Why the housing crisis in 'impossibly unaffordable' Australia will only worsen
Australian cities are among the least affordable on earth and there's little to suggest the corresponding housing crisis is going to be successfully addressed in the years ahead.
The best we can say about the recent Federal election is that it’s over.
Neither major contender, nor the minor parties, exactly covered themselves in policy glory. Talk about a race to the bottom.
The outcome is a large Labor majority and – as far as the PM will be concerned – a mandate to charge ahead with ‘more of the same’ despite only getting just under a third of the vote (32.6 per cent to be precise, according to the Australian Electoral Commission).
What the election did not canvas with much honesty were things like our looming energy crisis and our globally high cost of power, which is killing industry and hurting households.
Energy costs feed into everything – from the cost of your coffee, up. It’s a significant contributor to the cost of living challenge that is leaving more households with less spare money.
The other issue that wasn’t honestly discussed is our very high rate of population growth, driven directly by immigration policy.
Immigration is now almost entirely the driver of population growth, because our rate of natural growth has slowed below replacement rate.
So it is this policy which is driving increasing demand for everything – but most topically for housing. Australia added over 500,000 people through immigration in the last year – well above the more ‘normal’ rate of around 100,000.
Those people need places to live, and are mostly trying to do it in three or four of the major capital cities.
Feeding such high levels of extra demand at a time when we have demonstrable shortages of supply is not a good idea.
Industry groups will argue “more supply” is the answer. And the Government has announced a “policy” of building 1 million more homes. But there’s precious little detail on the ‘how’ this will be done.
Which means it’s more of an idea than a policy. Something pulled straight from an episode of government office satire Utopia.
Building costly, unloved homes
Where supply side strategies are promoted by some state or local governments, they invariably seem to involve tropes about ‘up not out’ or ‘more density at train stations.’
Never mind that building up is the costliest form of housing we can development. We are arguing we can solve housing affordability (and availability) by building the most expensive housing, of a type few actually prefer, in locations many don’t like.
Into this deadly policy cocktail now steps the Reserve Bank of Australia (RBA), which is on an easing bias with interest rates.
Mainstream media will champion falling rates as a boon to young families, and quote the usual shady cabal of boosters and real estate agents in support. But what we all know will happen is that the benefit of any rate cut will feed immediately into demand which, given supply side responses are so utterly broken, will mean prices will rise by more than any savings generated by lower finance costs.
Now, let’s pour some more petrol on this already catastrophic housing bonfire! Let’s bring in a policy that allows the most vulnerable of borrowers to leverage themselves even more.
Here’s the actual wording of the official government policy: “From 2026, a re-elected Albanese Labor Government will expand the Home Guarantee Scheme further so that it will be open to every Australian looking to buy their first home. There will be no caps on how many people can apply and no limit on how much you or your partner can earn. For first home buyers, you’ll be able to buy an eligible property anywhere in Australia, with a deposit as low as 5 per cent.”
The Liberals have a similar policy.
On top of that, “Labor’s Help to Buy shared equity scheme opens later this year and has the Commonwealth Government pitch in up to 40 per cent of the upfront cost of your home – making it easier for a first home buyer to purchase a home with a smaller mortgage.”
So the Aussie taxpayer is now compelled to be a housing speculator, along with mortgage holders who share the equity (and all the risk)?
The global Demographia International Housing Affordability study for 2025 gives a blunt assessment of our unaffordable housing market, even before the policy “initiatives” come into effect.
It rates a price to income ratio of above 5 as “severely unaffordable” and anything above 9 as “impossibly unaffordable.”
Here’s what they had to say about us in May:
“Australian markets have a median multiple of 9.7. Sydney has the least affordable market, with an impossibly unaffordable median multiple of 13.8, making it the second least affordable market internationally (ranking 94th in affordability out of 95 markets). Sydney has had the first, second or third least affordable housing of any major market in 16 of the last 17 years. Even the smallest Australian market, Adelaide endures an impossibly unaffordable median multiple of 10.9, ranked 90th among the 95 markets. Melbourne, with impossibly unaffordable median multiple of 9.7, is the 87th least affordable. Brisbane was an impossibly unaffordable 9.3 and ranked 85th out of 95. Perth at 8.3, was the 82nd least unaffordable market. It is remarkable that these markets are less affordable than widely recognised world cities like New York, London, or Chicago.”
The forward outlook, given all this, is bleak.
Pumping up the demand side with record population growth and increasing financial leverage into an already white-hot housing market where average households are finding daily living expenses increasing faster than their incomes will invariably see affordability worsen and housing stress spread wider.
God help those trying to get into the market in the year ahead.
