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Housing costs are driving 52% of Australia's inflation above the RBA's target range, with housing inflation at 5.2% while overall inflation sits at 3.4%. The problem has intensified rapidly, inflation was just 1.9% in June 2025 but jumped to 3.4% by November, with housing responsible for more than half that increase. This creates a policy dilemma: raising interest rates to combat inflation further burdens homeowners already struggling with high property costs.
New Analysis reveals housing costs are responsible for 52% of Australia's inflation rate exceeding the Reserve Bank's target range, limiting the RBA's ability to tackle inflation as interest rate rises hurt the homeowners already struggling with property costs.
Australia's inflation rate fell from 3.8% to 3.4% in November 2025, yet remains stubbornly above the 2-3% target range. Just five months earlier in June, inflation sat comfortably at 1.9%. Housing accounts for 0.79 percentage points of the 1.5 percentage point increase in the annual growth rate since then, or 52% of the total.
The dominance of housing in driving inflation has been consistent across recent months. In each of the past three months, housing has made up a third of all inflation (1.12% of the 3.4% inflation rate in November) despite representing just 21.4% of the consumer price index.
- 3.4% Current inflation rate
- 5.2% Housing inflation rate
- 52% Proportion of above-target inflation attributable to housing
- 1.9% Where inflation sat just five months earlier in June 2025
- 4% Current rental price growth
- 2.8% New dwelling price growth (highest in a year)
The housing inflation crisis by numbers:
Housing inflation rate sits at 5.2%, second only to education
Food, weighted just 4% lower than housing (17.4% versus 21.4%), contributes nearly half the inflation impact
Rental price growth sits at 4% in November, down from 7.8% peak but up from 3.7% in August
New dwelling prices rose 2.8%, the highest growth rate in a year
This housing-driven inflation creates a challenging squeeze for Australian households. The RBA faces limited options to bring inflation back to target, as the traditional tool, raising interest rates, directly worsens the financial pain for homeowners with mortgages. Renters aren't spared either, with rental growth at 4% and unlikely to ease while the broader housing shortage persists. For everyday Australians, this means continued pressure on household budgets through both direct housing costs and the flow-on effects to other prices, with little relief in sight until housing supply issues are addressed. The situation is particularly frustrating given inflation was within target just months ago, suggesting the current spike could have been avoided with earlier intervention in housing markets.
