How Australia compares internationally on home affordability and interest rates
It’s good news for foreign investors but presents challenges for local buyers and homeowners looking to step into, or move up in, the property market
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Australian property has shown greater resilience against higher interest rates than many other real estate markets around the world, according to a new report. However, Australia has also not lifted its official cash rate as much as other countries during the global battle against inflation. Our cash rate of 4.35 percent is significantly lower than the United States’ rate range of 5.25 percent to 5.5 percent and only higher than a few nations such as France, South Korea and Japan.
Research by Australian real estate network PRD shows most property markets around the world have gone through the same market cycle since the pandemic ended. In most countries, there was a brief period of strong growth in home values as the world re-opened between 2021 and 2022, followed by declining prices as cash rates increased.
“Compared to other countries around the world, Australia has proved itself to be a more resilient market against successive cash rate hikes,” said PRD chief economist Dr Diaswati Mardiasmo. “Our property prices did not decline as sharply as New Zealand, Canada, Hong Kong, the UK, and South Korea.
“In terms of affordability, internationally, we sit in the middle. New Zealand, Canada, the USA, and Hong Kong are still more expensive than Australia, but the UK, South Korea, Japan, and France are more affordable.”
The report points out that this is one of the reasons why Australian property is still attractive to many international buyers and investors. For Australians, housing affordability has deteriorated by 15 percent over the past five years, according to the research.
“This means those who bought a property in the past five years are ‘worse off’ economically and in greater danger of mortgage stress, as opposed to those who bought property 10 to 20 years ago,” the report said.
Historically, it is unusual for Australian home values to rise at the same time as interest rates. This only occurred due to an imbalance between supply and demand. Dr Mardiasmo said other countries such as New Zealand, Canada, France, South Korea and Japan also have a housing supply deficit. Meantime, supply levels are improving in the UK, US and Hong Kong, she said.
For now, the Reserve Bank of Australia is holding the cash rate steady while monitoring the impact of its 13 rate rises between May 2022 and November 2023 on inflation. During a press conference earlier this month, Reserve Bank Governor Michele Bullock said a rate cut was unlikely this year.
Dr Mardiasmo said a stable cash rate creates a catch-22 in the market. “On one hand it provides stability, hence many believe that now is an ideal time to purchase. On the other, a stable cash rate has created ‘sticky buyers’ that no longer feel the need to rush …”.
Other countries are also keeping their cash rates steady, including Hong Kong, the US, New Zealand, the United Kingdom and South Korea. Some countries have begun cutting their cash rates, including Canada and France. Japan is the outlier after commencing a cash rate hiking cycle in March. This followed almost 14 years of negative or zero interest rates. The rate in Japan is now 0.25 percent.
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Strong rental fundamentals and tight supply have driven more than $155 million in Sydney apartment block and residential investment sales over the past year.
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Sydney’s residential investment market has recorded $155 million in apartment block and townhouse sales over 2025, underscoring continued investor confidence in rental-led assets despite broader economic uncertainty.
The transactions were completed by Knight Frank’s Investment Sales agents James Masselos and Adam Droubi, who negotiated 19 sales across Sydney during the year.
Residential investments accounted for 75 per cent of their total sales activity, supported by more than 4,200 active purchaser enquiries.
Co-living deal sets national benchmark
Among the standout transactions was the off-market sale of 142 Carillon Avenue in Newtown, a 37-studio co-living apartment block located close to the University of Sydney and Royal Prince Alfred Hospital.
The property sold for $21.5 million, setting a new benchmark for the living sectors market nationally.
The deal achieved approximately $581,000 per bedroom, believed to be one of the highest per-bedroom results recorded for a co-living asset in Australia.
Inner-city assets trade in one line
Other notable sales included a group of 12 townhouses at 108 Illawarra Road in Marrickville, sold in one line for $14 million, and a block of 20 studio apartments at 171 Rowntree Street in Birchgrove, which changed hands for $6.7 million.
Both transactions reflected strong buyer competition for well-located residential assets with established income streams.
Supply constraints underpin momentum
Mr Masselos said Sydney’s apartment block market continued to benefit from tight supply and strong rental conditions.
“Apartment blocks and broader residential investments remain a robust asset class, underpinned by strong rental growth, record low vacancy levels and scarcity of stock,” he said.
He added that more than $25 million worth of residential investment opportunities are expected to come to market in 2026, with buyer enquiry remaining elevated.
Mr Droubi said competitive sales campaigns had become a feature of the market as investors sought secure income and long-term value.
“Supply constraints and ongoing population growth underpin market strength,” he said. “New approvals and completions lag demand, keeping stock tight and boosting both rents and prices.”
Vacancy rates keep pressure on rents
According to Knight Frank, rental demand across Sydney remains intense, with vacancy rates well below typical “healthy” levels.
Many middle and outer-ring suburbs are recording vacancies of around 1.5 per cent or lower, maintaining upward pressure on rents and reinforcing the appeal of residential investment assets.
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