finding units that meet their aspirations for location or quality.
Some areas had negative price gaps — meaning buyers were searching in price ranges above what homes were listed for, according to the report.
These were mostly on city fringes, like Blacktown in Sydney ($100,000) and Wanneroo in Perth ($77,010).
There were also some anomalies in inner urban areas, including parts of Sydney's inner west and north shore that returned negative price gaps, which Domain suggested were evidence of "vendor caution, or a skew toward higher spec properties".