Are there any affordable homes left in Australia?

Twenty years ago, almost all houses and apartments sold in Australia were priced under $500,000. Ordinary families routinely bought houses on quarter-acre blocks and only the affluent elite were buying real estate above the million-dollar mark. At the time, we called them ‘millionaires’ and the term meant uber-wealth.

Over the next decade-and-a-half, the magnitude of change to home values was immense. After a period of very strong price growth over the 2000s and early 2010s, only 50 percent of the housing stock was selling below the half-million mark by 2015. And today, the proportion of homes selling below $500,000 has hit an all-time low at 24 percent of houses and 39 percent of apartments, according to a report by Ray White. Many families are adopting apartment living due to affordability constraints, and first home buyers in Sydney and Melbourne are routinely purchasing starter homes for $1 million or more.

Australia has not always been a rapid-growth property market. Price growth was extremely subdued between 1880 and the 1950s. Prices began moving up in the post-WW2 era due to accelerated population growth and the end of government property price controls in 1949, explains PropTrack economist Paul Ryan. Then came the credit boom after Australia’s finance industry was deregulated in the 1980s and 1990s. Ordinary citizens en masse were able to access funding to buy their own homes, and property prices have grown exponentially ever since, with one of the biggest spikes in values occurring in the late 1990s and early 2000s.

Sydney has been the powerhouse of Australia’s property price growth over the past two decades, with the median value of a house now exceeding $1.1 million. Nerida Conisbee, chief economist at Ray White, says that over the past 12 months, less than 10 percent of all Sydney properties sold for less than $500,000. “Affordability is better in regional Australia, however, finding a low priced home in regional NSW is getting particularly difficult,” Ms Conisbee said. “Well under a third of all properties are now priced under $500,000.”

Nerida Conisbee says regional areas represent greater affordability for buyers, but that is starting to change.

Over time, property prices in large regional towns with good road access to Sydney have boomed as people accepted a commuter lifestyle in exchange for the affordability that regional NSW offered. Today, those satellite cities are expensive themselves. For example, the median house price in Wollongong is $975,000, and on the Central Coast it is $890,000, according to CoreLogic data. A similar phenomenon has occurred in Victoria. The pandemic brought about the work-from-home era, which prompted many people to leave Australia’s two most expensive cities – Sydney and Melbourne – for more affordable markets, pushing up prices significantly in regional areas across the country.

Over the past five years, a change has occurred across the capital cities, with the two most affordable cities recording the strongest price growth. CoreLogic data shows Hobart house values have grown the most over the five years ending 31 July, with a 62.5 percent uplift to the median house price to $710,000, followed by Adelaide with a 46.7 percent increase to a median of $675,000.

Today’s rental crisis and the ongoing affordability challenges faced by young people have caused much political debate about how to boost Australia’s housing supply as quickly as possible. History shows that new supply is the key to keeping property prices affordable, and many experts argue that new high-density housing in areas with established infrastructure such as roads and services is the fastest way to provide more housing for the country’s rapidly growing population.

Ms Conisbee points out that high levels of apartment development in certain markets have kept prices more affordable. “Places where we have seen extremely high levels of apartment development have the most availability of low priced apartments,” Ms Conisbee said. “Gold Coast and Melbourne are expensive places to buy houses but there are a lot of low priced apartments in Melbourne CBD, Surfers Paradise and Southport.

“For houses, a strong development pipeline has kept outer Perth cheap with Baldivis and Armadale having the most houses being sold under $500,000 over the past 12 months. Canberra’s rapid building program has meant that the proportion of apartments sold under $500,000 drastically exceeds the number of houses sold under this price point.”

For decades, Australia has leaned into its reputation as the lucky country. But luck, as it turns out, is not an economic strategy.

What once looked like resilience now appears increasingly fragile. Beneath the surface of rising property values and steady headline growth, the Australian economy is showing signs of strain that can no longer be ignored.

Recent data paints a sobering picture. Australia has recorded one of the largest declines in real household disposable income per capita among advanced economies.

Wages have failed to keep pace with inflation, meaning many Australians are working harder for less. On a per capita basis, income growth has stalled and, at times, reversed.

And yet, on paper, things still look relatively solid. GDP is growing. Unemployment remains low. But that growth is increasingly being driven by population expansion rather than productivity.

More people are contributing to output, but not necessarily improving living standards.

That distinction matters.

For years, Australia’s economic success rested on a powerful combination: a once-in-a-generation mining boom, a credit-fuelled housing market, strong migration and a property sector that rarely faltered. Between 1991 and 2020, the country avoided recession entirely, building enormous wealth in the process.

But much of that wealth is tied to property. Around two-thirds of household wealth sits in real estate, inflated by leverage and sustained by demand. It has worked, until now.

The problem is the supply side of the economy has not kept up.

Housing supply is falling behind population growth. Rental vacancies are near record lows.

Construction firms are collapsing at an elevated rate. At the same time, massive infrastructure pipelines are competing with residential projects for labour and materials, pushing costs higher and delaying delivery.

The result is a system under pressure from all angles.

Despite near full employment, productivity growth has stagnated for years. In simple terms, Australians are putting in more hours without generating more output per hour. The economy is running faster, butgoing nowhere.

Meanwhile, government spending continues to expand. Public debt is approaching $1 trillion, with spending now accounting for a record share of GDP.

The gap between spending and revenue has been filled by borrowing for decades, adding further pressure to an already stretched system.

This is where the uncomfortable question emerges.

Has Australia become too reliant on a model driven by rising property values, expanding credit and population growth?

As asset prices rise, households feel wealthier and borrow more. Banks lend more. Governments collect more revenue. Migration fuels demand. The cycle reinforces itself.

But when productivity stalls and debt outpaces real income, the system begins to depend on constant expansion just to stay stable.

It is not a collapse scenario. But it is not particularly stable either.

Nowhere is this more evident than in housing.

The National Housing Accord targets 1.2 million new homes over five years, yet current completion rates are well below that pace. With approvals falling and construction costs rising, the gap between supply and demand is widening, not narrowing.

Housing is also one of the largest contributors to inflation, with costs rising sharply across rents, construction and utilities. Yet the private sector, from small investors to major developers, is struggling to make projects stack up in the current environment.

This brings the policy debate into sharper focus.

Tax settings such as negative gearing and capital gains concessions have undoubtedly boosted demand over the past two decades. But they have also supported supply. Removing them may ease prices briefly, but risks deepening the supply shortage over time.

That is the paradox.

Policies designed to make housing more affordable can, in practice, make the shortage worse if they discourage development. The optics may appeal, but the economics are far less forgiving.

It is also worth remembering that most property investors are not institutional players. The majority own just one investment property. They are, in many cases, ordinary Australians using real estate as their primary wealth-building tool.

Undermining that system without replacing it with a viable alternative risks unintended consequences, from reduced supply to higher rents and increased inflation.

So where does that leave Australia?

At a crossroads.

The country can continue to rely on population growth and rising asset prices to drive economic activity. Or it can shift towards a model built on productivity, innovation and sustainable growth.

The latter is harder. It requires structural reform, long-term thinking and political discipline.

But it is also the only path that leads to genuine, lasting prosperity.

The question is no longer whether Australia has been lucky.

It is whether it can evolve before that luck runs out.

Paul Miron is the Co-Founder & Fund Manager of Msquared Capital.

Are there any affordable homes left in Australia?

Only one in four Australian houses sell for less than $500,000 today

As housing drives wealth and policy debate, the real risk is an economy hooked on growth without productivity to sustain it.