Regional housing shortage pushing small businesses to lift wages

COSBOA research shows a third of regional small businesses have raised wages to offset local housing costs, a trend that directly affects regional borrowers.

If you've been wondering why regional property markets are behaving differently to the capitals, a new piece of research offers some telling context. And if you're considering buying or refinancing in regional Australia, the findings have direct implications for you.

Regional Housing Shortage Has Reached a Business Crisis Point

Australian Broker reports that one in three regional small businesses has raised wages specifically to cover housing costs for staff, according to the COSBOA 2026 Small Business Perspectives Report, which surveyed 572 regional small business owners across Australia.

The data paints a striking picture: nearly one in four regional businesses also reported difficulty recruiting workers who would need to relocate to fill roles. In other words, the housing shortage isn't just a social problem — it's directly restricting business growth and workforce capacity in regional areas.

The pressure is sharpest for businesses with five to 19 employees. Among this group, half have raised wages to help staff cover housing costs, and more than a third say they've struggled to attract workers who need to relocate. A growing share of businesses have gone further, providing employer-assisted housing directly — an approach the report describes as "a workforce strategy of last resort in the most affected regions."

COSBOA CEO Skye Cappuccio put the challenge plainly: "Regional businesses are managing higher operating costs while also dealing with housing shortages, workforce constraints, and limited access to essential services — barriers many metropolitan businesses simply don't experience to the same extent."

When regional small businesses were asked to rate their access to local services, housing came out as the worst-rated of all — ranking below childcare, health services and digital connectivity. More than half rated housing access in their local area as poor. Just 7% rated it as good. The contrast with how much attention other regional services receive from policymakers is significant.

What's Driving the Shortfall, and What It Means for Property Buyers

Regional business owners pointed to several interrelated causes of the housing shortage: slow planning approvals, rents that are comparable to metropolitan areas despite generally lower regional wages, the growth of short-term rental platforms reducing long-term housing stock, and investor concentration in regional markets.

One respondent — a sole trader in the arts and recreation sector — noted that a rise in short-term rentals in their area had pushed housing "beyond the means of many locals forcing them to move away."

The Regional Australia Institute has called for 40% of the 1.2 million homes targeted under the National Housing Accord to be built in regional Australia, citing rental vacancy rates well below the benchmark needed for functioning regional housing markets. The supply pipeline isn't keeping pace. Dwelling approvals in Western Australia fell 1.3% in May 2026, though private sector house approvals rose 9.9% over the same month — a mixed result that points to an uneven pipeline rather than a sustained improvement in new supply.

CommBank executive general manager for small business, Rebecca Warren, said the bank sees these pressures reflected directly across its regional customer base. "As a bank that supports more than one in four businesses in Australia, we know these challenges can often be more pronounced outside our major cities," Warren said.

For anyone considering buying in regional Australia — whether as an owner-occupier or an investor — this context matters. Constrained supply means prices in sought-after regional markets can remain sticky or elevated even when broader conditions soften. At the same time, wage pressures and affordability constraints can make demand volatile depending on the local industry base and employment outlook of each area.

What to Check Before Buying or Refinancing in Regional Australia

If you're weighing up a regional property purchase, or if you're an existing regional homeowner thinking about refinancing, a few things are worth knowing before you commit.

First, understand your borrowing capacity against current assessed rates. Banks are currently stress-testing new borrowers at rates near 9%, reflecting the RBA's cash rate of 4.35% combined with APRA's three-percentage-point serviceability buffer. This is a significant hurdle, particularly if your income varies seasonally or depends on a single regional employer. Use our borrowing power calculator to understand what you can realistically borrow under today's conditions.

Second, research the specific regional market you're interested in carefully. Not all regional markets behave the same way, and local fundamentals — vacancy rates, the diversity of the local employment base, planned development pipelines — matter enormously when assessing how resilient prices may be over the medium term.

Third, if you're already a regional homeowner looking to reduce your repayments, refinancing may offer meaningful savings even in the current environment. Lenders continue to compete for quality borrowers, and switching to a more competitive rate can have a real impact on monthly budgets already under pressure. Start by checking your potential savings with our refinance savings calculator.

If you're a first home buyer exploring regional options for better affordability, it's worth looking at what's available across the full market. Our first home buyer guide covers loan types, grants and features to consider when navigating the purchase process.

COSBOA's Cappuccio said: "Resilience should not be mistaken for capacity to absorb endless pressure. The ambition is there — the right policy settings now need to support it." That same caution applies to borrowers. The regional housing shortage is a structural issue unlikely to resolve quickly, which makes entering any regional property decision with clear eyes and solid numbers more important than ever.

*Source: Australian Broker — Regional businesses lifting wages to offset housing shortfalls, COSBOA finds*