Giving evidence before the Senate select committee on intergenerational housing inequity on Thursday, Dr Auld said NAB was forecasting a peak-to-trough decline in dwelling prices of around 7 per cent across Australia's combined capital cities, equivalent to a fall of about 5 per cent during the 2026 calendar year.
"While some will welcome the drop in prices, this will not solve Australia's housing affordability issues," she said. "Meaningful improvements in affordability will only be achieved through a sustained increase in housing supply over a long period of time."
She described the challenge as one "likely to take the better part of a generation to resolve."
Dr Auld noted that house prices have risen much faster than incomes since around the turn of the century, driven by factors including lower interest rates, taxation settings and strong demand. "Housing affordability is one of Australia's most significant economic and social challenges," she said.
Also appearing before the committee was Westpac chief economist Luci Ellis, a former Reserve Bank assistant governor (economic). She traced the roots of today's high property prices to the inflation-targeting framework introduced in the early 1990s and banking deregulation in the 1980s and 1990s.
"A large part of the reason why housing prices have increased relative to household incomes over the past 30 years is we now have lower inflation," Dr Ellis said. "That was deemed to be a good thing."
She explained that lower inflation after the 1990s recession led to a lower average level of nominal interest rates, allowing people to service bigger mortgages as a share of their incomes. This contributed to the size of mortgages and deposits increasing relative to household incomes over time.
"So a lot of the increase in house prices to household income has been a multi-decade consequence of lower inflation and financial deregulation that happened some decades ago," she said.