Affordability still worsening even as property prices tumble

You could be excused for thinking that with property prices falling across the board in Australia, they would by logical extension be becoming more affordable.

That’s far from the case.

Any relief from softer house prices and smaller average loan sizes has been absorbed by higher interest rates.

With rates expected to rise again towards the end of the month and maybe even once more before 2026 slips away, home affordability is set to worsen even as property price declines continue on a likely downward trajectory.

For those who already have a mortgage on their property, the proportion of median family income required to meet average home loan repayments has increased over the past quarter to a formidable 50.9 per cent.

Commenting on the latest Housing Affordability Report, Real Estate Institute of Australia (REIA) President Jacob Caine said the average monthly loan repayment reached $6,018, an increase of 1.5 per cent over the quarter and 12.4 per cent over the past year.

“Without the decline in house prices and average loan amounts, affordability would likely have deteriorated more significantly following the May interest rate increase.”

Housing affordability varied significantly across Australia, according to the REIA, improving in New South Wales and Victoria, remaining stable in Tasmania and deteriorating across all other states and territories.

Western Australia recorded the largest quarterly deterioration, with the share of median family income required to meet average mortgage repayments rising by 1.6 percentage points to 47.5 per cent.

New South Wales remained the least affordable state or territory for home buyers, with average loan repayments consuming 57.7 per cent of median family income. The Australian Capital Territory remained the most affordable at 34.4 per cent, helped by the highest median family income in the country.

In Western Australia, housing affordability is at its worst level on record.

The proportion of family income needed to meet loan repayments in WA rose 1.6 percentage points over the June 2026 quarter to 47.5 per cent. This was the largest decline in affordability among all the states and territories.

REIWA President Suzanne Brown said the decline in affordability was driven by a third interest rate increase of the year in May and further growth in property prices.

“Rising prices have seen the average mortgage in WA increase by about $17,000 over the quarter and nearly $100,000 over the year,” she said.

“Three interest rate increases this year, combined with the increase in the average mortgage, have seen repayments rise by nearly $300 over the quarter and over $1,000 since the June 2025 quarter.

“WA’s market has been stronger for longer than other states, such as New South Wales and Victoria, where softer prices and smaller average mortgages have mitigated the increases in interest rates.

“However, our market has eased in the past few months. If this continues, and if interest rates remain stable, we may start to see a slight improvement in affordability over the remainder of the year.”

Budget a help or hindrance?

Simon Gold, Director of Taxation – NSW at Australasian Taxation Services, questioned whether the Federal Government’s recent Budget changes would ultimately help or hinder property buyers.

“The government appears steadfast in removing property as an asset class,” Gold said.

“Home ownership is a good thing, but that doesn’t mean throwing the baby out with the bathwater by undermining investment.

“By limiting the negative gearing and CGT changes to established properties, the government is effectively driving investors towards buying brand-new property.

“Anyone who has studied basic economics understands that increasing demand without a corresponding increase in supply leads to higher prices.

“Combined with higher construction costs, we could therefore see higher sales prices for new property once the dust settles.

“That could make established property appear comparatively cheaper, potentially enticing investors back into that market and pushing prices higher there as well.

“Ultimately, that could narrow the price gap between new and established property.”

Changing the way people live

The housing affordability crisis that has been playing out over the past few years of soaring property prices and a year of rate rises is having a material impact on how people live.

House of flat sharing is no longer the sole preserve of uni’ students and 20-somethings teaming up with mates.

In fact, they are no longer even in the top bracket of house sharers. That dubious accolade goes to the above 40 demographic.

A report that looked into 3,562 people living in share accommodation found that the share-house has stopped being a temporary stage people pass through.

According to Homerun’s The Sharehouse Generation Report, released Tuesday (15 September) those aged 40 and over made up 44 per cent of respondents who shared a home. Of that group, 78 per cent said they never expected to be in a share-house arrangement at their current age.

The affordability crunch is highlighted by the fact that almost a third of this cohort don’t expect to ever own their own home.

Older sharers are over-represented in the survey because people over 40 are more likely to use a paid matching service while younger sharers more often find houses through their own networks, but the upward trend and proportion not expecting to get a foot on the property ladder speaks to a market that continues to move out of reach for many.

“When 31.2 per cent of the people in a share-house don’t expect to ever own a home, another 11 per cent put it more than a decade away, and 74.6 per cent say prices have stretched out how long they’ll be sharing, share accommodation stops being the bit between the family home and a mortgage,” the report opined.

“It starts looking like a third way of being housed, sitting alongside owning and renting alone.

“Those two come with rulebooks, records and rights. Sharing mostly comes with a group chat.”