What the Middle East Crisis Means for Australian Property Markets

Softening clearance rates, rising listings from overleveraged sellers, and a housing supply pipeline about to grind to a halt — the downstream effects of conflict are arriving faster than most expected.

The economic shock of the Middle East conflict will have a very long tail for Australian real estate — measured in years, not months — according to Property Buzz hosts Phil Tarrant and Liam Garman, who warned this week that housing supply problems are set to worsen significantly as the fallout cascades through the domestic economy.

Speaking on this week’s episode of Property Buzz, Tarrant said the conflict’s impact on global supply chains would further throttle an already strained housing development pipeline. “Supply is going to shut to a halt,” he said. “It’s really going to exacerbate all the problems that we had in the development of housing stock.”

The warning comes as auction clearance rates have noticeably softened. According to Garman, early weekend figures showed a shock dip before stabilising through the week, settling at roughly 3 to 5 per cent below the same period last year, and a striking 30 to 40 per cent below levels seen three years ago.

Redundancies driving new listings

On the ground, selling agents are reporting an influx of appraisal requests, particularly on Sydney’s lower North Shore. Garman, whose frame of reference sits within that upper-quartile dwelling market, said the primary driver was overleveraged owners in the legal and finance professions facing redundancy — and in greater numbers than the newspapers are reporting.

The redundancy wave is being compounded by what Tarrant described as an “AI overlay” — a structural shift in how Australian white-collar work is being reorganised, layered on top of inflationary pressure and what he estimated was now a 25 per cent probability of recession.

“Behind the scenes there is more of it going on than we realise, which means there will be markets — properties across Australia in certain markets — which will feel the brunt of this a lot more.”

The long tail of economic shock

Garman drew a historical parallel to underscore the timeline involved. Even after a conflict formally ends, the economic consequences extend for decades. Post-war European reparations, he noted, took the better part of 80 years to resolve. While the scale is different, the principle holds: the disruption to shipping, energy costs, and global supply chains will not reset overnight.

The cost per barrel of oil was 40 per cent higher in 2008 than it is today, Garman pointed out — but energy costs have still risen 33 per cent in the past 12 months, with a further 24 per cent increase projected over the next year. That inflationary pressure flows directly into construction costs, material procurement, and household budgets, all of which shape property demand.

Government ambition likely to be tempered

One potential silver lining for property investors: the sweeping tax reform the Albanese government was flagging before the crisis — including potential changes to negative gearing and capital gains concessions — may now be significantly wound back.

Garman said the government had been “very bullish” about generational tax restructuring coming into this year. But with the economic picture deteriorating, he expected those ambitions to be tempered when the federal budget is handed down on 12 May.

Behind the scenes, Garman speculated, figures like RBA Governor Sarah Bullock would be counselling caution. “We’re not at a fire sale. We still have enough demand to stop real bad downturns in real estate sales. However, you don’t want to risk it,” he said, characterising the likely tone of those conversations.

Three more rate rises on the horizon

Adding to the headwinds, Garman said the market was now pricing in the possibility of three more interest rate rises this year. For overleveraged owners and developers carrying significant debt, this compounds the pressure from rising energy costs, softening demand, and an uncertain global outlook.

The message from both hosts was clear: the property market is entering a period of genuine turbulence, driven not by a single domestic factor but by the compounding effects of geopolitical disruption, structural economic shifts, and tightening monetary policy. Investors who have built resilience into their portfolios will be best positioned to ride it out — but that resilience, as Tarrant noted, takes years and decades to build.