Key takeaways:
Falling property prices don't necessarily improve affordability. Higher home loan rates can increase repayments and reduce borrowing capacity.
Housing affordability depends on more than prices. Interest rates, incomes, borrowing capacity and housing supply all matter.
Housing supply remains constrained. Australia is currently projected to miss the National Housing Accord's June 2029 target.
Your circumstances determine what you can afford. Income, debts, deposit size and lender criteria can affect your borrowing position.
Australia's housing market has shifted, but affordability remains under pressure.
National dwelling values fell for a fifth consecutive month in August 2026, down 3.6% from their March peak, while the RBA cash rate remains at 4.35%. Lower property values may ease some pressure for buyers, but housing affordability depends on more than purchase prices.
Interest rates, household incomes, borrowing capacity and housing supply all influence what Australians can afford. Therefore, the affordability question has changed.
Rather than focusing only on rising property prices, buyers and borrowers also need to consider why housing can remain difficult to afford when property values are falling.
Understanding how interest rates, property values, incomes and housing supply interact can help you assess current market conditions and make more informed home loan decisions.
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Why is housing affordability still stretched even as property prices fall?
Falling property prices can improve affordability, but the purchase price is only part of the equation. Home values remain high after substantial growth, while mortgage rates, household incomes, borrowing capacity and housing supply continue to affect what buyers can afford.
Cotality reported in June 2026 that recent interest rate rises had offset the affordability benefit of falling property values in Sydney and Melbourne. Higher home loan rates can increase repayments and reduce borrowing capacity, meaning a lower purchase price may not translate into a more affordable loan.
The National Housing Supply and Affordability Council's 2026 report also highlights the scale of the challenge. Based on 2025 measures, repayments on a new mortgage required 45.9% of median household income, while a median-income household needed 11.2 years to save a 20% deposit.
Several factors can keep housing affordability under pressure:
Home values remain high relative to incomes: Recent falls follow substantial price growth so that homes may remain expensive compared with household earnings.
Mortgage rates increase borrowing costs: Higher interest rates can partly or fully offset the benefit of a lower purchase price, depending on the loan.
Borrowing capacity can fall: Higher rates can affect lender serviceability assessments and reduce how much some buyers can borrow.
Housing supply remains constrained: The availability of suitable housing can continue to affect purchase and rental affordability, although conditions vary by market.
This means property prices can fall while housing affordability remains stretched.
For buyers, what matters is how the property price, home loan rate, income, deposit and borrowing capacity come together for their circumstances.
Why are Australian house prices so high?
Australian dwelling values are falling from their March 2026 peak, but this follows years of substantial growth. Property prices can therefore fall in the short term while remaining high relative to household incomes and earlier years.
No single reason explains why Australian house prices are high. For buyers, it can help to consider affordability through three lenses: household factors, market factors and policy factors.
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Household factors: Income, deposit, debts and borrowing capacity
Your financial position affects both your purchase budget and how much a lender may be prepared to lend. Key factors include:
Income: Your earnings, including their type and stability, can affect borrowing capacity.
Deposit: A larger deposit reduces the amount you need to borrow and can lower your loan-to-value ratio (LVR).
Existing debts: Credit cards, personal loans, car loans and other commitments can reduce borrowing capacity.
Living expenses: Lenders consider household spending when assessing your ability to service a home loan.
Borrowing capacity: How much you can borrow depends on your circumstances and the lender's assessment criteria.
If your borrowing capacity is lower than expected, you may need to adjust your purchase budget, location or property type.
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Market factors: Property prices, interest rates, rents, supply and demand
Wider housing and lending conditions affect both the cost of buying and competition for available properties.
Interest rates influence borrowing costs and purchasing capacity. Lower rates can support borrowing capacity and housing demand, while higher rates can increase repayments and reduce how much some buyers can borrow.
Housing supply and demand also affect property prices. Australia's population grew by 392,700 people, or 1.4%, in the year to March 2026, including net overseas migration of 292,100 people. Population growth can add to housing demand when supply does not keep pace.
