Australia's Housing Crisis: Why It's So Bad and What We Can Do

Just when you think it couldn't get worse, it does. Housing affordability in Australia has reached a record low, leaving millions of people wondering if they'll ever be able to own a home or even find an affordable place to rent.

Why has it become so difficult? This guide will dive into the latest data to uncover the key drivers of the housing affordability crisis and explore the potential solutions that could help everyday Australians.

How is the housing crisis affecting Australians in 2025?

The housing crisis isn't just a headline; it's a harsh reality impacting different groups in different ways.

For Renters

Rental affordability has sharply worsened across Australia since 2021, hitting record lows in Sydney, Melbourne, Brisbane, Adelaide, and Perth. In a surprising turn, Perth has seen the steepest decline in affordability, dropping by 13% and overtaking Sydney as the least affordable city to rent in.

For a detailed local perspective, the interactive map from SGS Economics & Planning is a fantastic tool. It shows, for example, that there is nowhere in the Greater Sydney area considered affordable for a pensioner couple.

For First Home Buyers

Aspiring homeowners face an endless series of hurdles. Stagnant wage growth and rising living costs have eroded their ability to save, while soaring property prices continually shift the goalposts for a 20% deposit.

Even for those who manage to save a deposit, the challenge isn't over. Rising interest rates since 2022 have slashed borrowing capacities by as much as 30%, meaning many are unable to borrow enough to actually purchase a property.

For Existing Homeowners

For those who managed to break into the market, a different kind of pressure is mounting. Mortgage rates are now at their highest since 2011, with some families spending 50% more on repayments than they were just two years ago.

New research from Roy Morgan shows a staggering 26.8% of mortgage holders are now at risk of mortgage stress. That's an increase of 707,000 households since the RBA began its cycle of interest rate hikes in May 2022.

And while established homeowners have seen their property values rise, for most, this is just "paper wealth." Their home is a necessity, not an asset they can easily sell for profit, so the increased equity doesn't translate to an improved financial situation.

What are the root causes of the housing crisis?

The crisis is a complex issue stemming from factors on both the demand and supply side.

The Demand Side: Cheap Money and High Migration

• Low Interest Rates: For the better part of two decades, Australia has experienced persistently low interest rates, hitting a historic low of 0.1% during the pandemic. This cheap money made borrowing easier and fuelled a surge in property prices, with national home values increasing by 39.9% from March 2020 to March 2024.
• High Immigration: After the borders reopened in February 2022, Australia experienced a period of record net overseas migration. According to the Australian Bureau of Statistics (ABS), the population grew by 536,000 people from migration in the 2023 financial year, and another 446,000 in the 2024 financial year. This influx created unprecedented demand for housing, particularly in the rental market.

The Supply Side: Land, Culture, and Costs

• Geographical Constraints: While Australia is a vast continent, 87% of Australians live near the coastlines, with over half the population concentrated in just three cities: Sydney, Melbourne, and Brisbane. This intense competition for properties in major urban centres drives up prices.
• Cultural Preferences: Unlike countries that embrace high-density living, Australians often prefer suburban lifestyles with detached housing. This has led to sprawling cities with limited housing stock in prime, well-located areas.
• Community Resistance ("NIMBYism"): Local communities frequently oppose high-density developments in their neighbourhoods ("Not In My Back Yard"), leading to delays and cancellations of projects that could increase housing supply.
• High Construction Costs: Builders are grappling with rising material costs, labour shortages, and project delays, making it harder to deliver new housing on time and within budget.
• Government Policies: Tax policies like negative gearing and capital gains tax concessions have incentivised property investment, increasing competition and often putting first home buyers at a disadvantage.

What are the potential solutions to the housing crisis?

Tackling this crisis requires a multifaceted approach from both government and individuals.

What Needs to Be Done?

• Increase Housing Supply: This is critical. It requires faster planning approvals, incentives for developers, and zoning law reforms to allow for more medium and high-density developments in well-located areas.
• Address Construction Costs: Investing in training programs for the construction industry and streamlining supply chains can help reduce costs and delays.
• Manage Immigration: While vital for economic growth, immigration levels must be managed in a way that aligns with the country's capacity to house its growing population.
• Consider Tax Reforms: Adjusting policies like negative gearing could help level the playing field between investors and first home buyers.

What Can You Do?

• For Aspiring Homeowners: Look into more affordable regional areas, focus on strict budgeting to build savings, and explore government assistance programs that can help you accumulate a deposit faster.
• For Existing Homeowners: Don't settle for your current mortgage rate. Shopping around for a better deal and refinancing can significantly ease the burden of rising repayments.