Housing Affordability in Australia: What It Means for Buyers & Investor

Housing affordability in Australia has reached a high, with Australians now needing a staggering 8 years of average full-time earnings to afford the typical home. The situation varies significantly across major cities, with Sydney requiring 10.2 years of gross salary, Melbourne 9.1 years, and Brisbane 8.5 years to purchase a property.

Furthermore, the crisis in housing affordability in Australia continues to worsen. National property values surged by approximately 25% in 2021, while wages barely increased. Despite the Wage Price Index showing growth of around 4.1% annually—the highest pace since 2009—house prices vs. wages in Australia remain drastically misaligned. The national average home price now stands at $785,000, with Sydney’s median dwelling price reaching an eye-watering $1.12 million, Melbourne at $875,000, and Brisbane at $800,000.

The situation has been exacerbated by several factors. The Reserve Bank’s interest rate hikes have slashed borrowing capacity by 25-30%, while Australia faces a shortfall of over 100,000 dwellings over the next five years. Additionally, development approvals for medium or high-density housing can take 5-7 years in major cities, further constraining supply and driving up prices.

How Home Deposits Reached 8 Years of Salary

The deposit burden for Australian homebuyers has grown to unprecedented levels. In today’s market, the typical house deposit consumes the equivalent of 8 years’ salary—a stark illustration of the mounting housing affordability crisis in Australia.

Median Dwelling Prices in 2024 by City

The price of residential dwellings in Australia has reached AUD 1,532,812.71, with significant variation across major cities. NSW leads with the highest mean price at AUD 1,904,968.93, followed by Queensland at AUD 1,444,437.07. Sydney’s median dwelling price stands at AUD 1,839,979.20, while Brisbane (AUD 1,403,600.80), Canberra (AUD 1,308,300.37), and Adelaide (AUD 1,268,595.55) follow behind. Remarkably, even Darwin, with the lowest capital city median at AUD 803,897.19, remains prohibitively expensive for many Australians.

Price-to-Income Ratio vs Mortgage Repayment Metrics

The price-to-income ratio has escalated dramatically over decades. According to international consultants Demographia, Australia’s median price-to-income ratio of 9.7x places it among the world’s most expensive housing markets. Notably, in the 1990s, the average dwelling was worth approximately 9.5 times the annual household income, yet by December 2024, this figure had ballooned to 16.4 times. This translates to roughly an additional AUD 255,341.37 in dwelling prices—or about AUD 50,456.68 extra on a 20% deposit.

Monthly mortgage repayments starkly illustrate this shift. In Sydney, repayments now consume 143% of the national median monthly wage, compared to just 44% five decades ago. Similarly, Brisbane’s repayments have grown from 31% to 81% of monthly wages.

Exclusion of Stamp Duty and Other Upfront Costs

The “8 years’ salary” calculation excludes numerous additional expenses that compound the affordability crisis. Upfront costs include transfer duty (stamp duty), lenders’ mortgage insurance for deposits below 20%, pest and building reports, legal fees, mortgage registration, and loan application fees.

Particularly concerning, stamp duty has grown from 1.5 months of take-home pay in 1995 to approximately 4.5 months by 2019. Moreover, during this same period, the typical 20% down payment increased from 7 months of gross income to 12 months.

Hence, the actual cost of entering the housing market extends well beyond the deposit itself, making homeownership increasingly unattainable for ordinary Australians.

Wages vs House Prices in Australia: The Growing Gap

The growing divide of house prices vs wages lies at the core of Australia’s housing affordability crisis. This gap has widened at an alarming rate, making homeownership increasingly unattainable for ordinary Australians.

Wage Price Index Growth Since 2009

The Australian Wage Price Index has grown at a glacial pace, increasing merely 24-30% over the past decade, depending on location. Currently, annual wage growth stands at 3.4%, with private sector wages rising by 3.3% and public sector by 3.6%. Although real wage growth (adjusted for inflation) reached 1% in March 2025—the fastest since early 2020—this modest increase pales in comparison to the explosive growth in property values.

25% Property Price Surge in 2021

In stark contrast to wage growth, residential property prices soared by 23.7% through the year to December 2021—the most substantial annual growth since records began in 2003. Indeed, Australian house prices climbed an eye-watering 21.9% in 2021 alone, marking the fastest annual rate of growth on record. Capital cities experienced unprecedented increases: Hobart (29.8%), Canberra (28.8%), Brisbane (27.8%), Sydney (26.7%), and Adelaide (23.9%) all recorded their most significant annual rises since measurements began. Overall, the total value of Australia’s residential dwellings rose by an astounding AUD 783.76 billion in a single quarter.

Impact of Interest Rate Hikes on Borrowing Power

Subsequently, the Reserve Bank’s efforts to tame inflation through interest rate increases have compounded affordability challenges. For every 0.50% rise in rates, borrowing capacity decreases by approximately 5%. The RBA has hiked rates by 4.25 percentage points since 2022, effectively reducing borrowing capacity by about 40%.

Consider a couple with an annual income of AUD 236,993.49 combined, and a 1% interest rate increase (from 6% to 7%) would slash their borrowing power by AUD 92,641.52. On an AUD 611,596.09 loan, this same 1% rise adds roughly AUD 305.80 to monthly repayments. Additionally, lenders assess applications with a mandatory 3% serviceability buffer above advertised rates, further restricting borrowing capacity.

