Capital expenditure on private dwellings

IBISWorld forecasts capital expenditure on private dwellings to decline by 3.0% in 2025-26 to total $133.2 billion. An elevated interest rate environment is expected to increase borrowing costs, constraining capital expenditure on private dwellings. Meanwhile, although rising household discretionary income typically supports increased spending on housing, suggesting households have more financial capacity to invest and a decrease in the cash rate should theoretically encourage more investment because of lower mortgage costs, these factors have yet to translate into higher capital expenditure on private dwellings.

The anticipated rise in demand from residential building construction and an expected increase in dwelling commencements indicate a robust interest in developing new housing projects in 2025-26. However, heightened economic policy uncertainties, according to the Reserve Bank of Australia's data, like concerns about future income stability and potential downturns, make households and investors more cautious, leading them to save or invest elsewhere. Despite lower cash rates recently, tighter lending standards could also limit financing for potential homebuyers.

Moreover, increased construction costs, according to ABS data on rising costs of input to the House construction industry, because of a mix of drivers like labour shortages and higher material prices, make new projects more expensive and less attractive, dampening capital expenditure on private dwellings. Despite a favourable environment for investment in private dwellings, these challenges hinder capital expenditure in the sector.

Housing prices have grown strongly over the past decade, generating significant demand for residential property from domestic and foreign investors. Multi-unit apartments and townhouses were key growth drivers but have significantly declined in 2021-22, particularly in Melbourne and Sydney. However, there are signs of improvement in 2025-26 as the market begins to pick up again. Overall, IBISWorld forecasts capital expenditure on private dwellings to dip at a compound annual rate of 0.4% over the five years through 2025-26.