Good news! Housing is getting more and more affordable

Strong income growth, softer house prices and a more positive interest rate outlook suggest housing affordability will rise in the coming years, writes Stephen Koukoulas.

One of the main policy objectives of the Albanian Government is to increase housing affordability. It does this to encourage and make it easier for existing tenants to purchase their own home, and in the process lock in the pillar of financial security and economic prosperity for more Australians.

The scope of policy changes is expected to increase over time hostingreversing the decline that has been evident over the last few decades.

shawl policy changes The reasoning behind this move is well known, and in some cases it will take several years to fully come into effect. Discouraging investors, increasing housing supply and reducing red tape in the construction industry will not contribute much to affordability in the near term, but will have a huge impact in the medium and long term.

How is housing affordability measured?

The concept of housing affordability is well understood and relatively easy to convey. There are three main factors behind this: house prices, household incomes and interest rates. improved affordability It makes it financially easier for first home buyers and others to purchase a home.

The deterioration in housing affordability over the past 15 to 20 years has been largely driven by house prices rising at a pace that exceeds household income, and the level of interest rates today is well above the average since 2010.

It is clear that changes need to be made to the trend movement in these variables to improve affordability.

In any given order or order of magnitude, there needs to be a reasonably long period (several years) during which incomes rise faster than the change in house prices, but it helps if interest rates remain steady or fall. Some permutations of these may see increased affordability; For example, if house prices can rise, but incomes are rising faster and interest rates are falling steadily, affordability will still improve.

maintenance is possible and probably desirable. financial stability As long as incomes rise faster, home prices do not fall too much to increase affordability.

Where are we now?

Although it is still very early on the path to increased affordability, recent trends are positive and encouraging.

Household incomes are growing at a rate of 4-5 percent annually; Nationally, house price growth began to weaken in early 2026 and has increased in recent months. prices are falling The pace of price increases is slowing markedly in other capital cities and regional areas, particularly in Sydney, Melbourne and Canberra.

Three interest rate increases by the Central BankRBA) Throughout the first half of 2026, monetary policy moves, although aimed at broader inflation pressures, have thwarted the improving trend in affordability. showing signs from getting to the top.

Next 12 to 36 months

Housing affordability is expected to improve significantly over the next few years.

Growth in household disposable income is solid; Wage increases and income tax cuts are the main factors contributing to this good news. While the outlook is for the pace of wage growth to moderate as the economy slows, increases in minimum wages and bonuses and skills shortages in some regions will support incomes.

At the same time, house prices will likely fall further as an increase in supply (new construction plus additional listings), a decrease in demand (slowing population growth), and probably most importantly, a further increase in the unemployment rate, negatively impact prices. The decline in investor activity triggered by tax changes is likely to be largely offset by an increase in first home buyer demand.

The question of the outlook for interest rates is always complex and changing. Recall that as recently as August 2025 the RBA cut interest rates and money markets priced in further rate cuts. This picture has been clearly overshadowed by a series of inflation-positive events, including US/Israeli attacks on Iran and the RBA’s retaliatory response to reverse all cuts in 2025.

This shows how quickly and frequently the interest rate question can change.

Suffice it to say, current market prices It has all but ruled out the possibility of another interest rate hike from the RBA and is starting to price in the start of the rate-cutting cycle in 2027 and 2028.

If these market prices are generally close to the target, interest rates will provide an extra boost to more affordable prices.

All together, these trends point to the stage set for a sharp and potentially long-lasting recovery in housing affordability.

If so, you can expect to see a significant increase in homeownership rates, reduced demand for rental properties, and a period of fairer opportunities for homeownership across generations. This is a good story.

Stephen Koukoulas is one of Australia’s most respected economists, the former chief economist of Citibank and senior economic advisor to the Australian Prime Minister. You can follow Stephen on Twitter/X @TheKouk and in Bluesky @thekouk.bsky.social.

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