• National dwelling values rose 8.6% across 2025, adding around $71,400 to the median home value.
• Housing affordability remains stretched, with mortgage repayments now taking 45% of median household income.
• Renters are also under pressure, with Australians spending a record 33.4% of pre-tax income on rent.
• Limited housing supply, rising construction costs and labour shortages continue to affect affordability across Australia.
• Understanding interest rates, borrowing capacity and housing supply can help buyers make more informed decisions.
Australia’s housing market has changed significantly over the past few years. Since 2022, Australians have experienced one of the fastest interest rate tightening cycles in decades, followed by three rate cuts in 2025 and renewed rate rises in 2026.
For many Australians, the impact has been personal. Whether you’re buying your first home, refinancing, investing, renting or managing existing repayments, interest rates continue to affect borrowing power, housing costs, and overall affordability.
While some experts expected higher rates to cause property prices to fall sharply, the reality has been more complex.
Housing demand has remained resilient, supply shortages continue to put pressure on prices, and affordability challenges are now affecting both buyers and renters across the country.
This article explains what’s happened since rates began rising, why affordability remains stretched in 2026, and the factors continuing to shape Australia’s property market.
Why are Australia’s house prices so high?
Housing affordability has been a challenge in Australia for many years, but several factors have intensified pressure on buyers and renters in recent years.
National dwelling values rose 8.6% across 2025, adding approximately $71,400 to the national median dwelling value.
At the same time, Australian home values have climbed roughly 47.3% since March 2020, adding about $280,000 to the median dwelling value.
Regional markets have also continued to outperform many capital cities. Cotality’s January 2026 Home Value Index found regional dwelling values rose 9.7% in 2025, compared to 8.2% across combined capital cities.
Several key factors continue to influence housing affordability across Australia.
1. Interest rates and borrowing conditions
Interest rates play a major role in housing affordability because they affect how much borrowers can comfortably repay and how much they may be eligible to borrow.
During periods of lower interest rates, repayments may become more manageable for some borrowers, which can increase buyer demand. When rates rise, borrowing capacity may reduce because lenders assess borrowers against higher repayment thresholds.
However, the relationship between interest rates and property prices is not always straightforward. Even while rates increased sharply between 2022 and 2024, strong demand and limited housing supply continued to support property values in many markets.
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2. Borrowing capacity
A buyer’s borrowing capacity is influenced by several factors, including:
Interest rates
Household income
Existing debts
Living expenses
Lending policies
Deposit size
As interest rates rose, many borrowers found their maximum borrowing amount reduced. This meant some buyers adjusted their expectations by:
Looking at different suburbs
Purchasing smaller properties
Delaying upgrades
Entering the market with apartments or townhouses instead of detached homes
Even so, demand has remained strong in many parts of Australia, particularly in markets with tight housing supply and strong population growth.
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3. Credit availability
Access to credit also affects housing affordability.
When lending conditions are more accessible, more buyers may enter the market, increasing competition for available properties. Conversely, tighter lending standards can reduce borrowing activity.
Australian lenders also apply serviceability buffers when assessing home loan applications. This means borrowers are assessed on whether they could continue repayments if interest rates were higher than current rates.
These measures are designed to support responsible lending, but they can also reduce how much some borrowers are able to borrow.
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4. Supply and demand imbalance
One of the biggest drivers of housing affordability in 2026 is the imbalance between housing supply and housing demand.
Australia’s population growth, migration levels and household formation continue to create demand for housing, while new housing supply has struggled to keep pace.
Low listing volumes, construction delays, and limited new housing stock have contributed to competition among buyers and renters alike.
Market conditions vary by city. Perth, Brisbane and Adelaide have recorded stronger growth, while Sydney and Melbourne have shown softer momentum as affordability pressures weigh on buyers.
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What happened to housing affordability after rates rose?
When interest rates began rising in 2022, many experts predicted Australian property prices would decline significantly.
Instead, housing prices continued to rise in many parts of the country, particularly in markets with limited supply and strong demand.
Even after the Reserve Bank of Australia (RBA) cut rates three times in 2025, affordability remained stretched because property prices continued increasing faster than the relief provided by lower interest rates.
Today, the cost of servicing a new home loan requires around 45% of median household income. This is well above the 30% threshold commonly associated with housing stress.
This means many Australians are dedicating a larger share of their income to housing costs than previous generations.
The impact on buyers
For buyers, affordability challenges may include:
Higher mortgage repayments
Reduced borrowing capacity
Larger deposit requirements
Increased competition for affordable properties
Longer saving timeframes
Many borrowers are also prioritising flexibility and budgeting strategies to manage changing interest rate conditions.
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The impact on renters
Renters are also under significant pressure.
Australian households are now dedicating a record 33.4% of pre-tax income to rent. This is significantly above the long-term average. The National Housing Supply and Affordability Council (NHSAC) State of the Housing System 2025 report also found:
More than half of lower-income renter households are experiencing rental stress
Around 60% of those households have been in rental stress for two or more consecutive years
Limited rental supply, population growth, and rising property costs have all contributed to higher rents across many regions.