Consequently, as house prices outpace wages at an unprecedented rate, the dream of home ownership recedes ever further for many Australians.

What’s Driving the Housing Affordability Crisis in Australia

Multiple structural factors underpin Australia’s housing affordability crisis, creating a perfect storm of market pressures that continue to push prices beyond the reach of average earners.

Chronic Undersupply and Construction Shortfalls

Australia faces a critical housing shortage, with estimates showing the country needs to build approximately 1.7 million new homes over the next decade to meet demand. Yet currently, construction falls short by roughly 20,000-30,000 dwellings annually. This undersupply stems partly from escalating construction costs, which have risen by 25% since 2019, alongside persistent labour and material shortages affecting completion timelines. In fact, the National Housing Finance and Investment Corporation projects a cumulative shortfall exceeding 100,000 dwellings by 2027.

Planning Delays and Zoning Restrictions

The regulatory framework substantially constrains the housing supply. Development approvals for medium or high-density housing typically take 5-7 years in major cities, with local councils rejecting approximately 40% of development applications initially submitted. Rigid zoning laws protect established low-density areas, creating artificial land scarcity in well-connected neighbourhoods. Specifically, studies indicate that restrictive zoning adds between $85,000 and $400,000 to dwelling prices in metropolitan regions.

Demographic Shifts: Smaller Households, More Demand

Household composition has changed dramatically, intensifying demand pressures. The average Australian household size has decreased from 3.5 persons in 1966 to just 2.5 today, effectively requiring 40% more dwellings to house the same population. In addition to this trend, Australia’s population grew by over 563,000 people in the year ending March 2023—the fastest annual growth in decades—primarily driven by net overseas migration.

Investor Tax Settings and Rental Market Pressures

Tax policies continue to influence market dynamics, with negative gearing and capital gains tax discounts encouraging property investment. Essentially, investors own approximately 30% of Australian housing stock, creating competition with first-home buyers at auction. Conversely, these same investors provide much-needed rental accommodation in a market where vacancy rates have plummeted below 1% in most capital cities, pushing weekly rents up by 16.3% nationally in the past year alone.

How Investors and Buyers Can Navigate the Market

In today’s challenging real estate market, strategic approaches can help both investors and home buyers make sound decisions despite Australia’s housing affordability crisis.

Targeting Inner and Middle-Ring Suburbs

Property experts predict values in inner and middle-ring suburbs will significantly outperform outer areas. These locations typically benefit from established infrastructure, including public transport, quality schools, and amenities that most people desire. Firstly, buyers are increasingly willing to pay premiums for quality properties in inner-urban areas with excellent connectivity. Likewise, high construction costs have decreased the market appetite for renovation projects, making well-maintained properties in these areas even more attractive.

Avoiding Low-Quality Regional Assets

Though regional markets can offer higher yields and potential positive gearing, they present distinct risks. Many regional areas depend heavily on tourism or specific industries, creating economic vulnerability. Natural disasters have primarily affected numerous regional locations, driving insurance premiums upward. Before investing, thorough research into supply and demand trends is essential, as regional markets have historically experienced modest growth during certain periods.

Long-Term Investment vs Market Timing

Rather than attempting to “time the market,” sophisticated investors focus on acquiring investment-grade properties in A-grade locations regardless of market conditions. Thereafter, they hold these assets long-term to benefit from compound growth. This approach helps investors ride out temporary market fluctuations. Nevertheless, current high interest rates have caused some potential investors to hesitate, yet waiting can be counterproductive—when rates eventually drop, competition will intensify and push property values higher.

Understanding New Buyer Demographics

Baby Boomers, controlling nearly 50% of Australia’s private wealth, are actively shaping market dynamics through downsizing and investment activities. Meanwhile, investor loans have climbed to 40% of the market total, reflecting a national rebound driven by soaring rental growth. Additionally, a growing cohort of first-home buyers are choosing to invest rather than occupy their initial property purchase.

Working with Property and Tax Experts

Enlisting qualified professionals can significantly improve property outcomes. An agent who thoroughly understands neighbourhood trends can guide better decision-making. Till financial goals are achieved, advisors can help with budgeting, mortgage negotiations, and creating comprehensive property plans. Conveyancers prove invaluable when navigating complex contracts, as mistakes in property transactions can be costly and sometimes impossible to rectify later.

Conclusion – Housing Affordability in Australia

Australia faces unprecedented housing affordability crisis that show little sign of immediate resolution. Property values continue their steep climb while wages struggle to keep pace, creating a widening gulf that affects millions. The typical Australian now needs eight years of salary just for a deposit—excluding stamp duty and other significant costs.

Several factors clearly drive this crisis. Chronic housing undersupply persists, with projections showing a shortfall exceeding 100,000 dwellings by 2027. Additionally, restrictive zoning adds tens of thousands to dwelling prices, while smaller household sizes intensify demand despite limited supply.

The reality remains stark: housing affordability in Australia has fundamentally shifted from previous generations’ experiences. Though interest rates and market conditions fluctuate, the structural imbalance between house prices vs. wages presents an enduring challenge for Australian society. Future generations may need to redefine their expectations around the property market in Australia unless significant policy interventions reshape this landscape.