Four rate rises in 2026 have not stopped Australians borrowing to build houses. What they are changing is which projects still stack up, and apartments, spec builds and renovations are feeling it first.
The Reserve Bank lifted the cash rate to 4.60 per cent on 29 September. It was the fourth rise of 2026 and took rates to their highest level since late 2011.
Most of the coverage since has been about mortgage repayments. That is only half the story.
For builders, the more important question is which projects can still pay their way. Rates do not just change what buyers can borrow. They change what developers can pay for land, what lenders will fund, and which jobs reach the slab.
Housing demand was already softening before September
In its decision statement, the Reserve Bank noted that housing prices have fallen in most capital cities and that new housing loans have declined noticeably.
Cotality’s Home Value Index fell 1.1 per cent in September, the sixth monthly fall in a row. National values are now 5.2 per cent below their March peak. Combined capital city values fell 1.2 per cent in the month and 4.3 per cent over the quarter.
Turnover has dropped faster than prices. Cotality estimates home sales over the past three months were 19.1 per cent lower than a year earlier. Capital city homes now take a median 39 days to sell, up from 23.
At auction, the combined capital city clearance rate held below 50 per cent in all but one of the 11 weeks to early September, according to Cotality’s weekly results.
Cotality also estimates the four rises since February have cut a median income household’s borrowing capacity by almost $90,000, or around 9 per cent.
That is the demand side. The construction story sits behind it.
Higher rates squeeze feasibility from both ends
What is a development feasibility?
A development feasibility is the calculation a developer runs before committing to a project. It sets expected sales revenue against land, construction, finance, fees and a profit margin. If the revenue does not cover all of those with enough margin left to satisfy a lender, the project does not proceed.
Higher rates hit that calculation twice.
On the cost side, finance runs across the whole life of a project, from land purchase through approvals and construction to final settlement. Every rise lifts the cost of carrying that debt. The longer the project, the bigger the effect.
On the revenue side, buyers can borrow less. That caps what a developer can realistically charge, at the same moment costs are rising.
Rates do not just change what buyers can borrow. They change what developers can pay for land, what lenders will fund, and which jobs reach the slab.
Master Builders Australia said after the September decision that the rate rise, on top of higher materials prices and labour shortages, means the cost of creating new homes now exceeds their likely sale price in many cases. It expects some projects not to proceed and others to go ahead at a smaller scale.
Land is where the pressure shows first
In most feasibilities, land is what is left over once every other cost and the margin are covered. When costs rise and achievable prices stall, the price a developer can justify paying for a site falls.
That opens a gap between what landowners expect and what buyers can pay. Fewer sites change hands until one side moves.
The household end of the land market is already cooling. ABS Lending Indicators show owner occupier loans to buy residential land fell to 5,192 in the June quarter, down from 5,910 in the December quarter 2025. Those figures predate the September rise.
Construction finance and presales are harder to line up
Apartments feel this most. Lenders generally want a substantial share of a project sold off the plan before they release construction finance. When buyers have less borrowing power and less confidence, presales slow, and approved projects sit unbuilt.
Some state governments have stepped into that gap. NSW’s $1 billion Pre Sale Finance Guarantee allows the government to commit to buying up to half the dwellings in eligible approved projects, giving lenders the certainty to fund construction, according to the Property Council. Western Australia announced a $250 million Pre Sale Guarantee in April.
The ABS approvals data shows the split clearly. In August, approvals for private sector dwellings excluding houses fell 21.2 per cent to 5,674 in seasonally adjusted terms, while private house approvals rose 3.7 per cent to 10,885. Houses made up around 64 per cent of all dwellings approved.
Approvals are not starts. In the March quarter, the latest available, ABS Building Activity showed private sector apartment and townhouse commencements fell 20.7 per cent, while new house commencements fell 3.5 per cent.
Speculative projects carry the most holding risk
A spec home or small development carries finance from land purchase to final sale with no buyer locked in. In a market where homes take longer to sell, every extra month adds interest to the bill.
