Low supply driving FHB property values upwards

The data showed that dwellings within the scheme’s price limits rose by 6.7 per cent compared to just 3.6 per cent over the March quarter.

Cotality head of research, Tim Lawless, said the increase in the value of homes underneath the price caps had been driven by a number of factors, including demand being brought forward, investor activity and serviceability constraints.

“It is likely to be the case that subsequent buyers are also competing across the lower price points as well, simply due to affordability and serviceability constraints funnelling more demand towards the affordable end of the market,” Lawless told REB.

The data showed that the number of properties available under the scheme’s price limits had fallen by 9.1 per cent, which Lawless said was putting further pressure on the market and pushing prices even higher.

“It is likely we will continue to see values rising faster across the lower quartile of the market due to the increased competition for homes with lower prices,” he said.

“The extent to which this is driven by first home buyers is likely to change. As more homes breach the price caps, there will be fewer regions to choose from.”

Lawless said that as property values continue to rise, serviceability concerns will become more difficult for FHBs to navigate, especially as interest rates increase.

With more properties being pushed above the price caps, Lawless said the scheme would likely begin to lose its stimulatory power, and any options to support it would raise significant concerns.

“The government could look at increasing the caps or lower the guarantee threshold below 5 per cent; however, both of these options are likely to face some criticism as an extension to the demand side stimulus,” Lawless said.

“Realistically, the most formidable barrier, even if caps were raised, would be serviceability and debt-to-income restrictions.”

The largest differential in values between properties above and below the price cap was in Sydney, with dwellings available to FHBs rising by 4.1 per cent since October 2025, while those above the price cap fell by 1.1 per cent.

Lawless said that despite its unaffordability, Sydney recorded the highest proportion of suburbs with median values below the scheme’s price cap because of its higher limit than in other markets.

“The higher portion is partially explained by the higher price cap; at $1.5m, Sydney’s price cap is more than $500k higher than any other capital city,” he said.

“The other explanation comes back to the relatively mild value growth, with Sydney house values rising only 0.4 per cent over the past six months.”

Among the major markets, Melbourne was the only other capital to record a drop in prices above the cap, with property values falling by 1 per cent.

Perth recorded the strongest value growth overall, with properties valued above the state’s $850,000 price cap climbing by 14.6 per cent, while its more affordable homes rose by 18.2 per cent.

Additionally, Lawless said that while recent rate increases have eroded borrowing power, the threat of further rate increases was beginning to negatively affect the nation’s housing market.

“We are already seeing a severe impact on consumer sentiment, with both the weekly and monthly sector measures plummeting through April.

“Historically, we have seen a relationship between movements in consumer confidence and housing activity – lower sentiment generally implies fewer home sales.”

Lawless said the economic factors had forced buyers to consider moving away from metropolitan areas or to look towards units rather than detached houses.

“Demand from first-time buyers looking to purchase a house is likely to skew towards the outer fringes of the capital cities or regional markets where price points are lower.

“More affordable and widespread options are available to first home buyers in the unit market, which is likely to become an increasingly popular option for budget-conscious buyers looking to participate in the deposit guarantee scheme,” he said.