A small improvement in housing affordability has offered some relief to Australian buyers, but the latest industry assessment suggests the reprieve may not last. Softer dwelling prices helped conditions improve across many markets during the September quarter. Even so, homes remain considerably less affordable than they were a year earlier, and the underlying shortage of housing continues to place pressure on households hoping to enter the market.
The Housing Industry Association’s latest Affordability Report highlights the difference between a short-term improvement and a genuinely affordable housing system. Households across both capital cities and regional markets still need the equivalent of 1.8 average incomes to comfortably service a mortgage on a median-priced dwelling. HIA senior economist Tom Devitt notes that a home regarded as affordable should be serviceable on one average income, rather than requiring nearly two.
That gap illustrates the challenge facing many prospective purchasers. A couple with two incomes may have greater borrowing capacity, but maintaining mortgage repayments can still involve significant sacrifices. Single-income households, first-home buyers and people with limited savings may find the entry barrier particularly difficult. A modest price reduction does not necessarily translate into a manageable purchase when deposit requirements, interest expenses and other living costs are considered.
Brisbane recorded the strongest quarterly affordability improvement among the markets identified in the report, with a 5.6% gain. Perth followed with a 5.2% improvement, while Sydney recorded a 4.9% gain. These figures suggest that weaker prices have helped restore a degree of purchasing capacity in some large cities. However, the improvements need to be measured against the significant deterioration in affordability experienced over the preceding year.
Not every region moved in the same direction. Affordability worsened by 3% in regional Northern Territory, 1.5% in regional South Australia, 0.7% in Darwin and 0.4% in regional Tasmania. Those declines show that a national trend can conceal very different local outcomes. The cost of housing relative to household earnings depends on the interaction of prices, income and financing conditions in each location.
Devitt believes the improvement across many markets could be brief because the fundamental imbalance between demand and supply has not been resolved. His assessment is that approximately 11 million households are competing for only 10 million homes in Australia. With population growth expected to add further demand, the pressure on available housing could intensify unless construction and overall supply increase sufficiently to keep pace.
The shortage affects both renters and buyers. When there are too few homes available, households compete for existing properties even if their budgets are stretched. High rents can also make it difficult for prospective purchasers to save a deposit. At the same time, families who cannot find a suitable home to purchase may remain in rental accommodation for longer, adding to demand in that part of the market.
Falling prices can temporarily improve the relationship between income and housing costs, but the benefit may be uneven. Buyers still need loan approval, adequate savings and confidence that repayments will remain manageable. Changes in interest rates can affect the amount a bank is prepared to lend, sometimes offsetting the advantage of a lower purchase price. That is why affordability involves more than tracking the median value of houses and apartments.
Devitt warns that when confidence eventually returns, dwelling prices may start climbing again. If demand picks up while the number of available homes remains constrained, buyers could find themselves competing more aggressively for limited stock. Under those circumstances, the recent affordability improvements may reverse and the gap between property costs and household incomes could widen again.
A lasting improvement would require more than a temporary pause in price growth. Delivering homes that meet different budgets and household needs is central to easing pressure. Apartments, townhouses and smaller dwellings can provide entry points in established areas, while appropriate infrastructure and services are needed to support additional development. The timing of construction, however, means supply responses rarely provide instant relief.
For potential buyers, the quarterly changes create a reason to reassess options rather than assume every property has suddenly become affordable. Comparing recent sales, calculating ongoing costs and setting a conservative repayment limit can help households make more informed decisions. Location, building quality and suitability for future needs should remain priorities even when a seller is prepared to negotiate.
Regional affordability also deserves close attention because lower headline prices do not always mean homes are easier to finance. Local income levels can be different from those in major cities, while fewer suitable properties may restrict choice. Looking at repayment capacity relative to earnings gives a clearer picture than comparing property values alone.
The September quarter results are encouraging in Brisbane, Perth and Sydney, but they do not remove the broader challenge identified by the HIA. With 1.8 average incomes still needed to service a typical mortgage and demand continuing to outstrip housing supply, affordability remains fragile. Without sustained progress on the number and suitability of available homes, the recent gains could prove temporary.
