For the first time in 25 years, an Australian government actually did something about housing based on the idea that the only way to make houses more affordable is for house prices to fall. They stopped pretending there was another way.
For years, politicians liked to talk about how, if incomes rise faster than house prices, housing becomes more “affordable”. But let’s cut through all the shrubbery. When the median house price in Sydney at the end of last year was $1.56m – that’s $605,000 (63%) higher than it was in the middle of 2020 – getting income to rise a bit faster than prices was not going to do much at all. Prices needed to fall.
The way the market was set up was just helping those with property and those making stonks of money lending out ever larger mortgages. There’s a reason why Commonwealth Bank yesterday reported a bumper $10.9bn profit for 2025-26 (up 7%) and yet was warning things might not be so good for 2026-27.
Price Falls Projected
And that’s because, after three interest rate rises and a government finally willing to undo the damage of the 50% capital gains tax (CGT) discount and negative gearing, prices have actually begun to fall. It speaks to just how pathetic every attempt since 2000 to address the decline in housing affordability has been that only now, after tackling the CGT discount and negative gearing, are there headlines about price falls.
The big one this week is ANZ research suggesting that by the end of next year prices in capital cities across the country will have fallen 10.6%, with falls of 14.5% in Sydney. Horror show! Or so the leader of the opposition, Angus Taylor, would have you believe.
On Tuesday he opened the first question time of this sitting period by asking the prime minster: “The ANZ bank today reports Sydney house prices could fall by almost 15%, the worst crash in more than four decades. Will the prime minister finally admit Labor’s broken promises on capital gains tax and negative gearing have made millions of Australian homeowners worse off?”
Context of the Falls
My goodness, the worst “crash” in four decades! Not to be outdone, one property agent suggested we are in a “property recession”. I guess it’s time to start getting the kids to gather at the feet of gen Xers to hear them talk about the dark days of the early 1990s. Please.
First off, “property recession” is not a thing. Let’s not make up terms just because real estate agents’ profits have taken a hit. But more seriously, let’s look at those price fall projections by the ANZ that have Taylor’s jimmies so rustled.
ANZ on Tuesday forecast Sydney house prices over the next two years would fall 14.5% from the peak at the start of this year, 12.8% in Melbourne, 7.9% in Brisbane, 9.8% in Adelaide and 5.2% in Perth. Using the ABS figures for median house prices, that would take the median price for a house in Sydney from $1.56m at the end of last year to $1.33m. That’s all the way back to 2023 prices – and still $379,000 (40%) higher than they were in June 2020.
The projected fall in Brisbane wouldn’t even take away a year’s worth of price increases, and in Adelaide the price drop would still leave the median price 80% higher than they were in the middle of 2020. When prices have risen so fast for so long, a 10.6% average price fall over two years across the country is not something to panic about. Rather it is finally an end to madness.
Improvement in Affordability
But here’s the thing: yes, ANZ forecast prices will fall 10.6% over 2026 and 2027, but then in 2028 they forecast a 4.3% increase. In the grand scheme of things it is barely a dip, let alone a crash or recession. But it will mean the cost of a house in terms of household incomes will finally begin to go down.
On Tuesday the Reserve Bank’s latest Statement on Monetary policy contained its predictions out to the end of 2028. Using these together with ANZ’s projections we can make a decent estimate for what the cost of the average dwelling in Australia will be in terms of years of average household disposable income. From a height of 17.3 years’ worth of annual income in the March quarter this year, we could see average dwelling prices fall to 14.7 years’ by the end of 2027 (before slightly rising in 2028). That would be the biggest two-year improvement in housing affordability going back to 1970.
Isn’t it amazing what a housing policy that actually tackles the cause of house prices can do? Obviously, it doesn’t undo 25 years of damage but it’s a nice start. And it’s a heck of a lot better than what we have seen before. For a government battling in the polls, it might be worth it pondering that showing what a government can do is rather more impressive than coming up with excuses for why it can’t.
