In Australia, house prices rarely drop significantly. Even during the recessions of 1982 and 1991, the decline was only 6.2%. In the last 50 years, the national median house price has only fallen more than 10% once. Since 1980, the average drop has been 6.7%. Financial journalist Alan Kohler explains: “Housing is the market that never crashes; it only gently subsides.” This consistency makes housing a popular investment.
House prices are falling slightly, with the median capital city price peaking in November and dropping by less than 1%. Despite this, housing remains a wise investment.
Can the Government Change the Public Perception of Housing?
Despite the ongoing challenges, no significant reforms have emerged. The Reserve Bank of Australia is expected to cut interest rates, which could lead to a rise in house prices. Kohler highlights that “house prices will rise at twice the rate of disposable income, something that has been going on for 25 years and created what we all see now as a crisis.”
Real household disposable income in 2025 is expected to increase by just 2.4%, while house prices are predicted to rise by more than 5%, making affordability worse.
To address this crisis, the National Housing Accord began in 2021. It involved 25 participants, including the federal government, states, and industry groups. “Only the last three were serious about it because they stand to make money out of more houses being built,” Kohler states. The rest, according to him, were pretending.
The Failure of Housing Targets
In 2021, the government set an aspirational target to build 1 million homes over five years. This goal later increased to 1.2 million in 2023. However, Kohler argues that the target is unrealistic.
To meet the 1.2 million target, 20,000 housing approvals must occur monthly. However, the average monthly approvals before 2022 were around 15,000, creating a 33% shortfall. In December 2024, approvals only totaled 15,174—5,000 short of the required rate.
“The number of housing approvals has declined, not increased!” Kohler says. To meet the target by 2029, the rate would need to increase by an incredible 42%.
Housing as an Investment, Not a Right
The shift of housing from a basic right to an investment asset is a major issue. This change began in 1999 when the Howard government halved capital gains tax, making real estate more appealing.
“Housing has become a product and an investment market, rather than the right outlined by Leo O’Connor in 1943,” Kohler states. The introduction of negative gearing, interest rate cuts, and increased immigration in the 2000s further fueled this shift.
The Densification Dilemma
To meet housing targets, governments in New South Wales and Victoria are looking to densify suburbs. However, this plan faces significant challenges due to the high cost of required infrastructure—especially after COVID-19.
Kohler suggests that the cost of population growth will be passed on to existing residents through overcrowded infrastructure.
A Shift Is Needed
Kohler concludes that the fundamental problem is that housing has become an investment, not a right. Until this change occurs, house prices will continue to rise faster than incomes.
The message is clear: Without a shift in policy, the housing crisis in Australia will persist.
