A household earning $125,000 a year, roughly the national median, could afford just 12% of homes sold across Australia in the 2026 financial year, the lowest share since modern records began in 1995. That figure sits below the previous trough of 14% recorded during the 2008-09 credit crisis, and marks the sharpest deterioration in access to ownership in a generation.
The collapse follows three consecutive rate increases by the Reserve Bank in February, March and May, which stripped tens of thousands of dollars from what buyers could borrow even as property prices eased later in the year. Analysis shows a single average-income borrower lost roughly $25,000 in borrowing capacity from the three hikes combined, while a dual-income couple forfeited around $49,000. Monthly repayments on a $600,000 loan climbed by approximately $272.
Why falling prices didn’t help
Home values did soften through the second half of the financial year, but the rate-driven hit to borrowing power moved faster and further. Prices have grown substantially faster than incomes over the past five years, so even a 10% correction from peak levels leaves affordability materially worse than it was three years ago. The policy tool designed to cool inflation, higher interest rates, has become the primary barrier to market entry, not price levels themselves.
Serviceability now consumes 35.5% of average household income nationally, the highest share since 1989 and above the 33.3% peak recorded during the previous financial crisis. A household saving 20% of its income needs roughly six years to accumulate a 20% deposit on a median-priced property, up from four years a decade ago.
Who this locks out
The impact concentrates at the bottom of the income distribution. Households earning $76,000 annually, around the 30th percentile, could afford just 2% of homes sold over the past year. Those on $65,000 could access only 1%. For these cohorts, the market isn’t difficult; it’s functionally closed.
First home buyers face a fundamentally different constraint today than entrants did during the last downturn. In 2008-09, the barrier was credit availability and labour market uncertainty. Today, it’s arithmetic: lending standards tie maximum loan size to disposable income after interest payments, and three rate rises in four months reduced that figure by double-digit percentages while prices adjusted by mid-single digits.
The state-level picture
Affordability deteriorated in every state during the financial year, but the pressure shifted geography. South Australia now ranks as the nation’s least affordable state, displacing New South Wales from that position for the first time in modern records. Property values there have more than doubled since early 2020, and mortgage repayments now claim 43.9% of average income, the highest of any state. Saving a deposit takes 7.4 years.
Victoria, by contrast, has become the most affordable state for the first time on record, helped by comparatively subdued price growth in Melbourne over the past two years. The inversion reflects how quickly rate sensitivity can override long-run price trends when borrowing capacity contracts this sharply.
In plain English
Affordability is usually framed as a price problem, but right now it’s a borrowing-capacity problem. When the Reserve Bank raises rates, it cuts how much a bank will lend you based on your income, regardless of what homes are listed at. Three hikes in four months reduced a couple’s maximum loan by $49,000. Even if prices fall 10%, you still can’t buy the home you could have bought 12 months ago, because the bank won’t lend you enough to match the asking price.
The policy trap
The Reserve Bank’s inflation mandate and housing policy goals now sit in direct conflict. Rate rises are the mechanism for controlling price growth across the economy, but they also function as the most immediate constraint on housing access for marginal buyers. Lower rates would restore some borrowing capacity, but risk reigniting price growth if supply remains tight, leaving affordability no better, and potentially worse, once prices adjust upward.
Without a material lift in housing completions, any near-term improvement is likely to be marginal. Construction approvals remain well below the volume needed to close the structural shortfall, and builder insolvency rates continue to rise. The supply pipeline has contracted even as demand from population growth accelerates, widening the gap between what the market needs and what it can deliver.
Scenarios that could shift settings
Three paths could improve access, each with trade-offs:
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Rate cuts restore borrowing power: The Reserve Bank eases policy as inflation moderates, returning $25,000-$50,000 in borrowing capacity to median-income buyers. Risk: if supply stays flat, prices rise to absorb the extra credit, leaving affordability roughly unchanged.
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Supply accelerates faster than demand: Construction completions lift materially above current levels, creating genuine price competition in undersupplied markets. Risk: current builder insolvency rates and labour shortages suggest this scenario is multi-year, not imminent.
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Income growth outpaces price growth: Wages rise faster than property values for a sustained period, improving the income-to-price ratio. Risk: this requires either a prolonged price correction or wage growth well above historical averages, neither looks likely in the next 12-18 months.
The base case is that affordability remains structurally worse than any point in the past three decades, with marginal improvements from rate cuts absorbed by price adjustments unless supply responds at scale.
What this means if you’re deciding whether to enter the market
If you’re a median-income household locked out today, waiting for prices to fall further won’t necessarily help unless rates also fall, and if rates fall, prices may stabilise or rise. The constraint isn’t what sellers are asking; it’s what a bank will lend you based on your disposable income after servicing a mortgage at current rates.
Run the numbers with a broker using your actual income and deposit, not list prices. Understand your maximum borrowing capacity at today’s rates, then model what happens if rates drop 0.25% or 0.5%, that’s the range of movement that could materially change what you can access. If you’re below the 30th income percentile, the market is effectively closed until either rates fall substantially or your income rises.
Housing supply constraints remain the structural issue beneath the rate story, but rate settings determine who can act on available stock in the short term. Track RBA commentary and lending data from APRA for early signals of serviceability easing, that’s the variable most likely to shift your position in the next six months.
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General info, not financial advice.
