Housing affordability hits record low as rate hikes outweigh falling prices

The report found that affordability declined in every state, with South Australia becoming the least affordable at just 7 per cent of properties affordable for median households. Victoria fared best, with 16 per cent of properties affordable, though that figure also fell.

Angus Moore, senior economist at realestate.com.au, said the three RBA rate hikes in February, March and May increased mortgage rates and constrained borrowing capacity amid a difficult cost-of-living environment. "Looking ahead, affordability may improve marginally if home prices continue to soften, but this is unlikely to be a turning point for many buyers," he said.

Mortgage repayments relative to incomes have risen to 35.5 per cent of average household income, the highest since 1989 and above the 33.3 per cent recorded during the Global Financial Crisis. The report uses a measure of affordability based on a household spending 30 per cent of gross income on mortgage repayments with a 2.5 per cent buffer, and relies on median household income rather than the average of $161,000 calculated by the Grattan Institute.

Moore warned that without a meaningful increase in housing supply, affordability will remain a significant challenge, particularly for lower-income households.

Why This Matters

The affordability crisis directly affects millions of Australians trying to enter the housing market, locking out a growing share of middle-income earners.
Rising mortgage costs relative to incomes squeeze household budgets, adding pressure to the broader cost-of-living environment.
Without policy intervention, the gap between housing demand and supply is likely to keep affordability at crisis levels for the foreseeable future.

Background

Housing affordability has been a persistent issue in Australia for years, driven by a combination of soaring property prices, low interest rates that only recently began rising, and insufficient housing supply. The RBA's aggressive tightening cycle in 2026 — with three rate hikes in the first half of the year — has exacerbated the problem, even as property values have started to soften. The report uses a conservative measure of affordability, assuming a 30 per cent income threshold and a 2.5 per cent buffer, meaning the actual situation may be even more challenging for many households.

Key Perspectives

Home buyers: Many aspiring homeowners face an increasingly insurmountable barrier, with even median-income households locked out of 88 per cent of the market. The situation is most acute in South Australia, where only 7 per cent of properties are affordable. RBA and policymakers: The central bank's rate hikes are aimed at curbing inflation, but they have a direct and painful impact on mortgage holders. Policymakers face pressure to address the supply side, as Moore's comments underscore. Critics and housing advocates: Some argue that the affordability measure itself may understate the problem by using median rather than average income, and that the 30 per cent threshold is already too high for many low-income households. The report's reliance on a 2.5 per cent buffer also means the true borrowing capacity may be even tighter.

What to Watch

Future RBA rate decisions: Any further hikes would deepen the affordability crisis, while cuts could provide relief.
Housing supply policy: Federal and state government measures to increase housing construction, including zoning reforms and incentives.
Property price trends: If prices continue to fall, affordability may improve marginally, but the report suggests this is unlikely to be a turning point.

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