Perth Property Market 2026: Interest Rate Rise Slows Growth but Supply Shortage Keeps Prices Rising

RBA Rate Rise May 2026: What It Means for Perth Property Prices

The Reserve Bank’s decision today to lift the cash rate to 4.35% reinforces a reality many buyers and investors already understand, inflation remains too high and interest rates will stay elevated for longer. For the Perth property market, however, the impact is not straightforward. While higher interest rates reduce borrowing capacity and slow buyer momentum, they do not address the underlying issue driving Perth housing prices: a chronic shortage of supply.

Interest Rates and Perth Housing: Demand Slows, But Doesn’t Collapse

There is a persistent misconception that rising interest rates will cause property prices to fall. In Perth, that simply isn’t what we are seeing.

Instead, higher rates are:

• Reducing borrowing capacity
• Making buyers more cautious
• Slowing transaction speed

But importantly, they are not eliminating demand.

Perth continues to benefit from:

• Strong population growth
• Relative affordability compared to Sydney and Melbourne
• Tight rental conditions

This means demand remains intact, just more measured.

Inflation, Government Spending and Property Prices

The reason interest rates are rising comes back to inflation and this is where broader economic policy matters. There is increasing concern that government spending is contributing to persistent inflation, particularly in an economy already operating with supply constraints.

When spending expands in a constrained environment:

• Demand is supported
• Supply struggles to respond
• Inflation remains elevated

This forces the Reserve Bank to keep interest rates higher for longer.

The result is a policy tension:

• Monetary policy (interest rates) is trying to slow the economy
• Fiscal policy (government spending) is sustaining demand

That imbalance is one of the key reasons we are seeing ongoing pressure on interest rates and, indirectly, continued support for property prices.

Perth Housing Supply Crisis: The Real Driver of Price Growth

The defining factor in the Perth property market right now is not interest rates. It is supply constraints.

Across WA we are seeing:

• Low levels of new housing construction
• High building costs
• Labour shortages in the construction sector
• Strong migration inflows

This has created a structural imbalance. There are simply not enough homes for the number of people who need them. Importantly interest rate rises do not increase housing supply. They can slow demand but they cannot fix the shortage.

Labor Housing Policy Uncertainty and Property Market Confidence

Another factor influencing the market is policy uncertainty, particularly around Labor’s evolving position on housing and property taxation. Uncertainty creates hesitation.

Buyers and investors are asking:

• What changes are coming?
• How will property be taxed?
• Will investment conditions tighten?

This uncertainty doesn’t remove demand, it delays it. Delayed demand often returns quickly once clarity is restored.

What Happens When Policy Becomes Clear?

History shows that certainty drives confidence. Once buyers understand the rules, regardless of whether they are favourable or not, the market adjusts and moves forward.

In Perth’s case, this likely means:

• Buyer confidence improves
• Transaction activity increases
• Prices continue to rise

But at a more sustainable, slower pace than the rapid growth seen recently.

Perth Property Forecast 2026: Slower Growth, not a Downturn

The key takeaway from today’s rate rise is this: The Perth property market is not reversing it is normalising.

We are moving from:

• Fast growth → to steady growth
• Urgency → to considered decision-making

But the underlying fundamentals remain unchanged:

• Strong demand
• Limited supply
• Population growth

Final Thoughts: Perth Property Still Has Upward Momentum

Today’s interest rate increase is a headwind but not a turning point.

It will:

• Slow the pace of growth
• Increase buyer caution
• Reduce borrowing power

But it will not solve the core issue driving Perth property prices, a shortage of housing. Once policy uncertainty clears, confidence will return, and the market is likely to continue its upward trajectory.

Relentless? Yes.

Slower? Also, yes.

Turning downward? Unlikely.

Andrew Huggins is Principal of Ray White Urban Springs, the top real estate agent in the City of Belmont for over 20 years. He writes about Perth property trends, WA real estate insights, Australian housing supply and demand, and long-term investment strategy.