Falling property prices should help first-home buyers. But purchase price is only one part of Australia's housing affordability equation.
Wills Property | August 2026
ANZ has forecast a significant correction in Australian residential property prices, with Sydney house values expected to fall as much as 14.5 per cent from their peak.
For prospective home buyers, that sounds like very good news. And in one important respect, it is.
A $1.5 million house falling 14.5 per cent becomes a property worth approximately $1.28 million. The deposit is smaller, the mortgage is smaller and the monthly repayment is lower.
But there is a problem with assuming that a 14.5 per cent fall in property prices means housing has suddenly become 14.5 per cent more affordable.
Housing affordability is not simply the price of a property. It is the relationship between property prices, household income, borrowing capacity, interest rates, living costs, rent, deposit savings and the supply of housing.
The property correction
ANZ's latest forecasts anticipate a 10.6 per cent peak-to-trough decline across the capital cities, with Sydney and Melbourne experiencing the largest corrections. ANZ expects capital-city prices to decline 4.3 per cent in 2026 and another 3.4 per cent in 2027 before recovery begins.
What does a 14.5% fall actually mean?
Take an illustrative Sydney house worth $1.5 million. A 14.5 per cent fall reduces the purchase price by $217,500, a 20 per cent deposit by $43,500 and an 80 per cent mortgage by $174,000.
There is no question that this materially improves the purchase equation for a household already capable of buying. The distinction is that purchase price is only one component of affordability.
The bank still has to say yes
Most Australians buy homes with debt. Affordability is therefore constrained not only by the property's price but by how much a lender is prepared to advance and how much the household can safely repay.
The Reserve Bank held the cash rate at 4.35 per cent on 11 August 2026. APRA's mortgage serviceability framework also requires lenders to apply a buffer of at least 3 percentage points above the loan rate. Using an illustrative 6.5 per cent mortgage rate, a borrower may therefore be assessed at around 9.5 per cent. On a $1.026 million loan, the indicative assessed repayment is approximately $8,630 per month, or $103,500 per year. Actual lender assessment methodologies vary.
The house might have become $217,500 cheaper. The buyer still needs sufficient income and borrowing capacity to get through the bank's front door.
Then they have to save the deposit
Before a household can service a mortgage, it generally has to accumulate the equity or deposit necessary to purchase the property. National affordability indicators show why that remains difficult.
A cheaper house helps, but the prospective purchaser is still saving after rent, food, electricity, transport, insurance, childcare, healthcare and other household expenses.
The property can become cheaper while the buyer's capacity to purchase it remains constrained.
The rental and tax-policy question
From 1 July 2027, negative gearing for residential property will generally be limited to new builds. Properties held before 7:30pm AEST on 12 May 2026 are exempt from the change. The Government is also changing the taxation of capital gains, including replacing the general 50 per cent discount with inflation-adjusted indexation and introducing a minimum 30 per cent tax rate on real gains, subject to the detailed rules and concessions.
The policy objective is to redirect investor capital toward new housing construction. Treasury reports that 84 per cent of new investor loans are currently used to purchase existing housing rather than support new supply.
That objective may improve ownership opportunities and stimulate new construction. The transitional question is whether new supply can be delivered quickly enough if established rental investment becomes less attractive to some investors.
The risk should not be overstated: when an investor sells an established property to a first-home buyer, one rental dwelling and one tenant household may both leave the rental market. The net rental effect depends on who buys, household formation and the speed at which additional dwellings are delivered.
That brings us back to the real problem: supply
Australia's National Housing Accord target is 1.2 million new well-located homes over the five years to June 2029. The National Housing Supply and Affordability Council's 2026 central outlook is approximately 980,000 homes over that period - a gap of about 220,000 dwellings.
The Council expects the 1.2 million milestone to be reached later than the Accord timetable under its central outlook. Planning, finance, construction capacity, labour, infrastructure and development feasibility all affect how quickly additional housing can reach the market.
Cyclical weakness is not the same as structural oversupply
Two forces can operate simultaneously. Interest rates, credit conditions and sentiment can push prices lower in the short term, while an underlying shortage of housing continues to support housing costs over the longer term.
ANZ itself makes a similar point: despite forecasting substantial price falls, its economists consider the broader supply backdrop and construction-sector capacity constraints likely to prevent an extended downturn.
Australia's housing affordability equation
The national debate tends to focus overwhelmingly on the headline property price. Real affordability is broader.
Two things can be true at once
A meaningful correction in property prices can be extremely beneficial for a first-home buyer with secure employment, an adequate deposit and sufficient borrowing capacity. They may be able to purchase a property that was previously beyond reach.
At the same time, another household on a similar income may still be renting, facing higher living expenses, struggling to accumulate a deposit and unable to satisfy a lender's borrowing requirements. For that household, a 14.5 per cent decline in the theoretical value of the property they would like to buy may make surprisingly little immediate difference.
The bigger question
The Federal Government is trying to alter the demand side of Australia's housing market by reducing the tax advantages associated with investment in established residential property and encouraging capital into new housing. That policy may increase opportunities for first-home buyers and redirect investment toward new construction.
But Australia should be careful about declaring the affordability problem solved simply because property prices are falling. Tax policy can influence who owns existing homes. Interest rates can influence what people can pay. Credit policy can influence who can borrow. None of those things, by itself, creates another dwelling.
Australia's housing affordability problem will ultimately require enough additional homes for the people who need them.
You cannot tax your way out of a housing shortage. Ultimately, you have to build your way out of it.
Sources and notes
ANZ housing forecasts, reported 11 August 2026.
Reserve Bank of Australia, monetary policy decision, 11 August 2026.
Australian Prudential Regulation Authority, mortgage serviceability settings.
National Housing Supply and Affordability Council, State of the Housing System 2026.
Australian Treasury, Budget 2026-27 tax system changes and Homes for Australia: A National Plan.
Mortgage calculations are illustrative only and are not financial or lending advice.
