Middle East conflict and the Australian property market: why new and off‑the‑plan may benefit first

Executive summary

Australia’s housing market is entering 2026 with two features that matter more than ever in a geopolitical shock: structurally constrained new supply and persistent demand pressure from population growth. Official forecasts already point to Australia missing its Housing Accord construction ambitions materially, with the National Housing Supply and Affordability Council (NHSAC) forecasting around 938,000 dwellings completed during the Housing Accord period, implying a shortfall of ~262,000 versus the 1.2 million target.

At the same time, Middle East escalation is increasingly transmitting to the global economy through energy chokepoints and shipping disruption. In 2024 and early 2025, the Strait of Hormuz already accounted for more than one-quarter of global seaborne oil trade and around one-fifth of global oil and petroleum product consumption, and roughly one-fifth of global LNG trade also transited the strait (primarily Qatar LNG). We now face severe disruption to shipping through the region and surging war-risk costs, making the risk of a renewed, import‑linked inflation pulse non‑theoretical. 

For Australian residential property—especially new and off‑the‑plan stock—the most important investment implication is timing. Housing supply responds slowly, but replacement costs reprice quickly when energy, freight, insurance, labour and risk premia move. Australia has already lived through a version of this: ABS analysis shows prices received by building construction businesses rose 31% from September quarter 2020 to June quarter 2024, driven by house construction prices rising 41% over that period. 

This paper highlights that geopolitics can tighten supply and lift replacement costs at the same time housing demand remains firm—which is likely to support growing capital values and rents. Investors focused on new / off‑the‑plan can potentially “front‑run the repricing” by securing scarce new stock before rising costs and tighter supply fully flow through to prices.

Key takeaways

• Global conflict can still impact Australian property through oil, freight and construction costs.
• Australia’s housing supply is already tight, so any added disruption could worsen shortages.
• Rising build costs may push up prices for new and off-the-plan property.
• Limited new supply could support both capital growth and rental demand.
• Australia may attract more safe-haven interest during global uncertainty.
• Foreign buyer demand, where it increases, is more likely to flow into new property.
• For investors, acting before further cost escalation may create an advantage.

What is happening in the Middle East and why Australia feels it

The Australian property market does not need to “trade with the Middle East” to be affected. It needs only to be exposed to the global prices that sit inside construction inputs and household inflation: energy, ocean freight, and risk pricing (insurance and financing).

The Strait of Hormuz is a critical energy chokepoint. Hormuz flows in 2024 and Q1 2025 comprised more than one-quarter of global seaborne oil trade and about one-fifth of global oil and petroleum product consumption; it’s also worth noting that one-fifth of global LNG trade transited Hormuz in 2024. 

In late March 2026, the world now faces acute security disruption in the region, with implications for oil supply, shipping safety, and freight and insurance costs. We have a situation where Iran has “effectively closed” the strait, disrupting a substantial portion of global oil supply and driving sharp fuel price moves. 

For Australia, these are not abstract numbers. They represent the channels through which global conflict can lift the delivered cost of traded goods, tighten availability of imported components, and re‑ignite inflation pressure even if domestic conditions are stable.

Why construction costs are likely to rise again

Australia’s residential build cost base is a layered stack: materials (many globally priced), freight, energy, labour, compliance, insurance, and contractor risk margins. The stronger the shock to any of those layers, the faster replacement costs move.

The best local “proof of sensitivity” is recent history is the COVID pandemic. ABS analysis of building construction output prices (prices received by building construction businesses) shows post‑pandemic cost pressure was not mild: from September quarter 2020 to June quarter 2024, building construction prices rose 31%, driven by house construction prices rising 41%. That period combined supply chain disruptions, labour constraints, and rapid demand shifts—conditions that are directionally similar to what a new energy/shipping shock can trigger (as we may start to experience).

From an industry perspective, recent Australian construction market commentary also highlights geopolitics and shipping as active inputs into the cost outlook. Rider Levett Bucknall’s market intelligence update notes that even where “material prices have stabilised,” the “previously stabilised material supply chain & costs is now under pressure from global shipping delays and the introduction of new geopolitical risks,” and specifically flags tariffs/FX/geopolitical risks as potential drivers of renewed material price pressure. 

A 2026 Middle East shock is especially relevant to building costs because it directly touches energy (a key input to manufacturing and transport) and shipping risk premia (insurance and rerouting). If energy prices rise and freight/insurance premiums surge, cost increases tend to show up first in imported building components and finishes (fixtures, appliances, specialist mechanical/electrical items), and then broaden as domestic suppliers reprice.

Crucially for investors, replacement cost inflation is asymmetric: costs can rise quickly, but they rarely “revert” fast enough to rescue projects already underway. In practice that often leads to developers and builders repricing new product higher, staging fewer projects, or slowing commencements—each of which can tighten supply and support price growth for the scarce new housing stock that remains.

How supply chains and construction capacity translate into tighter housing supply

Even without conflict, Australia’s housing supply outlook is constrained. Official forecasting already points to a significant gap between what Australia wants to build and what it is likely to complete.

NHSAC’s State of the Housing System 2025 forecasts that over the 5‑year Housing Accord period commencing 1 July 2024, gross new housing supply will be ~938,000 dwellings under baseline macro conditions and current policy settings, ~262,000 below the 1.2 million target. In the same report, the Council expects the supply of higher‑density housing to remain low relative to the previous decade, citing feasibility issues and the longer lead times for higher‑density approvals. The Council also highlights that new demand is expected to exceed net new supply in each year of the Accord period; it projects net new supply of ~825,000 over the period, after adjusting for demolitions. 

