With many home buyers stretched on affordability, demand for regional areas which often have lower prices and lifestyle appeal is increasing, placing upward pressure on prices.
According to PropTrack's December Home Price Index, national home prices were at their peak, up close to 50% since December 2020.
Home prices in capital cities grew 8.5% over the past year while regional areas recorded stronger growth at 9.8%. Since August 2024, annual growth rates in regional areas have consistently outpaced that of capital cities and with the gap widening in the past month, it is likely that this trend may continue.
This raises the question of why regional markets have continued to outperform, making it important to examine the underlying drivers.
Demand is one of the key drivers of price growth. Stronger demand in certain regions tends to correlate with larger price growth and increased competition between buyers.
Throughout the 2025 calendar year, demand for combined regional areas rose by 20% for houses and 14% for units compared to the 2024 calendar year. This was reflected in a higher number of key enquiries per listing (which include email and phone number reveals, SMS/call agent requests, document downloads and inspection requests).
Over the same period, demand growth across combined capital cities was more modest, at 10% for houses and 9% for units, highlighting the potential effects of persistent affordability pressures in our capitals.
Furthermore, regional areas accounted for seven of the top 10 Greater Capital City Statistical Areas (GCCSAs), recording the largest growth in enquiries for houses, and six of the top 10 for units.
Not only were more buyers enquiring overall, but buyer engagement was more concentrated in regional markets.
Interstate migration has also played an important role in reinforcing this trend. The movement of people from capital cities to regional areas has been ongoing for the past 25 years and has been more pronounced in recent years following the increase of of hybrid and remote work and the decreasing affordability of homes in cities.
This has been particularly evident in New South Wales and Victoria where net losses have been recorded for both Sydney and Melbourne since the September 2024 quarter. A large proportion of people have been migrating to regional counterparts within their respective states or other large regional hubs such as regional Queensland.
Regional areas have consistently seen more people arrive than depart which has directed housing demand away from capital cities and toward regional markets.
While those migrating could be a combination of renters and owner-occupiers, the largest share of people arriving in regional areas were aged between 45-64. Within this age group, over 70% were homeowners, supporting stronger purchasing activity and, in turn, more pronounced price growth in the regions.
Growing demand for regional areas has had a large influence on price, however, supply availability also plays an important role in shaping price movements.
From September to November 2025, new listings in regional areas declined year‑on‑year each month, with falls of 5.3%, 4.8% and 7.0%, respectively. These declines were greater than those seen across capital cities over the same period and has contributed to tightening supply conditions.
These conditions have been further compounded by new home construction remaining below long-term levels. In 2025, dwellings approvals in regional areas were 44,361, which is 28% below approvals in the early 2000s and 14% below approvals in the mid-2010s.
With strong population growth persisting in regional areas and demand from buyers increasing, the shortage of new housing has increased competition and placed upward pressure on prices.
In the upcoming months, it is likely that we will continue seeing stronger price growth in regions than in cities. Improvements in supply are slow to develop and are unlikely in the near term, especially amid declining approval figures.
Despite interest rates sitting at a 33-month low, housing affordability in our capitals is still at historically challenging levels. With regional areas maintaining a relative affordability advantage, demand for housing is expected to remain strong, supported by ongoing migration from capital cities and increasing buyer interest.
However, the current trend could shift if demand for capital cities strengthens over time. An improvement in housing supply in regional areas through an increase of new listings or new home construction could also narrow the growth gap between cities and regional areas.
