Recent data reveals that housing affordability is at an unprecedented low, with households earning $125,000 capable of purchasing only about 10% of homes sold nationwide.
The percentage of household income allocated to mortgage repayments has surged to its highest level since 1989, as economic experts warn that the challenge of affordability will persist until there is a substantial increase in housing inventory.
According to statistics from realestate.com.au, a household with a median income of approximately $125,000 can afford merely 12% of all residential properties sold, encompassing both houses and units, during the previous financial year.
Although property values have seen some declines recently, earlier price increases and recent interest rate hikes have contributed to this troubling trend, negating any slight improvements noted in the 2025 fiscal year.
Angus Moore, a senior economist at the firm, noted that the rising costs of borrowing, driven by three interest rate increases by the Reserve Bank of Australia (RBA) in February, March, and May, have placed further strain on household borrowing capabilities amid existing cost-of-living pressures.
“While we may see a slight improvement in affordability if home prices continue to decrease, this will likely not provide relief for many potential buyers,” Moore stated. “Without a significant boost in housing supply, affordability challenges will remain, particularly affecting lower-income households.”
The report’s findings are based on the assumption that a household spends 30% of its gross income on mortgage payments, with an additional buffer of 2.5%. This means that a household earning slightly over $125,000 annually can only afford to make payments on 12% of properties sold in the past year.
The analysis utilized median household income figures rather than average income, which provides a clearer picture of affordability. For instance, in a hypothetical group of 99 households ranked by income, the median is represented by the 50th household, while the average may be skewed higher by wealthier households. According to the Grattan Institute’s analysis of HILDA data, the average income for Australian households stands at $161,000.
The report indicated that affordability has deteriorated across all states last fiscal year, with South Australia emerging as the least affordable, where only 7% of properties sold were within reach of median-income households. Victoria showed the most favorable conditions, with 16% of homes affordable for median earners, although this figure has also declined.
For those not in the market to buy, the situation remains dire. Mortgage repayments now account for 35.5% of the average household income, exceeding the 33.3% recorded during the Global Financial Crisis (GFC) and nearing the 37.5% experienced in 1989. At that time, mortgage interest rates were about 15.5%, compared to June 2026’s rate of 6.3%, although house prices were significantly lower, leading to a more favorable annual income-to-house cost ratio.
According to economist Luc Redman, even with recent drops in property prices, the market continues to face substantial pressure. “Home prices remain elevated across various sales segments, and higher interest rates are diminishing borrowing capacity,” he explained. “There is a clear structural issue regarding the supply of adequate housing, particularly in desirable locations. Without effective reforms to increase supply at all government levels, this situation is likely to persist.”
Maiy Azize, the national spokesperson for Everybody’s Home, a coalition focused on welfare and homelessness, emphasized that recent tax reforms related to negative gearing and capital gains tax are positive developments, but more action is necessary. “While these reforms are a step in the right direction, they will take time to impact the housing market. Immediate measures are essential,” she noted.
Azize also advocated for further reforms, such as imposing limits on rent increases to provide relief to renters, allowing them to save for deposits and accommodating the growing population of long-term renters. “We cannot depend solely on the private sector to provide affordable housing. These statistics underscore that need. The federal government must significantly enhance social housing initiatives,” she urged. “Government intervention can facilitate the construction of affordable homes at the necessary scale and in the right locations, alleviating pressure on the rental market.”
Nadia Harrison, CEO of Mortgage Stress Victoria, reported a notable increase in demand for their services, indicating the extent of the housing debt crisis. “Since February 2026, requests for assistance have risen by approximately 30% compared to the monthly average of 2025,” Harrison stated, highlighting the growing challenges faced by borrowers.
