Housing affordability crisis deepens as prices outpace income growth by significant margin
Analysis by the Australia Institute’s Greg Jericho indicates that recent budget reforms to capital gains tax and negative gearing are insufficient to reverse decades of unaffordability, with a hypothetical 10 per cent price drop only restoring conditions to three years ago.
Australian Bureau of Statistics data for the March quarter 2026 underscores a widening disparity between housing costs and household earnings, with average dwelling prices rising 2.1 per cent in the quarter and 10.3 per cent annually, while household disposable income increased by just 0.8 per cent. The figures highlight a market where price growth continues to significantly outstrip income growth, compounding affordability pressures across the nation.
Western Australia recorded the most dramatic surge, with dwelling prices rising 25 per cent over the past year. This acceleration has pushed Perth’s median house price above $1 million, placing it alongside Sydney, Canberra, and Brisbane as cities where the million-dollar threshold has been breached. Adelaide’s median price is also reported to be close to the same mark, indicating that the price boom is no longer confined to traditional coastal hubs.
Greg Jericho, chief economist at the Australia Institute, noted in an analysis published in The Guardian that these trends represent a continuation of 26 years of declining affordability. He calculated that if housing prices remained relative to income at 1999 levels, the average home would cost approximately $595,500, compared to the current average of $1.11 million. At the start of the current quarter, the average dwelling price was equivalent to 17 years and four months of per-capita household disposable income, a stark contrast to the nine years and four months recorded in 1999.
The May 2026 budget introduced measures to end the 50 per cent capital gains tax discount and restrict negative gearing, with exceptions for new builds. Jericho argued that while these changes represent a necessary step to address market distortions, they are insufficient to fully rectify the long-term trend. He pointed out that even a hypothetical 10 per cent fall in house prices would only reduce the price-to-income ratio from 17 years and four months to 15 years and seven months, effectively returning affordability levels to those seen three years prior.
Jericho criticised previous government interventions, including first home buyer grants and the HomeBuilder program, for adding demand to a market already skewed by investor incentives. He stated that the removal of the capital gains tax discount was the first attempt in over a quarter of a century to truly address the structural issues driving unaffordability, though he cautioned that the road to repair remains long given the scale of damage accumulated over the past 26 years.