Australian home affordability crisis deepens as salary requirements surge despite falling prices

The Australian housing market has engineered a peculiar trap: prices are falling, but homes are becoming harder to buy. New analysis from Canstar reveals the mechanism behind this paradox, and it centers on a single, relentless force—interest rates have climbed so steeply that the monthly cost of borrowing has overwhelmed whatever relief falling prices might have offered.

In Sydney, a buyer seeking an average-priced house now needs to earn $245,000 a year before tax just to pass a bank's serviceability test and qualify for a mortgage. That figure represents an $11,000 jump from the previous year. In Brisbane, the threshold sits at $185,000 annually—a $25,000 climb from twelve months prior. Melbourne has contracted the pool of affordable suburbs from 210 to 146 for a typical two-income household. Adelaide requires single buyers to earn $27,646 more than they did last year to purchase a median-priced house. These are not marginal shifts. They are structural barriers reshaping who can enter the market at all.

The Reserve Bank has raised its cash rate four times this year, pushing borrowing costs to their highest level in fifteen years. Canstar's modelling assumes a standard 30-year loan with a 20 percent deposit at the current average lending rate of 6.49 percent. Under these conditions, the income required to afford a home is rising roughly eight times faster than wage growth itself. The average full-time worker's salary increased by about $3,600 in the 2025–26 financial year. The income threshold banks now demand for a standard house loan surged by an average of $30,258 in the same period. To put it plainly: a Brisbane couple would need to work an extra eleven hours every week at the average hourly rate just to cover the twelve-month jump in required borrowing power.

Josh Sale, group manager of research at Canstar, framed the contradiction plainly: borrowing costs have escalated far faster than property values have adjusted downward. "Declining borrowing power means they need a significantly higher salary just to qualify for a loan on a cheaper home, while persistent inflation continues to erode their capacity to save a deposit," he said. The cruel irony is that the policy lever meant to cool the market—higher interest rates—has not translated into improved affordability. It has done the opposite.

Matthew Pollock, CEO of Master Builders NSW, called the situation absurd. House prices are falling at their fastest rate in forty years, he noted, yet housing affordability is not improving. The federal government's increases to capital gains tax and changes to negative gearing were designed to crash prices and free up the market for ordinary buyers. Instead, the market has been freed only for those with existing wealth. Loan Market broker Julian Choo observed that couples with a combined income of about $200,000 represent the norm for first-home buyers in Sydney, while an income of $400,000 or more is "extremely rare." Most people buying more expensive homes, he said, are drawing on equity from an existing property or relying on inheritance and family support—what he termed "the bank of mum and dad."

The data exposes a widening chasm between what ordinary workers earn and what banks now require them to earn. A single buyer in Adelaide needs to command $167,424 before tax to afford a median-priced house—up from $139,778 the previous year. Someone hoping to purchase a median-priced unit in Sydney with a 20 percent deposit requires an income of about $140,000 a year, a rise of roughly $9,000 from the year prior. These calculations assume no debts, no dependants, annual expenses of $24,000 for an individual or $48,000 for a couple, and a 3 percent interest rate buffer built into the bank's assessment.

What the numbers reveal is not a temporary market correction but a structural realignment of who can afford to own. The falling prices that were supposed to open the door have instead exposed how thoroughly interest rates have reset the terms of entry. For millions of Australian workers—those earning $80,000, $100,000, even $120,000 a year—the gap between their actual income and the income banks now demand has become unbridgeable. The question facing policymakers is whether price declines alone can ever close that gap, or whether the affordability crisis requires intervention at the level of borrowing costs themselves.