“Impossibly unaffordable”. That’s how international researchers describe Australia’s housing market.
Australia’s major cities keep beating other global cities as one of the most unaffordable places in the world to buy a home.
The 2025 Demographia International Housing Affordability report released each year examines markets in Australia, Canada, China, Ireland, New Zealand, Singapore, the United Kingdom and the United States.
The latest study, released this month, declared four major Australian cities (Sydney, Adelaide, Melbourne and Brisbane) as “impossibly unaffordable”, and Perth as “severely unaffordable”.
It found Sydney, Melbourne, Brisbane, Adelaide and Perth all made the top 20 most unaffordable cities in 95 major markets.
In fact, Sydney was the second most unaffordable city in the study behind Hong Kong.
Sydney was the second most unaffordable city in the international study behind Hong Kong. (ABC News: John Gunn)
While Tuesday’s interest rate cut, and further cuts expected over the coming months, create cheaper money for housing, they also fuel demand.
Financial markets are pricing in two more cuts by December — which would take the RBA cash rate to 3.35 per cent — and then possibly another in 2026.
And bets are increasing that off the back of lower rates and more generous incentives for first time buyers, demand will rise and, in turn, once again so will house prices across our major cities.
Rate cuts feed into demand and push up property prices, but how fast?
Many economists and property analysts are now predicting property price rises of under 10 per cent by year’s end as first time buyers go full speed ahead in their quest for home ownership and a greater number of investors return to the market.
Cotality (formerly CoreLogic) director Tim Lawless says a combination of lower interest rates and improved consumer sentiment will result in higher home sales volumes and forecasts there could be a “broad-based recovery in values that began after the February rate cut”.
But he believes stretched affordability and cautious lending practices will keep house price growth modest over 2025.
KPMG chief economist Dr Brendan Rynne forecasts at least one more rate cut this year and possibly another early next year.
He expects a more competitive housing market as soon as spring, and says that by year’s end dwelling prices could rise by 5 per cent (for houses) and 6 to 6.5 per cent (for units).
He bases this on the fact that Australia still doesn’t have enough homes to match recent population growth.
Some economists think house prices will rise by about 5 per cent by year’s end. (ABC News: Elise Pianegonda)
There is also a risk of an even bigger property price bounce if the cash rate is cut too quickly, and by too much, or if the big banks go into a “pricing war” and drop home loan rates more than the RBA cash rate.
Dr Rynne also notes that “never has there been more people employed in this country”, and that stable jobs and cheaper money will make it easier for more people to get home loans, again fuelling demand.
RBA says it can’t solve the housing crisis, governments must
Economists are unanimous in their view that key housing election policies aimed at first time buyers, will serve to make housing more unaffordable.
While Labor’s policies aimed at building more homes increase supply, they may take years to flow through.
Reserve Bank Governor Michele Bullock said there was nothing the central bank could do directly to solve the housing crisis, but she was hopeful governments would ease pressure by building more homes over time.
“This is an issue of housing development and housing supply, and increasingly, this issue is finding its way into … both state and federal governments,”
she said.
RBA Governor Michele Bullock says the RBA cannot solve the housing crisis but governments should. (AAP Image/Dean Lewins)
She said the housing affordability problem had “been brewing for many years” and “there’s nothing I and the (central) bank can do about this”.
She said the cental bank was focused on its inflation and employment mandate.
“But (what) governments can do is look at the supply demand imbalance in housing,” she said.
First home buyer incentives will also fuel house prices
While housing supply is a work-in-progress, demand-side incentives aimed at first-time buyers kick off at the start of next year.
From January 1, first home buyers will be able to enter the market with just a 5 per cent deposit, under a scheme that spares buyers from lenders mortgage insurance.
Prime Minister Anthony Albanese has said the government will scrap the $125,000 income cap that previously applied, making it available to an unlimited number of applicants instead of just 35,000 per year.
The government has also raised the price caps for properties eligible under the scheme to ensure it benefits a broader range of first home buyers, especially in areas like Sydney and Melbourne where average dwelling prices are far higher.
Anthony Albanese pitched housing policies at first home buyers, which many economists think will push up house prices. (ABC News: Matt Roberts)
Economists believe that the expanded 5 per cent deposit program will also contribute to rises in house prices, although by how much is uncertain.
What is certain is that housing in Australia is already overpriced.
More than one in three homes around the country are worth $1 million or more, according to recent Cotality data.
Many hoped that interest rate cuts could make housing more affordable.
But cheaper money for housing, amid a market with high demand and low supply, just keeps fuelling property prices and, for many, make the near impossible plight of home ownership seem more impossible.
