Australia’s housing crisis is perhaps the worst in the world. Everyone has seen the graphs showing how housing prices have disconnected from wages overtime.
When interest rates decrease and loan terms increase, the amount that people can borrow increases. This means that monthly repayments can stay the same, but that the amount loaned can increase. The RBA has estimated that a sustained one percentage point drop in interest rates would in the long term boost housing prices by 17%, reflecting similar studies. Considering how interest rates were over 10% in the 1980s, fell to bellow 3% before COVID and have since increased to over 6%, is it any surprise that housing prices have increased significantly. From 1994-2017, 33% of the 109% increase in house prices can be attributed to the fall in interest rates alone.
The total value of new loan commitments for dwellings has grown from $54 Billion in December quarter of 2019 to $103 Billion in the March 2026 quarter.
Government buyer subsidies like the 5% deposit scheme for first home buyers only increase house prices, benefiting existing home buyers. Research from Australian property update found that homes under the schemes price cap rose 6.7% in the first 6 months of the scheme from September 2025 to March 2026, compared to 3.6% for homes above the price cap.
On the supply side, detached housing approvals are at similar levels to 30 years ago, with the increase in total housing approvals being driven by apartments. Additionally, government related costs for new housing builds are almost 50% of the Sydney, 43% in Melbourne, 41% in Brisbane, 37% in Hobart and Adelaide and 36% in Perth. (See graph).
Its worth noting that while the housing crisis affects millions of Australians, particularly younger ones, the majority of Australians have a vested interest in house prices increasing. Looking to the US, after decades of pushing for greater housing affordability, which ultimate culminated in the 2007 housing bubble popping and house prices falling, government quickly stepped in to stop this decrease. More recently, President Trump actually said “I don’t want to drive housing prices down. I want to drive housing prices up for people that own their homes”, breaking the unspoken rule in politics that while you might talk about housing affordability, you never want to actually reduce house prices. It seems that until the crisis worsens further, the political will to address it will won't be there.