Canberra's economy faces housing pinch and private sector slowdown

Canberra's economy enters the second half of 2026 with a contradictory profile: record-low unemployment and surging Civic retail traffic sit alongside a sharp contraction in housing approvals and a private sector that is struggling to keep pace with public service-led job creation.

Housing approvals slump as a brake on growth

The most immediate constraint on local economic momentum is the collapse in dwelling approvals, which fell to just 2,183 in 2024 from 4,496 in 2023. That halving of new housing starts constrains construction-sector activity, limits workforce mobility and puts upward pressure on rents, all of which feed into broader economic stagnation. According to analysis published by economy.id, the drop is a major structural headwind for the territory.

Public sector jobs drive employment, but private market lags

The ACT economy added around 8,000 jobs in 2024-25, yet the vast majority were in the public sector. Private sector business growth has remained limited, according to reporting in the Canberra Times. That lopsided expansion leaves the capital vulnerable if federal government hiring slows. KPMG's enterprising city report previously forecast a sustained job boom, but the distribution of that growth remains heavily reliant on the Commonwealth-a reliance that carries cyclical risk.

Retail spending shows resilience

Despite cost-of-living pressures, customer spending in Canberra's Civic centre rose 14.2 per cent in 2025, with customer numbers up 15.7 per cent. The data, reported by Region Media, suggests household discretionary spending is holding up better than in many other Australian capitals. Civic retailers and hospitality venues have been the direct beneficiaries, though some business operators have noted that foot traffic is not automatically converting into sustained profitability.

Income and output remain high

The ACT boasts the third-highest gross state product per capita in Australia and the highest average weekly earnings nationally, according to economy.id and ACT Government statistics. That high-income base provides a buffer against rising interest rates and inflation, but it also makes the territory sensitive to any slowdown in federal government wage growth or hiring freezes. With dwelling approvals at multi-year lows and private sector dynamism still subdued, the challenge for policymakers will be to diversify the economic base before the housing constraints begin to erode the quality-of-life advantages that attract skilled workers.

Local business groups and the ACT Government's Small Business Strategy 2023-2026, updated in early 2025, have identified strengthening private enterprise as a key priority. Whether that shift can occur quickly enough to offset the housing headwind remains an open question for Canberra's economic outlook.