Australia is facing an unprecedented housing affordability crisis. Home prices have skyrocketed over the past few decades – rising over 1,400% since the late 1970s– far outpacing income growth. For many Australians, especially first-time buyers, owning a home has never felt more out of reach. Rents are also surging amid tight supply, squeezing household budgets and fueling uncertainty in the market. In this blog, we delve into what’s driving Australia’s housing affordability crisis, how it impacts first-home buyers, renters, and even sellers, and what can be done to navigate or alleviate the challenges in this high-priced property landscape.

Housing costs in Australia have reached record highs relative to incomes. Nationally, the median house price is around $913,000 as of mid-2025 (and over $1.04 million in capital cities). In Melbourne, for example, the median house costs about $952,000– a figure nearly 8 times the median household income. This means the typical family would need roughly 50% of their income just to service a new mortgage on an average home. By contrast, renting isn’t exactly “cheap” either – a new lease takes up about 33% of a median household’s income, and advertised rents have jumped 48% in the last decade. No wonder over 1.2 million low-income households are in housing stress, spending more than 30% of their income on housing costs.

Australia’s housing affordability has steadily worsened since the 1990s, with home prices growing much faster than wages or household incomes. The chart above shows the ratio of home prices to incomes climbing to historic highs, and the average time to save a 20% deposit stretching from about 4 years in the 1980s to around 10 years today.

Despite some cooling in 2023, prices resumed an upward climb in 2024 (dwelling values rose ~4.9% over the year). That modest slowdown offers little relief – by early 2025 the price-to-income ratio hit 8.0 nationally. First-home buyers now face a monumental savings task: the average household needs over a decade to save a 20% deposit on a median-priced home. Meanwhile, renters are contending with an extremely tight market. National rental vacancy rates hit ~1.2% in mid-2025, near record lows, and capital city rents average around $748 per week. Such conditions have driven annual rent increases in the 4–8% range in many cities, further straining affordability for those who can’t break into home ownership.

Several interlocking factors are driving Australia’s housing affordability woes:

Insufficient Housing Supply: Australia simply hasn’t been building enough homes to keep up with demand. In 2024, only 177,000 new dwellings were completed, falling well short of the roughly 223,000 needed to meet underlying demand nhsac.gov.au . This shortfall adds to a backlog of unmet housing need year after year. The federal government’s much-touted National Housing Accord targets 1.2 million new homes over 5 years (2024–2029) to catch up, but at current rates we are on track to fall about 262,000 homes short of that goal theguardian.com . In fact, no state or territory is projected to meet its share of the target under current trends nhsac.gov.au . This chronic undersupply gives sellers the upper hand and keeps prices elevated.

Skyrocketing Demand: Demand for housing has been supercharged by strong population growth and migration. After Australia’s borders reopened post-COVID, net overseas migration surged to over 550,000 in a single year (2022–23), the highest on record nhsac.gov.au . While it has since eased, migration was still around 380,000 in 2024, well above pre-pandemic norms nhsac.gov.au . This influx, combined with natural population growth, means more households chasing too few homes, especially in Sydney, Melbourne and other job-rich areas. Record-low interest rates in the early 2020s also unleashed a wave of buyer demand and investor activity, pushing prices up rapidly. Even though interest rates have risen since 2022, Australia’s cultural preference for property investment (aided by tax perks like negative gearing) sustains high demand for real estate.

Rising Construction Costs & Bottlenecks: Building new homes in Australia has become slower and more expensive. Over the past decade, the average time to construct a house increased by ~57% (and ~65% for apartments) firstlinks.com.au , due to factors like stricter regulations, labor shortages, and higher material costs. In other words, it now takes years to turn approvals into actual homes on the market. Labor constraints are significant – the construction industry is grappling with skill shortages and an aging workforce, limiting how quickly we can ramp up housing supply nhsac.gov.au nhsac.gov.au . Material costs spiked during the pandemic and have remained elevated, squeezing developer margins and causing some projects to stall. All these supply-side frictions mean fewer homes built, slower, which keeps prices and rents higher than they might be in a more responsive market.

New housing supply isn’t keeping pace with demand. The chart above (based on ABS and AMP data) shows that the time taken to build new dwellings has blown out in recent years firstlinks.com.au – a trend fueled by regulatory hurdles, labor shortages, and rising costs. Slower construction times contribute to the housing shortfall, as Australia struggles to build enough homes fast enough to meet population-driven demand.

Policy Factors: Government policies have sometimes inadvertently fueled demand without fixing supply. Various first-home buyer grants and stamp duty concessions, while helping some buyers, also inject extra money into the market that can get capitalized into higher prices. For instance, the federal First Home Guarantee scheme allows buying with a low deposit, but experts warn expanding it could “drive prices higher” and increase competition for limited stock theguardian.com theguardian.com . On the other hand, zoning restrictions and community opposition have limited higher-density development in inner-city areas where demand is highest, pushing growth to outer suburbs or not at all. Tax settings (like negative gearing and capital gains tax discounts) encourage investment in existing housing, which can crowd out first-home buyers. In short, a long history of pro-property policies in Australia has favored those already in the market and made it harder for newcomers to catch up.

