Why Australia Needs Lower House Prices: A Path to Real Affordability

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In a bold analysis, Eliza Owen, head of research at property data firm Cotality (formerly CoreLogic), argues that a controlled decline in house prices is essential to address Australia's housing affordability crisis. Contrary to the prevailing political stance favoring continuous price growth, Owen suggests that falling prices, rather than increased buyer incentives, are crucial for making housing more accessible.

Owen highlights that the current housing policies from both major parties—such as smaller deposit requirements and tax deductions—tend to inflate demand, inadvertently driving prices higher. She warns that without a deliberate price correction, Australia risks exacerbating issues like deepening inequality and declining home ownership rates.

Addressing concerns about the potential negative impact of falling house prices on the economy, Owen notes that most property owners and lenders are well-insulated due to significant value increases over recent years. Data from the December 2024 quarter shows that 95.7% of residential resales achieved a nominal profit. Even with a 10% price reduction, 88.5% of vendors would still record gains, with a median profit of $263,000.

Furthermore, a 10% decrease in median home prices would lower the value-to-income ratio from 8 to 7.2, reduce the required 20% deposit by approximately $16,000, and save buyers over $130,000 in mortgage repayments over the life of their loan.

Historical precedents, such as the 16.1% price drop in Western Australia between 2014 and 2019, demonstrate that significant price corrections can occur without triggering widespread financial distress, provided lending standards remain robust.

Owen concludes that while falling house prices may be politically unpalatable, they are a necessary step towards achieving genuine housing affordability in Australia.