Australian Property Market in 2025

Affordability, Deposit Saving,

and Superannuation Usage 

 

 

Executive Summary 

This report provides an overview of the Australian property market in 2025, focusing on key aspects such as affordability challenges, strategies for saving a home deposit, and the role of superannuation in home purchases, particularly through the First Home Super Saver (FHSS) scheme. The market continues to show resilience with ongoing price growth, driven by population growth, tight rental markets, and housing undersupply. Despite anticipated interest rate cuts offering some relief, affordability remains a significant hurdle for many Australians, especially first-time buyers. Various government initiatives and saving strategies are available to assist prospective homeowners. 

 

1. Australian Property Market Conditions and Affordability in 2025 

 

1.1 Current Market Outlook 

The Australian housing market in 2025 is characterized by continued price growth across all capital cities, despite relatively high interest rates and persistent affordability pressures. KPMG forecasts a 3.3% growth in house prices in 2025, accelerating to 6.0% in 2026, with unit prices expected to rise even faster. National dwelling values saw a 0.5% increase in May 2025, contributing to a 1.7% rise over the first five months of the year. The PropTrack Home Price Index reported a new record in May, with national home prices growing by 0.39%, marking a 4.12% year-on-year increase. 

1.2 Drivers of Price Growth and Affordability Challenges 

Key drivers of the ongoing demand and price growth include robust population growth, tight rental markets, and a chronic undersupply of housing. Australia’s housing supply, at 420 dwellings per 1,000 people, lags behind the OECD average of 468 and the EU average of 517, indicating a significant shortage of approximately 1.2 million homes. Restrictive planning laws and a decline in public housing further exacerbate this issue.

Affordability remains a critical concern. Sydney, for instance, is ranked as the second least affordable city globally to purchase property. The average Sydney home costs nearly A$1.2 million, while the combined average capital city price is just over A$900,000. Australian house prices have surged by 39.1% over the last five years, a period during which wage growth has not kept pace. This disparity means it now takes an average prospective homeowner around 10 years to save a 20% deposit. 

1.3 Impact of Interest Rates and Rental Market 

Anticipated interest rate cuts are expected to improve borrowing capacity and buyer sentiment, making homeownership slightly more accessible. However, the rental market offers little relief, with national rents increasing by 36.1% since the onset of COVID-19, equivalent to an additional A$171 per week. The median weekly rent reached $627 in 2024, reflecting an 8.5% year-on-year increase. While rental growth is expected to slow to 5.3% in 2025, vacancy rates remain historically low, further pressuring affordability. 

 

 

2. Deposit Saving Strategies and Government Assistance Programs 

 

Saving for a home deposit is often the most significant hurdle for aspiring homeowners. While a 20% deposit is ideal to avoid Lenders Mortgage Insurance (LMI), some lenders accept as little as 5%. However, a smaller deposit typically results in a larger loan and the added cost of LMI, which protects the lender in case of default. The average LMI fee is around $6,200 but can be substantially higher for larger loans. 

 

2.1 Effective Saving Strategies 

To accelerate deposit savings, individuals can implement several strategies: 

Set a Clear Goal and Budget: Determine the target deposit amount and create a detailed budget to track income and expenses, identifying areas for cutbacks. •  

Automate Savings: Set up automatic transfers from income to a dedicated savings account to ensure consistent contributions. 

Consider Investing: For those planning to buy in a few years and comfortable with risk, investing in shares or managed funds can potentially grow savings faster. 

2.2 Government Assistance Programs 

The Australian government offers several programs to assist first-time homebuyers: 

First Home Owner Grant (FHOG): This grant varies by state and territory and can help with the purchase or construction of a new home, as well as reduce stamp 

duty costs. 

Home Guarantee Scheme: This scheme allows eligible first home buyers to purchase a home with a deposit as low as 5% without incurring LMI, as the 

government guarantees the loan.

 

 

3. Superannuation Usage for Home Purchases: The FHSS Scheme 

 

The First Home Super Saver (FHSS) scheme is a key initiative allowing eligible first home buyers to save for a deposit within their superannuation fund, leveraging the concessional tax treatment of super contributions. 

3.1 How the FHSS Scheme Works 

Under the FHSS scheme, individuals can make voluntary contributions to their super fund, which can then be withdrawn to help fund a first home purchase. Concessional contributions (e.g., salary sacrifice or personal contributions claimed as a tax deduction) are taxed at a lower rate of 15% within the super fund, and assessable FHSS amounts benefit from a 30% tax offset upon withdrawal. 

3.2 Contribution and Withdrawal Limits 

Contribution Limits: Individuals can contribute up to $15,000 in eligible voluntary contributions in any one financial year, with a maximum total of $50,000 across all years. These contributions can be either concessional or non-concessional. •  

Withdrawal Amounts: Upon requesting a release, individuals can withdraw 100% of their eligible non-concessional contributions and 85% of their eligible concessional contributions, plus associated earnings on both types of contributions. 

3.3 Eligibility Criteria 

To be eligible for the FHSS scheme, individuals must: 

Be 18 years or older when requesting a FHSS determination. 

Be a first home buyer, meaning they have never owned property in Australia (exceptions apply for those who have suffered financial hardship). •  

Have their name on the property title. 

Intend to occupy the purchased property as a home for at least 6 of the first 12 months after it is practicable to do so. 

3.4 Important Considerations 

Ineligible Purchases: The scheme generally does not cover vacant land (unless a 

construction contract is in place within 12 months of release), houseboats, motor homes, or premises not suitable for residence.

Contribution Types: Only voluntary contributions made on or after 1 July 2017 are eligible. Super Guarantee (SG) contributions, contributions from spouses, or government co-contributions are not eligible. 

Process: It is crucial to request a FHSS determination from the ATO before the ownership of any real property transfers. If the released funds are not used for a home purchase, they remain in superannuation until another condition of release is met. 

 

Tips 

Navigating the Australian property market in 2025 presents significant challenges, particularly concerning affordability. However, a combination of strategic saving, leveraging government assistance programs like the First Home Owner Grant and Home Guarantee Scheme, and utilizing the First Home Super Saver scheme can significantly improve the prospects for aspiring homeowners. Understanding these mechanisms and planning effectively are crucial steps towards achieving homeownership in Australia.