Migration is only part of the picture. Household formation and household size affect how many homes are needed, while existing listings, rental availability, new construction and dwelling completions affect supply.
These forces can also work in different directions. Higher interest rates may reduce buyer demand, for example, while limited housing supply can continue to put upward pressure on prices in some markets.
Policy factors: Lending rules, tax settings, foreign investment and housing targets
Government and regulatory settings can influence access to credit, housing demand and the supply of new homes.
Lending rules: Lenders assess income, expenses, debts and serviceability when considering a home loan application. APRA-regulated banks must also apply a mortgage serviceability buffer of at least 3 percentage points above the loan interest rate when assessing new borrowers.
Foreign investment: From 1 April 2025 to 30 June 2029, foreign investors are generally prohibited from buying established dwellings in Australia, subject to limited exceptions. Investment in new housing and development can still occur under Australia's foreign investment framework.
Tax settings: Negative gearing and capital gains tax (CGT) arrangements can influence residential property investment. Changes announced in the 2026–27 Federal Budget are due to take effect from 1 July 2027, including changes to negative gearing and the CGT discount.
Housing targets: Government housing targets and supply policies aim to increase the number of homes available, but delivering new housing also depends on land, planning, infrastructure, construction costs and industry capacity.
Together, these show why Australian house prices and housing affordability are shaped by multiple factors, not a single cause. What buyers can afford, wider property market conditions, and government and regulatory settings can all interact, and their influence varies over time and between markets.
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What happened to housing affordability after interest rates rose?
Housing affordability has remained under pressure since interest rates started rising in 2022. Property values initially fell, later recovered and rose strongly through 2025, before entering another downturn in 2026.
Here's how the market shifted:
Interest rates started rising in 2022. The RBA began increasing the cash rate in May 2022, lifting it from 0.10% to 0.35%, with further increases following as inflation remained high.
Property values initially fell. Higher borrowing costs and reduced purchasing capacity contributed to the 2022–23 housing downturn.
Home values recovered. Property values subsequently returned to growth, while the earlier downturn did not erase the substantial gains accumulated in previous years.
Dwelling values rose strongly in 2025. Cotality's Home Value Index increased 8.6% over the year, adding about $71,400 to the national median dwelling value.
The RBA cut rates in 2025. Three cuts in February, May and August reduced the cash rate from 4.35% to 3.60%.
Rates rose again in 2026. Three increases between February and May took the cash rate back to 4.35% as inflationary pressures increased.
Home values entered another downturn. By August 2026, Cotality's Home Value Index had fallen for five consecutive months, leaving national dwelling values 3.6% below their March peak.
The key affordability issue is that property prices and borrowing costs can move in different directions. A lower purchase price may reduce the amount a buyer needs to borrow, but higher home loan rates can increase repayments and reduce borrowing capacity.
For buyers, this means falling property values do not automatically make a home more affordable. Buyers need to consider the purchase price, interest rate, deposit, income and borrowing capacity together.
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How are current housing conditions affecting home buyers?
Falling property values may improve negotiating conditions for some buyers, but higher interest rates continue to affect borrowing capacity and repayments. Cotality reported in June 2026 that recent rate rises had offset the affordability benefit of price falls in Sydney and Melbourne.
For home buyers, current conditions can affect:
Borrowing capacity: Higher interest rates can reduce how much some buyers may be eligible to borrow, depending on their circumstances and lender criteria.
Mortgage repayments: A lower purchase price does not necessarily mean lower repayments. The loan amount, interest rate and loan term all affect the cost of a home loan.
Deposit requirements: Lower property prices can reduce the amount needed for a percentage-based deposit, but saving a deposit remains a challenge. Cotality estimated a median-income household needed around 11 years to save a 20% deposit at the end of the September 2025 quarter.
Property budgets: A lower borrowing limit may mean reducing your maximum purchase price, even when property values are falling.
Property choices: Buyers may consider different suburbs or lower-priced property types, which can increase competition in more affordable parts of the market.
