Rising interest rates drive sharp decline in housing affordability
Housing affordability has deteriorated sharply in the March quarter 2026, with rising interest rates placing renewed pressure on Australian households, according to the Real Estate Institute of Australia’s (REIA) latest Housing Affordability Report.
REIA President Jacob Caine said the decline in affordability was driven primarily by the Reserve Bank of Australia’s two cash rate increases during the quarter.
“The proportion of median family income required to service the average home loan has risen to 50.8 per cent, highlighting the significant pressure higher interest rates are placing on household budgets,” Mr Caine said.
“The RBA increased the cash rate twice during the quarter, and this has flowed directly through to borrowing costs, lifting mortgage repayments and reducing affordability.”
The report shows affordability declined by 1.5 percentage points over the quarter and 2.9 percentage points over the past year, reversing improvements seen throughout much of 2025.
With the standard variable interest rate rising to 8.5 per cent, the average monthly loan repayment has reached $5,927—up 11.3 per cent over the past 12 months.
“Housing affordability is highly sensitive to interest rate movements, and the March quarter demonstrates just how quickly conditions can deteriorate when rates rise,” Mr Caine said.
Affordability declined across every state and territory, with the largest falls recorded in Tasmania and the Northern Territory. The report also showed a moderation in first home buyer activity over the quarter after a huge influx of first home buyers in the December quarter as a result of the expansion of the Australian Government’s 5% Deposit Scheme.
Despite these pressures on buyers, rental affordability remained relatively stable.
The proportion of median family income required to meet median rent increased only marginally to 23.9 per cent over the quarter, remaining largely unchanged over the past year.
While rental affordability remained broadly stable over the quarter, REIA cautioned that policy changes at the Federal level are expected to place upward pressure on rents in the coming years. Independent modelling released following the 2026–27 Federal Budget shows rents could increase by up to $9 per week over the next four years.
“While rental conditions appear stable for now, there are clear concerns about the medium-term outlook,” Mr Caine said.
“Independent modelling indicates that the proposed tax reforms will reduce housing supply and push rents higher, adding further pressure to renters already facing cost-of-living challenges.”
Mr Caine said the findings reinforce the need for a coordinated policy approach to improve housing affordability over the long term.
“Rising interest rates are now compounding existing affordability challenges,” he said.
“Addressing affordability requires a sustained focus on increasing housing supply, alongside stable and predictable policy settings that support investment into housing.”
Media contact:
Scott Rollason, REIA CEO
0448 501 542 | scott.rollason@reia.com.au
Read the Media Release
