For Australians who bought property near the top of the market, or those considering buying while prices remain unsettled, the past year has been uncomfortable.
Higher interest rates have reduced borrowing power and headlines about declining values have revived concerns about negative equity. Prospective buyers are left wondering whether entering the market now means risking an immediate loss.
But there is another side of the discussion that Westpac CEO, Anthony Miller, believes deserves more attention.
Australia still does not have enough homes.
While the housing shortage is creating obvious affordability problems, it may also be one of the strongest reasons to believe that current weakness in the Australian property market won’t last indefinitely.
Experts have long said that Australia needs more housing than it is currently delivering. Construction costs are elevated, builders are continuing to fail, and major residential developments are being delayed or abandoned. At the same time, population growth and household demand haven’t disappeared.
Miller told the Australian Financial Review (AFR) that he expects the housing shortage to contribute to renewed price growth, with Westpac forecasting national house price gains of around 3% in 2027 and 8% in 2028.
His comments do not guarantee that prices will rise again, but they point to a well-known concept: when supply remains constrained and demand eventually strengthens, property prices tend to respond.
The homes Australia needs are not arriving quickly enough
There were 244,000 dwellings under construction in the March quarter of 2026, the highest level since records began in 1984, according to the National Housing Supply and Affordability Council (NHSAC).
At first glance, that sounds like a substantial construction pipeline, but Australia remains behind where it needs to be.
The National Housing Accord set a target of 1.2 million new homes over the five years to June 2029, but the NHSAC find that many states are not estimated to reach that total until at least 2030.
Every incomplete or delayed home and every builder that collapses makes it harder for supply to meet demand.
Recent Australian Bureau of Statistics data underlines how inconsistent the supply response remains. In July, 17,687 dwellings were approved nationally on a seasonally adjusted basis, down 3.6% from June. Private-sector house approvals fell 4.2% to 10,199.
Those figures came after a stronger June, when approvals rose 7.2% to 18,328.
This volatility matters because approvals alone don’t solve a housing shortage.
Construction failures can tighten supply further
The collapse of Bathla Group is one of the clearest examples of how problems in the construction sector can flow directly into the broader housing market.
ABC News reported this week that Bathla entered voluntary administration owing about over $3 billion to private lenders.
More than 2,000 apartments have been thrown into uncertainty, and a further development pipeline of around 14,000 homes may also be affected.
Bathla is not an isolated example. According to ASIC figures, 3,472 Australian construction companies became insolvent in the financial year to June 30, 2026. That equates to 24.5% of all company insolvencies nationally.
The ABC also reported that 63% of building company collapses were concentrated among small builders.
This creates an uncomfortable outcome for housing affordability, but for existing homeowners concerned about falling values, the implications are quite different.
Less new supply can increase the relative scarcity of established housing.
When buyers return in greater numbers, they may find themselves competing over a pool of available homes that has not grown quickly enough to meet demand.
That is one of the clearest reasons property prices could begin rising again.
Why scarcity tends to boost property prices
Property prices are never driven by one factor alone, but housing is still subject to the same basic principle as any scarce asset: when demand exceeds available supply, competition increases.
Australia’s current market has been unusual because higher borrowing costs have suppressed demand enough to offset some of the pressure created by the housing shortage.
That does not mean the shortage has been solved. It means its effect has been temporarily masked.
When interest rates are high, fewer households feel financially comfortable making an offer on a property. But if rates eventually fall, incomes rise or confidence improves, those prospective buyers may return to the market.
Competition is the mechanism by which a housing shortage can translate into higher property prices. It is also why markets can turn before the broader economic mood feels completely comfortable.
Buyers do not need to be completely confident; they simply need to become less cautious.
"Competition is the mechanism by which a housing shortage can translate into higher property prices."
Why this matters for people worried about negative equity
For homeowners who purchased recently, particularly with a smaller deposit, falling property prices can feel confronting.
A buyer who purchased with a 10% deposit does not need to see a dramatic market fall before a large part of their initial equity is eroded.
But negative equity is a point-in-time calculation. It does not automatically mean the homeowner faces a permanent loss.
For a borrower who remains able to comfortably service the loan, continues making repayments and does not need to sell, monitoring supply is important.
If limited supply contributes to renewed price growth over the coming years, homeowners currently sitting on reduced equity may see that position improve as values recover and their mortgage balance falls.
That process won’t happen evenly, and no one can guarantee when or by how much a particular property will rise.
But Australia’s supply problem provides a credible reason to believe that today’s softer valuations should not automatically be viewed as permanent.
For many mortgage holders, that is the more useful perspective.
The construction crisis may strengthen the case for established homes
As new housing becomes more difficult and expensive to deliver, established homes can become more valuable simply because they already exist.
Construction costs for houses are now 51% higher than before the COVID-19 pandemic, according to the NHSAC.
Those higher costs affect what builders need to charge for new homes and apartments to make projects viable. If the cost of producing new housing remains high, the price gap between new and existing property can become harder to close.
For buyers, that may increase the appeal of established homes in locations where infrastructure, schools, transport and local amenities already exist.
It can provide an additional form of support to existing homeowners. Their property competes not only against other established homes, but against the replacement cost of building something new.
That does not guarantee capital growth, but it strengthens the argument for why established housing may retain value, particularly in areas where supply is difficult to bring to market.
Cautious conditions can create opportunities for prepared buyers
There is a potential advantage to buying in a market where other people are hesitant.
Buyers face less competition, provided the property, finance and repayments all make sense, which gives them leverage to negotiate and inspect properties properly.
In a rapidly rising market, those advantages can disappear quickly.
That does not mean buying now is necessary, but it is worth considering whether uncertainty creates better conditions for buyers who already have a strong financial position and a clear idea of what they are looking for.
UFinancial helps prospective buyers understand their borrowing capacity, compare home loan options and structure their finance before they need to make an offer.
The goal is not to predict exactly where property prices will be in six months, but to be ready if the right opportunity appears.
A supply shortage does not guarantee growth, but it gives the market a strong foundation
Predictions are not an exact science, but as Miller told the AFR, “basics don’t change.”
Australia’s housing shortage is not a minor background issue; it is one of the defining forces shaping the Australian property market.
The country’s construction sector is being asked to deliver more housing at a time when costs are high, builders are failing and major projects are increasingly difficult to make viable.
For homeowners wondering whether their property can recover in value, and buyers asking whether there is still a long-term case for owning property, the supply shortage provides grounds for confidence.
For Australians who can afford to hold, the prospect of negative equity today does not necessarily mean a permanent loss of wealth.
For buyers who are financially ready, waiting for complete certainty may mean waiting until competition has already returned.
If you are considering buying property, refinancing an existing loan or want a clearer picture of what current market conditions mean for your borrowing position, contact UFinancial. We can help you understand your finance options, your available borrowing capacity and what makes sense for you from here.
If you’d like to talk through your lending position after reading this, speak with one of our UFinancial team.