Local competition: Conditions vary between markets. In July 2026, Cotality reported falling values in Sydney and Melbourne while markets including Perth and Brisbane remained stronger.
The impact depends on where and what you're buying, as well as your financial position. Softer property prices may create opportunities in some markets, but your borrowing capacity and expected repayments remain central to setting a realistic budget.
How are current housing conditions affecting renters?
Rental affordability remains stretched across Australia, even as national dwelling values fall. For renters, the immediate pressures are rental costs and property availability.
NHSAC found that 33.1% of median household income was required to pay rent on a new lease in the December quarter of 2025, compared with a 10-year average of 29.1%.
Lower-income households face greater pressure. In 2024, 29.5% of renter households were in rental stress, defined by NHSAC as households in the lowest two income quintiles spending more than 30% of disposable income on rent. In 2025, just 2% of advertised rentals were affordable to households at the 30th income percentile. Several factors continue to affect rental affordability:
Rental supply remains tight: The national rental vacancy rate was 1.6% in March 2026, below the decade average of 2.5%, limiting the number of properties available to renters.
Population growth adds to demand: More people can increase demand for rental housing when supply does not keep pace.
Household formation also matters: Smaller households can increase the number of dwellings needed to accommodate the same population.
Rents remain elevated: National median dwelling rents reached $705 per week in June 2026, up 5.9% over 12 months and 40.6% over five years.
Falling property values therefore do not necessarily provide immediate relief for renters. Rental affordability depends more directly on rents, household incomes and the balance between rental supply and demand, all of which vary between markets.
How does the cash rate affect home loan interest rates?
The cash rate is the interest rate on unsecured overnight loans between banks. The RBA sets a target for the cash rate as part of monetary policy, including its aim to keep inflation between 2–3% over the medium term. Cash rate movements can influence home loan interest rates, but they are not the same thing. Lenders set their own home loan rates based on factors including funding costs, market rates and competition.
When the cash rate changes:
Variable home loan rates may change: Lenders may increase or decrease variable rates following a cash rate move.
Repayments may change: If your variable interest rate changes, your required repayments may also change, depending on your loan.
Borrowing capacity can be affected: Interest rate movements can change the repayments lenders use when assessing how much you may be able to borrow.
Household budgets may be affected: Higher repayments can leave less income for other expenses, while lower repayments can reduce servicing costs.
A cash rate change does not mean every home loan rate will move by the same amount or at the same time. In August 2026, the RBA reported that variable mortgage rates had risen by almost 75 basis points between January and June as lenders passed through that year's cash rate increases. Some lenders subsequently reduced advertised rates on selected products amid competition.
Fixed home loan rates can also move differently because they are influenced by financial market expectations and reference rates over the relevant fixed term.
For borrowers, the cash rate is an important benchmark, but your actual home loan rate depends on your lender, loan product and circumstances.
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Where is the cash rate now, and what has happened since 2022?
As at September 2026, the RBA cash rate target is 4.35%. The rate has moved through a sharp tightening cycle since 2022, followed by three cuts in 2025 and three increases in early 2026. The RBA left the cash rate unchanged in June and August, with its next monetary policy decision due on 29 September 2026.
Period | What happened to the cash rate? |
|---|---|
The RBA began raising the cash rate, from 0.10% to 0.35%. | |
The cash rate reached 4.35% after a series of increases in 2022 and 2023. | |
The RBA held the cash rate at 4.35% throughout the year. | |
Three 0.25 percentage point cuts reduced the cash rate to 3.60%. | |
Three increases lifted the cash rate to 3.85% in February, 4.10% in March and 4.35% in May. | |
The RBA held the cash rate at 4.35% at both meetings. | |
The cash rate remains 4.35%, ahead of the RBA’s 29 September decision. |
The cash rate has therefore returned to its November 2023 level, but after moving in both directions: three cuts in 2025 followed by three increases in 2026.