Wage Stagnation vs. Price Inflation: Underlying it all, housing prices have grown much faster than household incomes. While home values have doubled, tripled, and more in the past 20 years, wages have not kept pace firstlinks.com.au . The result is a “chronically deteriorating” affordability trend firstlinks.com.au – metrics like the price-to-income ratio and price-to-rent ratio are at extreme highs by historical standards. Forty years ago, one income might have sufficed to buy a house; now it often takes two high incomes and a huge debt. This growing gap between earnings and housing costs means each generation has to stretch further financially to achieve the same home ownership dreams as their parents.

You might assume that existing homeowners and property sellers only benefit from high prices – after all, many have seen substantial gains in their property values. But the affordability crunch presents a double-edged sword for vendors too:

Trading Up or Down: For owner-occupiers looking to upgrade (buy a bigger or better home), high prices make the next purchase costlier, often negating the profit from selling. Many growing families find that even after selling their starter home, the leap to a larger house in the same city is financially daunting. On the flip side, older homeowners downsizing can cash out impressive gains in expensive markets like Sydney, but they may struggle to find suitable affordable options to move into, especially if staying in the same area. Thus, steep prices can lock people in place – discouraging sales and mobility.

Fewer Buyers, Longer Sales: From a seller’s perspective, when fewer people can afford homes, the pool of potential buyers shrinks. Properties at the more affordable end (entry-level apartments, outer-suburban houses) might still see strong demand and quick sales due to pent-up first-home buyer interest. However, mid-to-high end properties could take longer to sell in an environment where lending is tighter (banks have reduced borrowers’ maximum loan sizes due to higher interest rates) and buyers are more cautious. Setting the right asking price is crucial; if it’s too high for the market, a listing might languish unsold longer than during the boom times. Vendors need to be realistic and informed by current market conditions to achieve a sale in reasonable time.

Rethinking Selling Strategies: Importantly, the drive to improve affordability is prompting innovation in how people sell homes. With Australia’s real estate agent commissions and fees among the highest in the world (often $30,000–$50,000 on a typical city home sale) staging.salemate.com.au , more sellers are exploring ways to cut these costs. In fact, private home sales (sometimes called for-sale-by-owner or FSBO sales) have increased by ~200% over the past decade staging.salemate.com.au as digital platforms make it easier to connect buyers and sellers directly. By saving on agent commissions (commonly ~2–3% of the sale price), an owner can potentially price their property a bit more competitively and still pocket the same profit. This can be a win-win in an affordability-constrained market – sellers keep more of their gains, while buyers pay a slightly lower price as a result staging.salemate.com.au . New proptech platforms like SaleMate have emerged to facilitate exactly this: allowing homeowners to list for free, negotiate, and complete sales online without the traditional agent middleman staging.salemate.com.au staging.salemate.com.au . Such approaches empower vendors to take control and reduce transaction costs, which, in a small way, helps chip away at the affordability problem by removing some fat from the system.

Investor Considerations: For investor owners (landlords), the calculus is a bit different. On one hand, low vacancy and high rents mean good rental yields and possibly the ability to raise rents (though there are ethical and legal considerations in doing so). On the other hand, sharply higher interest rates over 2022–2023 have squeezed landlords with variable loans, turning what were once profitable investments into cash-flow-negative assets unless rents were hiked. Some “mum and dad” investors are choosing to sell, which in a tight market could actually be an opportunity for first-home buyers to purchase those ex-rental properties. Investors also have to watch out for potential policy changes – for instance, some jurisdictions have discussed rental freezes or increased tenant protections due to the rental crisis. All of this means property owners must stay agile and informed. The days of assuming you can easily name your price and find a buyer or tenant are gone; in 2025’s market, strategy matters whether you’re selling or renting out.

The housing affordability crunch in Australia did not arrive overnight, and no single policy or quick fix will solve it. Experts agree that a multi-pronged approach is needed to restore some balance to the housing market. Here are some key solutions and initiatives under way or proposed:

• Boost Housing Supply: Increasing the supply of dwellings is the cornerstone of any long-term affordability strategy. Governments at all levels are now focusing on ways to spur construction. The National Housing Accord’s target of 1.2 million new homes by 2029 is an ambitious step in this direction. To achieve it, policymakers are looking at speeding up development approvals, investing in infrastructure to unlock new land releases, and even directly funding builds. For example, the federal budget for 2025–26 expanded programs like Help to Buy (a shared-equity scheme) and committed funding for more social and affordable housing units. Some states are also pitching in: Victoria has announced stamp duty cuts for first-home buyers on new homes and off-the-plan purchases, aiming to stimulate construction and sales of more affordable dwellings. Additionally, there’s growing support for build-to-rent developments (where developers get incentives to build rental housing) to increase rental supply. While meeting the 1.2 million homes target is a tall order – current forecasts suggest we’ll fall short by hundreds of thousands of homes without significant changes– even approaching that goal would help ease pressure over time. More supply means more choice, less competition for each home, and ultimately a moderation in price growth.
• Streamline Construction and Reduce Costs: Hand-in-hand with boosting supply is the need to tackle the factors slowing down construction. This could involve cutting red tape in planning approvals, adopting faster building methods, and addressing labour shortages through training and skilled migration. There are calls to modernize construction by using modular and prefabricated techniques to speed up builds. In New South Wales, for instance, initiatives like pre-approved “pattern plans” for homes aim to shorten approval times and encourage more cost-effective designs. Likewise, efforts to recruit and train more apprentices in trades, and to improve productivity on work sites, will be key to ramping up housing delivery without simply inflating costs. Government and industry bodies are collaborating on ways to bring construction costs down – if building a home becomes cheaper or faster, those savings can eventually be passed to buyers and renters. Cutting the average build time (currently 1.5–2+ years) back toward historic norms would help clear the supply backlog sooner.
• Targeted Financial Assistance: In the short term, targeted support can help lower the barriers for first-home buyers. The First Home Guarantee (allowing 5% deposits) and similar low-deposit or shared equity schemes (like the NSW and VIC shared equity pilots) reduce the upfront deposit hurdle that has grown so daunting. These programs enable qualified buyers to enter the market sooner, though as discussed, they must be paired with supply measures to avoid merely bidding up prices. Some states offer first-home buyer grants or stamp duty exemptions on lower-priced properties – policies that can save new buyers tens of thousands of dollars. There are also moves to replace upfront stamp duty with annual land taxes in some regions (ACT is phasing this in, and NSW has given first-home buyers a choice), which can help ease the initial cash burden of buying a house. For renters, governments have boosted Commonwealth Rent Assistance in recent budgets to provide some relief to low-income tenants, although this too is essentially a Band-Aid unless rental supply improves.
• Innovative Ownership Models: High prices are spurring innovation in how people attain home ownership. Shared equity models (where an investor or government owns part of the property and the occupant buys the rest) are gaining traction – these can halve the cost of entry for buyers, in exchange for sharing the appreciation later. Community land trusts and co-operative housing (where land is held by a trust to keep it affordable and only the house is paid for) are other creative solutions being explored to create more affordable owner-occupier housing. While these models are not yet widespread, they underscore the willingness to think outside the box on housing. Even private sector startups are proposing new approaches, like rent-to-own schemes or crowd-funding deposits, to help break the gridlock for younger buyers. Each of these ideas faces challenges and won’t apply to everyone, but together they form part of a broader toolkit to tackle affordability.
• Policy Reform and Political Will: Ultimately, improving housing affordability will require sustained political commitment and some tough policy decisions. This could include revisiting tax settings (for instance, winding back investor tax concessions) to dampen speculative demand, and redirecting those resources into housing supply and infrastructure. It also means investing in social housing for society’s most vulnerable – the federal government’s recent pledge to build tens of thousands of new social and affordable homes is a start, but the scale of need is much larger (waiting lists for public housing have ballooned in many states). Rental market reforms could offer tenants more security (longer leases, rent increase limits) so renting is less precarious, even if buying remains out of reach for now. None of these reforms are easy – they require coordination between federal, state, and local governments, and they can be politically contentious. However, without structural changes, we risk each generation inheriting the same problem, or worse.

The encouraging news is that housing affordability has become a national priority in a way it hasn’t been for decades. Both federal and state governments in 2025 are openly acknowledging the crisis and proposing solutions, whereas in the past the topic was sometimes brushed aside. If these efforts translate into concrete action – more cranes on the horizon, smarter regulations, and support for those struggling – there is hope that over the coming years home prices might at least steady relative to incomes (indeed, forecasts expect the price-to-income ratio to inch down to ~7.7 by 2027). A broad-based, long-term strategy is the only way to ensure housing in Australia returns to a level where the average young family can realistically aspire to buy a home, and where renting is a stable second option rather than a trap.

Australia’s housing affordability crisis didn’t happen overnight, and it won’t be fixed overnight either. It’s the result of decades of undersupply, robust demand, and policy missteps converging to push the Great Australian Dream out of reach for many. The data is sobering – prices at record highs, households devoting half their income to mortgages or rents, and younger generations feeling locked out. Yet, there are reasons for optimism. Recognition of the problem is spurring action: governments are setting bold housing targets, industry is looking for faster ways to build, and everyday Australians are finding creative workarounds from co-buying with friends to selling homes commission-free online.

While there’s no silver bullet, boosting housing supply is paramount to easing the squeeze. If we can build enough homes (and the right types of homes) to meet the needs of our growing population, competition will ease and prices should stabilize relative to incomes theguardian.com . In tandem, smarter demand-side policies and innovative financing models can help more people access housing without simply inflating prices. Most importantly, the conversation has shifted: housing is now viewed not just as an investment or a commodity, but as essential infrastructure for a good life. Ensuring that teachers, nurses, tradespeople – indeed, all hardworking Australians – can afford a decent home is fundamental to our nation’s wellbeing.

The road ahead will require sustained effort and collaboration across governments, communities, and the property industry. But with the collective will to implement reforms, increase transparency, and embrace new solutions, Australia can begin to turn the tide on housing affordability. It’s a challenge we must tackle together – so that owning or renting a home is a source of stability and pride, not stress and despair.