That makes the selling period, not just the build program, a live variable in the numbers. For small builder developers, the pressure lands directly on cash flow through the build. Cotality reports capital city listings running 23.1 per cent above a year ago, which means more competing stock at the end.
There is a policy counterweight. Under the negative gearing and capital gains changes announced in the May Budget, investors in eligible new builds keep full negative gearing and can still choose the 50 per cent capital gains discount. From 1 July 2027, losses on established properties bought after Budget night will only offset other property income. Knock down rebuilds that replace one home with one home do not qualify.
The intent is to point investor money at new supply. Cotality’s assessment is that the near term effect has been a broader pullback in investor activity. The exception so far is construction. ABS data shows investor loans to build a dwelling rose 20.2 per cent over the year to the June quarter, to 8,468, even as total investor lending fell 8.6 per cent in that quarter.
Owner occupiers kept building through three rises
This is the part that runs against the headline.
ABS data shows owner occupier loans to build a dwelling reached 9,975 in the June quarter, up 15.1 per cent on a year earlier, through three rate rises. Our earlier analysis of that release found lending to build rose while lending to buy existing homes fell.
Part of the reason is structural. APRA’s limit on high debt to income lending, in force since 1 February, excludes loans for the purchase or construction of new dwellings.
The June quarter figures predate the September rise. Every new application is still assessed at the loan rate plus APRA’s 3 percentage point buffer, so each rise narrows who qualifies. We covered what a rate rise does to contracts already signed last week. The September quarter lending data, due on 11 November, will show whether new demand held.
Renovation spending is starting to cool
Renovation work ran strongly into this cycle. The value of alterations and additions work done was up 10.2 per cent over the year to March in real terms.
The forward indicators have turned. Owner occupier loans for alterations, additions and repairs fell 5.6 per cent in the June quarter to 7,911. The value of renovation work approved fell 2.1 per cent in August to $1.28 billion.
Renovations are discretionary. When the mortgage costs more each month, the new kitchen can wait.
The shift shows up in starts before prices
Put together, the data points to a pipeline that is changing shape rather than simply shrinking. Detached houses for owner occupiers are holding up. Apartments, speculative projects and discretionary work are where feasibility gives way first.
That matters beyond this year. Cotality lists persistently low new supply as one of the factors limiting how far prices fall. Projects that do not reach the slab now are homes that will not exist in 2028.
Two dates are worth watching. ABS Building Activity for the June quarter is released on 7 October, and the Reserve Bank’s next decision is on 3 November. The Board has said it will lift rates further if needed.
Our Australian Construction Industry Trends Guide tracks the data as it lands. For more conversations with builders working through 2026, listen to The Good Builder Podcast and follow us for the latest industry analysis.
Frequently asked questions
The cash rate target is 4.60 per cent, effective 30 September 2026. It was the Reserve Bank’s fourth rise of 2026 and the highest setting since late 2011. The next decision is due on 3 November 2026.
Higher rates raise the cost of carrying finance over the life of a project and reduce how much buyers can borrow. Costs rise while achievable sale prices stall, so fewer projects show enough margin for a lender to fund them, and the price developers can pay for land falls.
Apartment projects usually need a substantial share of presales before construction finance is released. Weaker borrowing capacity slows presales. In August 2026, ABS approvals for dwellings excluding houses fell 21.2 per cent while private house approvals rose 3.7 per cent.
Yes, up to June. ABS data shows owner occupier loans to construct a dwelling rose 15.1 per cent over the year to the June quarter 2026, to 9,975. Those figures predate the September rise. September quarter data is due on 11 November 2026.
Related articles
- Four rate rises in 2026: what the latest one does to jobs already signed
- Lending to build a new home rose 17 per cent through three rate rises
- Cash Flow for Builders in Australia
Last updated: 6 October 2026. Data current to the ABS and Cotality releases cited in the article.
General Information Only. This article provides general information about the Australian construction industry and is not financial, legal or professional advice. It does not take into account your objectives, financial situation or needs. Figures are drawn from the sources cited and may be revised. Seek advice from a qualified professional before making decisions based on this information.
Author: TGB Editorial
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