Meanwhile, current pipeline indicators remain fragile. ABS reported that in January 2026 the number of dwellings approved fell 7.2% (seasonally adjusted) to 14,564, with private sector dwellings excluding houses down 25%, and the total value of residential building down $318.6m (-5.8%). 

A conflict-linked supply chain shock can worsen this baseline in two reinforcing ways. First, it can create physical bottlenecks (delays in imported inputs, higher freight times, higher insurance costs that reduce sailing capacity). Second, it can create economic bottlenecks (higher costs make projects unviable at existing end prices, so projects get delayed or cancelled).

Construction capacity constraints amplify both. Infrastructure Australia’s Market Capacity Report 2025 indicates Australia’s infrastructure workforce stood at ~204,000 as at October 2025 and estimates a shortage, with a projected peak shortage of ~300,000 workers by 2027 (the report’s figures show a May 2027 scenario of demand ~521k vs supply ~221k). With housing also competing for trades and project delivery capacity, these constraints make it harder for the system to “build its way out” quickly—even before factoring in shipping or energy shocks.

Putting these together, the constructive (for investors) but uncomfortable (for affordability) conclusion is: any shock that increases costs or uncertainty is more likely to reduce future housing supply than increase it, and reduced supply tends to support higher capital values (and rents) when demand is steady.

Demand-side tailwinds: population, returning Australians and safe-haven capital

Australia’s housing demand has been materially supported by population growth, with migration a key driver. ABS estimated Australia’s population at 27,724,744 at 30 September 2025, with annual growth of 423,600 (1.6%); it attributed 311,000 of that annual growth to net overseas migration. ABS also reported net overseas migration of 306,000 in 2024–25 (down from 429,000 a year earlier, but still historically large). 

Against that backdrop, the Middle East crisis introduces a plausible additional demand pulse: Australians returning from the region. DFAT’s crisis messaging and Smartraveller updates underscore the seriousness of the situation, advising Australians not to travel to, or transit through, multiple Middle East locations and stating “leave now while commercial flights are available” where safe. Our Foreign Minister has recently advised there are 115,000 Australians located in the Gulf region, understood to include expatriates. 

The key point for the housing market is not that all 115,000 people will relocate to Australia, but that even a modest repatriation rate can matter in a tight rental and housing supply market. Australia’s rental conditions are already undersupplied: SQM Research reported the national residential vacancy rate fell to 1.1% in February 2026 (from 1.2% in January) and highlighted “continued tightening,” with national asking rents up 6.6% over the past 12 months. In that context, incremental household formation—whether from migrants, returning expats, or internal migration—can have an outsized effect on rents and capital values in the near term.

Further to the above, we need to consider capital / investment flow. Australia is commonly framed by institutional research as a stable, rules‑based destination. For example, Knight Frank has described Australia as a “safe haven” for doing business, referencing a relatively stable political system. JLL’s Global Real Estate Transparency Index commentary notes that highly transparent markets have continued to progress and includes Australia among notable improvers, reinforcing the “rule of law + transparency” narrative that tends to matter more during geopolitical uncertainty. 

Importantly, Australia’s regulatory settings also funnel foreign purchasers into new supply - foreign persons (non-residents) generally cannot apply to buy an established dwelling, unless an exception applies. If offshore demand increases in a push for “safe haven” investments, a larger share of that demand will be concentrated in new and off‑the‑plan property (the segment that adds to housing supply and is policy‑preferred) – and this will full further price growth.

What this means for investors: you must act now on investing in new and off-the-plan property

Australia’s housing data already indicates rising values and tight supply. The Middle East shock strengthens the investment case for new/off‑the‑plan through five mechanisms:

1. Replacement cost inflation becomes a tailwind. When build costs rise (via energy/freight/labour/insurance), developers tend to reprice new stock higher, and the market’s “replacement cost” for comparable new product lifts. Australia’s 2020–2024 build cost experience (31% building construction output price rise; 41% house construction rise) shows how powerful this effect can be. 

2. Supply responds slowly, but demand can move quickly. NHSAC forecasts already show the Housing Accord target is unlikely to be met (938k forecast completions vs 1.2m target), and highlights that demand is expected to exceed net new supply across the period. A supply chain shock tends to worsen that gap by delaying projects and reducing feasibility.

3. Australia’s rental market is already very tight today—new stock has immediate scarcity value. With vacancies around 1.1% nationally and asking rents rising strongly, delivered rental accommodation is competitively absorbed. New, well‑located dwellings can be better positioned to attract quality tenants, particularly if they offer energy efficiency and modern amenity.

4. Repatriation risk is a near‑term demand accelerant that will put more pressure on housing. The cohort of Australians located in the Gulf region is significant, and at least a decent percentage is set to return to Australia (at least earlier than they otherwise may). In a market where vacancy is already low, incremental returns of households will tighten rents and support capital prices—especially in major employment hubs.

5. Policy settings for foreign buyers favour new supply. With a ban on foreign purchases of established dwellings, foreign demand in Australia’s residential market is structurally channelled toward new/off‑the‑plan and newly completed dwellings. This will matter if volatility leads offshore capital gets prioritised towards stable jurisdictions.

When the market is vulnerable to a cost shock, the advantage can sit with buyers who secure well‑located new stock before the next round of repricing and supply tightening is fully reflected in comparable sales. We have seen this in recent years post COVID, and it is possible we will see it again in the year ahead.