Economic Insights: Housing Affordability in Crisis — And What It Means for Australia

For decades, Australians have wrestled with the challenge of accessing affordable housing. But what used to be a cyclical issue — often tied to shifting interest rates — has now become a chronic structural problem. According to Dr Shane Oliver, national home prices are now at record highs, pushing housing affordability to a record low.

This isn’t just about numbers. The decline in affordability is reshaping home-ownership patterns, entrenching inequality, and eroding what many consider the “Aussie dream” of owning one’s own home. As we dig into how we got here, and what might help, it becomes clear there are no easy, quick fixes — but there are paths forward.

How Did We Get Here? A Quick Recap

Prices Have Surged While Wages Lagged

Over the past two decades, property values have grown disproportionately compared to average wages and household incomes. The ratio of dwelling prices to wages—and to household income—has more than doubled since 2000. With the recent rebound in prices, both measures are now at all-time highs.

What this means in practical terms is stark: the time required to save a deposit for a home has more than doubled over the last 30 years. According to AMP’s data, saving for a 20% deposit now takes around 11 years for the average earner.

Even though many first-time buyers enter with just a 5% deposit, that often means taking on 95% debt. That’s a heavy burden — and a risky one — especially given how many people are locked out of home­ownership altogether.

Declining Home Ownership and Rising Inequality

Rampant price growth has not only made it harder to buy a home — it has also contributed to a decline in home ownership overall. Fewer people can afford to buy, and that trend exacerbates wealth inequality. Those who own property accumulate wealth; those who don’t — often renters — fall behind.

For many younger Australians, or those with modest incomes, getting into the property market is increasingly out of reach. Over time, that threatens social mobility and intergenerational equity.

A Persistent Supply–Demand Imbalance

So why is supply failing to keep up? According to AMP, the problem is three-fold:

• Firstly, interest rates dropped sharply from the high levels of the early 1990s to very low levels in recent years (especially pre-pandemic). That increased borrowing capacity and drove demand.

• Secondly, housing supply has not kept pace. For various reasons — from rigid regulation to construction capacity constraints — the number of new homes hasn’t risen sufficiently to match demand.

• Thirdly, a large proportion of the population is concentrated in a few coastal cities, putting extra pressure on limited housing in those areas.

The mismatch became glaring from the mid-2000s, when population growth (helped by rising immigration) surged, but dwelling completions failed to increase at the same rate.

In AMP’s estimation, this has resulted in a cumulative shortfall of somewhere between 200,000 and 300,000 dwellings in Australia.

Why “Quick Fixes” Won’t Work — And What Probably Would

When housing becomes unaffordable for most people, it’s tempting to look for quick solutions — grants for first-time buyers, incentives, tax breaks, or broad policy changes. But according to Dr Oliver, many of those options won’t do the trick — and may even make things worse.

For instance:

• Grants and concessions for first-home buyers might sound helpful — but they increase demand without addressing supply. That just pushes prices up further.

• Simply banning foreign purchases, or broadly overhauling investor tax incentives, misses the real point. Foreign/ investor demand has not been the main driver of the recent surge — supply shortage has.

• A huge expansion in public social housing also wouldn’t automatically solve affordability for most, because the broader supply problem remains. Building enough new homes — not just subsidised ones — is the core challenge.

Moreover, a crash in home prices might temporarily improve affordability — but that comes with enormous social and economic risk: a deep recession, rising unemployment, and widespread household debt stress.

What’s needed is more structural, sustainable change. Dr Oliver outlines four key levers that — collectively and over time — could begin to restore affordability.

The Four Key Ways to Improve Housing Affordability

1. Align immigration with housing supply capacity

   • The post-pandemic rebound in migration contributed to a rapid rise in population. But housing supply failed to keep up. To prevent exacerbating shortages, immigration intake needs to be more closely matched with the capacity to build new dwellings.

   • Dr Oliver suggests net immigration should be cut to around 200,000 people per year — a number more in line with the building industry’s capacity to deliver homes.

2. Boost actual housing supply (build more homes)

   • Governments recently committed to building 1.2 million new, well-located homes over five years — a welcome move.

   • But progress remains slow. One year in, only a fraction of those homes have been built, and annual approvals are well below what would be required to meet targets.

   • Without a massive, sustained push on homebuilding — especially dwelling completions — supply shortage will persist.

3. Encourage decentralisation

   • The concentration of people in a few major coastal cities puts extreme pressure on housing in those areas. Allowing for — and encouraging — population spread beyond major metros can help relieve demand pressure and support more balanced growth.

   • Decentralisation helps by redistributing demand across a wider geographic area, rather than intensifying demand in already-crowded urban centres.

4. Implement thoughtful tax reform

   • Current policies — including negative gearing and investor tax concessions — often distort demand without necessarily contributing to supply. While abolishing such measures outright may introduce other distortions and risks, there is a strong case for capping excessive use of tax breaks and ensuring they don’t undermine broader affordability efforts.

   • But most importantly: tax reform on its own won’t solve the problem — it must be part of a broader, multi-pronged approach.

Risks of Inaction — And Why This Matters for All of Us

Failing to address these structural issues won’t just keep housing out of reach for first-time buyers — it could worsen social inequality, increase homelessness, and entrench long-term disadvantage for renters and younger generations.

Home-ownership has historically been a key vehicle for building wealth and financial security. If housing continues to be unaffordable, that pathway becomes blocked for more and more people, widening the gap between those who own property and those who don’t.

Furthermore, high levels of household debt — especially for those entering the market with minimal deposits — increase the economy’s vulnerability. Any economic downturn, interest-rate spike, or job loss could leave many precariously exposed.

Conclusion — A Long Road Ahead, But Some Clear Directions

The housing affordability crisis in Australia is not new — but it has worsened significantly. What was once an intermittent issue tied to economic cycles has become a chronic structural challenge. As Dr Shane Oliver argues, solving it will require more than short-term fixes or stop-gap measures.

We need a long-term, coordinated effort that addresses both supply and demand: matching immigration to building capacity, dramatically increasing new dwelling construction, encouraging decentralisation, and reforming tax policies that distort demand.

There are no quick wins. But if Australia wants to restore the possibility of home ownership for younger generations — and ensure housing isn’t just a privilege for the wealthy — these are the paths worth pursuing.

This post is based on Housing affordability at a record low – here’s four key ways to fix it by Dr Shane Oliver, Head of Investment Strategy & Chief Economist, AMP (25 November 2025)