Remember, cash rate movements can influence home loan interest rates, but lenders set their own rates and may not pass on RBA changes in full. An Aussie Broker can help you compare current home loan rates and options based on your circumstances and lender criteria.
Why isn't Australia building enough homes?
Australia's housing pipeline is growing, but new supply is not being delivered fast enough to meet demand or the National Housing Accord target.
The latest ABS data shows 43,816 dwellings were completed in the March quarter of 2026, broadly unchanged from the previous quarter, while dwelling commencements fell 11.2% to 48,012.
There are signs of improvement. NHSAC reported that approvals and commencements had increased compared with the quarter before the Accord period, with a record 244,000 dwellings under construction in March 2026. However, NHSAC projects that the 1.2 million new homes target over the five years to 30 June 2029 will not be reached until the December quarter of 2030.
What are the constraints impacting and slowing down housing supply?
While demand for housing remains strong, increasing supply is not as simple as building more homes. A range of economic, workforce and planning challenges can affect how quickly new housing moves from approval to completion.
Understanding these constraints helps explain why boosting housing supply can take time.
Tradesperson shortages
Building more homes requires enough skilled workers to deliver them. Shortages in construction trades can limit how quickly builders increase output, particularly in areas with smaller labour pools.
Productivity is also a challenge. NHSAC estimates that, after adjusting for larger homes and improvements in housing quality, labour productivity in dwelling construction has fallen by around 12% over the past 30 years, compared with a 49% increase across the broader economy.
High building and land costs
Higher land, labour, materials and finance costs can make new housing more expensive to deliver and some projects less financially viable.
The national median price of residential land reached a record $397,840 in the December quarter of 2025, according to the HIA-Cotality Residential Land Report.
Construction costs also remain elevated. NHSAC reported that house construction costs rose 2% in the June quarter of 2026 and were 51% higher than before the COVID-19 pandemic and associated supply-chain disruptions. Key cost pressures include:
Land: Limited serviced land can increase development costs.
Materials: Higher manufacturing, commodity and transport costs can increase construction expenses.
Labour: Skilled-worker shortages can add to project costs and timelines.
Finance: Borrowing costs can affect development feasibility.
Supply chains: Disruptions can increase costs and delay construction.
Builder insolvencies
Financial pressure across the construction industry can delay housing projects.
Builders may commit to projects before construction is completed, leaving them exposed if labour, materials, finance or other costs rise. If a builder becomes insolvent, projects can be delayed while contractual, financing and construction arrangements are resolved.
Construction has accounted for a significant share of Australian corporate insolvencies in recent years, although not every construction insolvency involves a residential home builder.
Planning and infrastructure delays
Approving more homes does not immediately create more housing. Planning approvals, rezoning, infrastructure delivery and development assessments can affect how quickly land becomes ready for construction. Processes and requirements vary between states, territories and local government areas.
NHSAC has identified planning and zoning reform, together with infrastructure delivery, as important to increasing housing supply.
Competition for workers and materials
Residential builders compete with commercial construction and major infrastructure projects for workers, equipment and materials.
When construction activity is high across multiple sectors, this competition can increase costs and make it harder for residential builders to expand output quickly.
Australia's housing supply challenge therefore extends beyond approving more homes. Turning an approval into a completed dwelling requires land, infrastructure, skilled labour, materials, finance and viable projects to come together. While the pipeline has improved, current forecasts indicate that delivering enough completed homes remains a longer-term challenge.
How do interest rates affect your home loan repayments?
Interest rate changes can affect your home loan repayments, particularly if you have a variable-rate loan. If your lender raises your rate, your required repayments may increase. If it lowers your rate, repayments may decrease, depending on your loan terms and repayment arrangements.
The impact depends on several factors:
Loan balance: A larger outstanding balance generally means a greater dollar impact from a rate change.
Interest rate: A higher rate generally increases the interest charged on your outstanding balance.
Remaining loan term: The time left on your loan affects your repayments. Extending the term may reduce repayments but can increase the total interest paid over the life of the loan.
Repayment type: Principal and interest repayments reduce your loan balance over time, while interest-only repayments generally do not reduce the principal during the interest-only period.
