Housing affordability set for sharpest improvement in decades as prices correct
Reserve Bank of Australia and ANZ forecasts suggest median dwelling costs will fall from 17.3 to 14.7 years of household income by late 2027, marking the most significant two-year gain in affordability since 1970.
Australian capital city house prices are projected to fall by an average of 10.6 per cent over 2026 and 2027, following the implementation of policy changes including the removal of the 50 per cent capital gains tax discount and negative gearing. The Reserve Bank of Australia and ANZ forecast that this market correction will significantly improve housing affordability, reducing the median dwelling cost from 17.3 to 14.7 years of average household disposable income by the end of 2027.
ANZ research provides specific projections for capital cities, forecasting falls of 14.5 per cent in Sydney, 12.8 per cent in Melbourne, 7.9 per cent in Brisbane, 9.8 per cent in Adelaide, and 5.2 per cent in Perth by the end of next year. Using Australian Bureau of Statistics figures, the projected decline in Sydney would reduce the median house price from $1.56 million at the end of 2025 to $1.33 million, a level last seen in 2023 but still 40 per cent higher than June 2020 values.
Opposition leader Angus Taylor characterised the projected price decline as a market crash, describing it during question time as the worst downturn in more than four decades. Taylor argued the trend makes homeowners worse off, while property agents have suggested the economy is entering a property recession. The article, authored by Greg Jericho, argues the decline represents a necessary correction to address the root causes of unaffordable housing, contrasting it with previous government inaction.
The Reserve Bank’s latest Statement on Monetary Policy contains predictions extending to the end of 2028. When combined with ANZ projections, the data suggests a 4.3 per cent price increase in 2028 following the 2026-2027 dip. This trajectory indicates the biggest two-year improvement in housing affordability since 1970, reversing a long period where income growth failed to outpace property values.
Commonwealth Bank reported a $10.9 billion profit for 2025-26, an increase of 7 per cent, but warned of potential difficulties for 2026-27 following three interest rate rises and the new policy environment. The bank’s warning coincides with the broader market adjustment, highlighting the shift in conditions for lenders and borrowers alike as the market seeks a new equilibrium.
The correction marks the first time in 25 years that an Australian government has acted on the premise that house prices must fall to improve affordability. Previous attempts to address the issue focused on income growth relative to prices, a strategy that proved ineffective when median prices in Sydney were $605,000 higher than in mid-2020. The current policy framework targets the structural drivers of price inflation directly.
While the correction does not undo 25 years of price growth, it represents a significant shift in market dynamics. The projected affordability gains suggest a return to more sustainable levels, albeit from a high base. The data indicates that while prices remain elevated compared to pre-2020 levels, the rate of increase has slowed, allowing household incomes to begin catching up with dwelling costs.