Understanding the rate cycle: what’s happened since 2022
To understand where rates are today, it helps to look at what has happened over the past few years.
After reaching a peak cash rate of 4.35% in November 2023, the RBA cut the cash rate three times during 2025, in February, May and August, bringing it down to 3.60%.
However, persistent inflation pressures led the RBA to increase the cash rate again to 4.35%, as of March 2026.
How does the cash rate affect home loan interest rates?
The cash rate is the interest rate set by the Reserve Bank of Australia. It influences the cost of borrowing money across the economy, including home loans.
When the RBA changes the cash rate, lenders may adjust their own interest rates in response. This can affect:
Mortgage repayments
Consumer spending
Housing demand
The RBA generally adjusts the cash rate to help manage inflation and economic activity.
For example, when inflation rises too quickly, higher interest rates may be used to slow spending and reduce inflationary pressure. When economic growth slows, lower rates may help support borrowing and spending activity.
Back in March 2022, inflation reached 5.1%, which was significantly above the RBA’s target range. This contributed to the rate rises that followed throughout 2022 and 2023.
Why interest rates matter to borrowers
Even relatively small rate changes can affect mortgage repayments over time. For example, if a borrower has a large loan balance, a rate increase may significantly increase monthly repayments.
This can affect household budgets, savings goals, and borrowing decisions. Rate movements may also influence buyer confidence and overall housing demand.
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Why isn’t more housing being built?
A major reason housing remains expensive is that Australia is not building enough homes to keep up with demand.
According to the Australian Bureau of Statistics, only 128,924 dwellings were completed in the first three quarters of 2025, a 2.73% decline compared to the same period the year before, according to Global Property Guide (February 2026).
The National Housing Supply and Affordability Council projects a net shortfall of approximately 79,000 dwellings over the government’s Housing Accord period.
The Council estimates total housing output will reach around 938,000 dwellings over the five-year Accord period, falling roughly 262,000 dwellings short of the government’s 1.2 million target.
So why can’t Australia simply build more homes?
Tradesperson shortages
Australia is facing shortages across several construction trades, including:
Bricklayers
Roofers
Tilers
Carpenters
The issue is often more severe in regional areas. The NHSAC also reports that productivity in residential construction has fallen by around 12% over the past 30 years, while productivity across the broader economy increased by approximately 49% over the same period.
High building costs
Construction costs remain elevated following pandemic-related disruptions.
According to Cotality data cited by Global Property Guide, residential land prices have risen 37% since 2020, increasing the cost of delivering new housing projects. Builders are also facing ongoing pressure from:
Material costs
Labour costs
Financing costs
Supply chain disruptions
These pressures can affect the viability of new developments.
Builder collapses
A number of construction companies have exited the market in recent years due to rising costs and narrowing profit margins.
When builders collapse, projects may be delayed or cancelled altogether, reducing overall housing supply and affecting buyer confidence.
Planning system delays
Planning approvals for new housing developments can be complex and time-consuming, particularly for higher-density projects.
Approval requirements also vary significantly between states and local councils.
The NHSAC has identified planning reform as one of the most important long-term measures needed to improve housing supply.
Competition for workers and materials
Residential builders are also competing with large infrastructure projects for workers, equipment, and construction materials.
This competition may further increase costs and slow housing delivery across the country.
What will happen to home loan repayments?
Interest rate changes can directly affect mortgage repayments, particularly for borrowers with variable-rate home loans.
Even relatively small rate changes may affect monthly repayments and borrowing capacity over time.
The impact can vary depending on factors including:
loan size
loan term
repayment type
lender policies
whether a loan is fixed or variable
For some borrowers, reviewing their budget or comparing home loan options may help them better understand their current position and repayment costs.
How borrowers may manage higher repayments
Borrowers may consider several strategies to help manage changing repayment conditions, including:
Reviewing household budgets regularly
Building a savings buffer
Comparing home loan features and rates
Making additional repayments when possible
Speaking with a mortgage broker about refinancing options
Whether you’re buying your first home, refinancing, investing or managing existing repayments, a mortgage broker can help borrowers understand available loan features, compare lenders, and assess whether refinancing could suit their circumstances.
Could housing affordability improve?
Housing affordability may improve over time if housing supply increases, and income growth catches up with housing costs.
Several government initiatives are also aiming to increase housing supply and improve accessibility for buyers and renters, including:
Social and affordable housing investment
However, affordability outcomes will likely continue to vary between regions, property types, and household circumstances.
For buyers, understanding borrowing capacity, budgeting carefully, and seeking guidance early may help improve confidence when navigating the property market.
How Aussie can help
Interest rates, borrowing power and property prices can all change over time, which is why many borrowers review their home loan regularly to make sure it still suits their needs.
Whether you’re buying your first home, refinancing or reviewing your repayments, an Aussie Broker can help you understand your options, including:
borrowing capacity
loan features and repayment options
refinancing opportunities
how rate changes could affect repayments
government schemes and grants that may be available
Aussie provides access to over 25+ lenders** and more than 4,000 home loan products, helping borrowers compare a range of options in one place.
Whether you’re ready to buy now or simply planning, understanding your options early can help you make more informed decisions.
