Housing affordability in Australia has shown some welcome signs of improvement, but many borrowers are still feeling the pinch from higher living costs, big loan sizes and years of rapid price growth. The picture in late 2025 is one of cautious relief rather than a full reset.
What’s improving?
Recent data shows affordability lifting for the third straight quarter, helped by a combination of lower interest rates, moderating price growth and slightly better household incomes. For many existing borrowers, this has translated into:
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Lower repayment pressure as the cash rate has come down from its peak and some fixed‑rate “cliffs” have been navigated.
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A stabilisation in rental affordability in some markets, with signs that the most extreme rent hikes of recent years are finally easing or slowing.
The National Housing Supply and Affordability Council expects conditions to broadly stabilise over the next few years, rather than deteriorating at the pace seen earlier in the decade. That gives households and policymakers breathing room, even if it does not solve the underlying issues.
Where pressures remain
Despite modest improvements in the headline indices, affordability is still stretched when measured against incomes, deposits and overall cost of living. Key pressure points include:
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Loan sizes that remain historically high, which means even a lower interest rate still translates into a big monthly repayment for recent buyers.
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Renters on low and moderate incomes who continue to spend 30% or more of their pay on housing, particularly in Sydney, Brisbane, Perth and many regional centres.
Financial stability data shows that while serious arrears remain relatively low, a meaningful minority of borrowers are at risk, especially those with high debt‑to‑income ratios and limited buffers. In other words, the system looks stable on average, but stress is very real for certain households.
The bigger structural challenge
Short‑term improvements sit on top of deeper structural constraints. New housing supply has not kept up with population growth, with material costs, labour shortages and project feasibility all limiting new stock coming to market. That supply gap is a major reason prices and rents ratcheted up so aggressively over the past few years.
National housing data continues to show that the share of properties affordable to a median‑income household is near record lows, even if the situation has stopped getting worse as fast. Reports such as Cotality’s Housing Affordability Report highlight that the time needed to save a deposit, and the share of income required to service a new mortgage, are both still at or near historic extremes.
What this means for borrowers
For borrowers and would‑be buyers, the current environment calls for careful planning rather than despair. Improved affordability indices can create opportunities to:
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Revisit existing loans to see whether refinancing, restructuring or switching to more competitive lenders can lock in some of the recent relief.
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Help first‑home buyers use current schemes and slightly calmer conditions to enter the market with realistic expectations about budget, location and property type.
At the same time, it is important to recognise that many households still feel they are going backwards, even as the metrics improve. A tailored strategy that accounts for income volatility, buffers, and potential future rate changes remains essential in a market where the headline story is “getting better, but still tough.”
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