Is Australia on the right track for housing affordability?

For the past few years, a surge in the housing demand sent prices skyrocketing to new heights – particularly in Melbourne and Sydney as home buyers scrambled to get a hold of what was a limited supply of dwellings.

Home prices

However, there seems to be a change in the air as an unprecedented volume of new homes has started pacifying the swelling prices, thereby improving the housing market’s affordability.

Housing Industry Association principal economist Tim Reardon said the drop in home prices, especially in Sydney and Melbourne, is one indicator that affordability is improving across Australia. He pointed out, however, that the stalling of rental price inflation in the June quarter this year is the most important indicator as it can signal that the demand for new housing is closer to being met.

“The fall in house prices will dampen demand for new housing over the next 12 months. Add to this, the proliferation of punitive taxes on investors in the housing market, disincentives to overseas buyers and tighter oversight of mortgage lending for home purchases and the environment for residential building is facing significant challenges,” he said.

In fact, detached housing starts in the March quarter clocked the highest results in 18 years. The market is on track to reflect another strong number once the June quarter figures are in.

“On this basis, it now looks like we will round out the 2017/18 year with over 120,000 detached house starts. This would be the strongest four-quarter performance for the sector since the mid-1990s,” he said.

As affordability improves, Reardon said the most significantly affected segment will be the apartment markets in metropolitan areas. However, Reardon predicts the housing market to cool down over the next couple of years as well. While the down cycle has already started – especially in the bigger housing markets – he believes certain segments and locations will only see a moderate impact.


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