What Could the Middle East Conflict Mean for Australian Property?
- Dene Tucker
- Mar 9
- 5 min read
The latest conflict in the Middle East has rattled global share markets, with Iran retaliating against several countries in the region following military strikes by the United States and Israel.
One of the biggest concerns for markets right now is the potential disruption to shipping through the Strait of Hormuz, which sits just off the coast of Iran. Around 20% of the world’s oil supply passes through this narrow stretch of water, along with large volumes of LNG, fertiliser and raw plastics.
So naturally the question becomes - what could all this mean for the Australian property market?
Some commentators are suggesting the conflict could force the Reserve Bank of Australia to keep interest rates higher for longer if global tensions push inflation up. In theory, higher rates reduce borrowing power, which can slow buyer demand and put downward pressure on property prices.
But if recent history is anything to go by - and when you factor in Australia’s ongoing housing shortage - the impact on property could actually be fairly limited.
Energy prices and interest rates
The most obvious way a Middle East conflict could affect Australia is through energy prices, and the knock-on effect that has on inflation and interest rates.
We’ve already seen oil prices rise as global supply concerns increase. That will almost certainly translate into higher petrol prices here at home.
According to the NRMA, every US$10 increase in the price of a barrel of oil eventually adds around 10 cents per litre to the cost of fuel in Australia.
While that’s an immediate hit for motorists, the bigger issue could be the broader flow-on effects.
If fuel prices stay high for a long time, it increases the cost of transporting goods and running businesses. That can push up the price of everyday goods and services, which feeds into inflation and can affect consumer confidence and spending.
And that matters for property.
When households are spending more on essentials, they often delay big financial decisions - including buying property - or they adjust their budgets and look at cheaper options.
Higher inflation could also influence the Reserve Bank’s next moves.
The RBA lifted interest rates in February 2026 for the first time in more than two years, as inflation pressures began creeping back into the economy. With headline inflation sitting at around 3.8% and underlying inflation at 3.4% - both still above the RBA’s 2–3% target - there’s a fair chance we could see at least one more rate increase during 2026.
Economic data released on March 4 also showed the Australian economy was actually performing stronger than expected. GDP grew by 0.8% in the December quarter, bringing annual growth to 2.6%, comfortably above the RBA’s forecast of 2.3%.
Treasurer Jim Chalmers said the strength of the economy means Australia is “really well placed to deal with what’s coming at us from around the world.”
In other words, before the RBA even factors in the Middle East situation, it’s already looking at an economy running a little hotter than expected.
RBA Governor Michele Bullock recently said it’s simply too early to know how the conflict will affect Australia’s economy.
She pointed out that while supply disruptions could push inflation higher, prolonged instability in energy markets could also slow global economic growth - which might actually reduce inflationary pressure.
Put simply, there are still too many moving parts to know how things will play out.
For that reason, Bullock wouldn’t rule out another interest rate rise at the RBA’s March 16–17 meeting. Money markets currently see about a 30% chance of a rate hike in March and roughly an 80% chance by May.
What higher interest rates mean for property
Even if interest rates do rise again, the effect on property markets across Australia won’t necessarily be the same everywhere.
Recent data from Cotality showed home values actually accelerated in several cities in February - even after the RBA’s latest rate increase.
Prices rose in Perth, Adelaide, Hobart and Canberra, held steady in Brisbane, and slowed slightly in Sydney, Melbourne and Darwin.
Importantly, none of the capital cities recorded negative price growth during the month.
According to Cotality Research Director Tim Lawless, the difference between markets largely comes down to supply.
Mid-sized Capitals are still experiencing extremely low levels of properties for sale, which is helping support price growth.
Meanwhile, Sydney and Melbourne are seeing more new listings hit the market - about 9.7% above the five-year average in Sydney and almost 12% higher in Melbourne.
That suggests some sellers in those markets may be trying to get ahead of potentially softer selling conditions.
Interestingly, the once strong link between interest rate movements and property prices hasn’t been nearly as clear since the end of the pandemic.
Between 2022 and 2023, the RBA lifted rates 13 times - from 0.1% to 4.35%.
During that time national property values initially fell about 7.5%, but then quickly rebounded, rising more than 8% in just ten months and reaching new record highs by late 2023.
That rebound was largely driven by a simple imbalance: far more demand for housing than there was supply.
Strong migration and population growth, combined with very limited new housing construction, created a shortage that helped push prices higher despite rising interest rates.
Even though migration has slowed somewhat, Australia’s structural housing shortage hasn’t gone anywhere.
The Property Council of Australia estimates the country has accumulated a shortfall of around 1.3 million homes over the past 25 years.
And the pipeline of new homes isn’t exactly surging either. ABS data shows building approvals fell another 7.2% in January 2026 and are sitting at their lowest level since mid-2024.
The usual doom and gloom predictions
Whenever a major global event happens - whether it’s war, a financial crisis or something like the GFC - predictions about property market crashes tend to follow pretty quickly.
But history shows those predictions rarely play out the way people expect.
When the global pandemic hit in March 2020, plenty of commentators forecast a housing market collapse.
Anyone who sold property based on those predictions would have missed one of the strongest housing booms Australia has seen in decades.
Australian house prices have risen long term despite war, crises and periods of high interest rates and inflation
In fact, when you look at long-term inflation-adjusted returns for Australian residential property between 1970 and 2021, house prices across most cities have shown remarkably consistent growth - despite wars, financial crises, high inflation and dramatic swings in interest rates.
When big global shocks occur, markets often react quickly and sometimes emotionally. But once the dust settles, attention usually shifts back to the underlying fundamentals.
And in Australia, those fundamentals are pretty clear:
A growing population, driven largely by migration
Smaller household sizes, meaning more homes are needed
And a long-standing shortage of housing where people actually want to live
Because of that, even a prolonged conflict in the Middle East is unlikely to fundamentally change the key drivers supporting Australian residential property.
Sources: Australian Property Update & Cotality
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