Fixed or variable rate: Variable rates can change during the loan term. Fixed rates generally remain unchanged for the agreed fixed period, subject to the loan terms.
Loan conditions: How a rate change affects your repayments depends on your lender, product and repayment arrangements.
Even a relatively small rate change can noticeably affect repayments, particularly on a larger loan. Check the interest rate applying to your home loan rather than relying on movements in the RBA cash rate alone.
Use Aussie's home loan repayment calculator to estimate how different interest rates, loan amounts and terms could affect your repayments.
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What can borrowers do when interest rates are high?
Higher interest rates can strain household budgets. If you already have a home loan, reviewing your loan and finances can help you understand whether your current arrangement still suits your circumstances. Consider these steps:
Review your budget: Check your income, expenses and repayments to understand how much room you have in your household budget.
Check your home loan: Review your current interest rate, fees and features before comparing other options.
Review offset or redraw features: If available, check how these features work and whether you're using them effectively. Access, fees and conditions vary between products.
Consider additional repayments: Paying above the minimum may reduce your loan balance and interest costs over time. Check whether limits, fees or other conditions apply.
Compare home loan options: Look beyond the advertised rate and consider fees, features, repayment options and loan terms.
Calculate refinancing costs: Switching can involve discharge, application, valuation and other costs. Compare these with any potential savings and consider how long it may take to recover the cost of refinancing.
Speak with a mortgage broker: A broker can compare your existing loan with other options and help you assess whether refinancing suits your circumstances.
Refinancing does not guarantee savings. A lower interest rate may not leave you better off once you factor in switching costs and fees. Extending your loan term may also reduce repayments while increasing the total interest paid over time.
Before switching, compare the interest rate, fees, features, remaining loan term and refinancing costs. Any new loan will be subject to lender eligibility, lending criteria and approval.
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What could improve housing affordability in Australia?
Housing affordability could improve if housing costs become more manageable relative to household incomes. There is no single solution, and impacts can differ for buyers and renters, as well as across property types and locations. Several factors could influence affordability over time:
Lower dwelling prices: Lower purchase prices can reduce the amount buyers need to borrow and the deposit required, although borrowing costs also matter.
Lower home loan rates: Lower interest rates can reduce mortgage servicing costs and may increase borrowing capacity, depending on the borrower and lender criteria.
Stronger household income growth: If incomes grow faster than housing costs over time, buying or renting may take up a smaller share of household income.
More completed homes: Increasing housing supply can improve availability. NHSAC reported 308,000 new homes had been completed since the National Housing Accord period began, although it expects the 1.2 million-home target to be reached after the June 2029 deadline.
More rental housing: Increasing rental supply, including social and affordable housing, can expand renters' options.
Housing supply keeping pace with household growth: Population growth and household formation affect how many additional homes Australia needs.
Government policy: Planning reform, infrastructure investment, housing programs and tax settings can influence housing supply and demand over time.
These factors can move in different directions. For example, property prices may fall while borrowing costs remain high, or housing construction may increase while the number of households needing homes also grows.
For this reason, housing affordability depends on the interaction between property prices, borrowing costs, household incomes and housing supply, not any single measure. The impact on individual households will also depend on their location, whether they rent or buy, and their financial circumstances.
How Aussie can help
Property prices and interest rates can change, but the more useful question for buyers and borrowers is what those conditions mean for their own finances. An Aussie Broker can help you:
Understand your borrowing position based on your circumstances and relevant lender criteria.
Compare home loan rates, features and repayment options across available products.
Review your existing home loan and compare its rate, fees and features with other available options.
Assess refinancing options, including potential switching costs, eligibility requirements and lender criteria.
Understand lender criteria and the factors that may affect a home loan application.
Aussie provides access to over 25^ leading lenders and more than 4,000 home loan products, giving you a range of options to compare. Whether you're preparing to buy or reviewing an existing home loan, an Aussie Broker can help you understand your options based on your circumstances.
