Rising interest rates drive sharp decline in housing affordability, says REIA

Housing affordability in Australia has taken a significant hit in the March quarter of 2026, as rising interest rates exert renewed pressure on household budgets. This concerning trend is highlighted in the latest Housing Affordability Report from the Real Estate Institute of Australia (REIA).

Jacob Caine, President of the REIA, attributed the decline in affordability to the Reserve Bank of Australia’s (RBA) decision to increase the cash rate twice 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 stated.

The report indicates that housing affordability deteriorated by 1.5 percentage points over the quarter and 2.9 percentage points over the past year, effectively reversing the improvements observed during much of 2025. The standard variable interest rate has now climbed to 8.5 per cent, resulting in an average monthly loan repayment of $5,927—an increase of 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 explained. The impact of these rate hikes has been felt across every state and territory, with Tasmania and the Northern Territory experiencing the largest declines in affordability.

The report also noted a slowdown in first home buyer activity during the quarter, following a surge in the December quarter driven by the expansion of the Australian Government’s 5% Deposit Scheme. Despite these challenges for buyers, rental affordability has remained relatively stable. The proportion of median family income required to meet median rent increased only slightly to 23.9 per cent over the quarter, showing little change over the past year.

However, Mr Caine warned that rental conditions, though currently stable, might not remain so in the future. “While rental conditions appear stable for now, there are clear concerns about the medium-term outlook,” he said. Independent modelling released after the 2026–27 Federal Budget suggests that rents could rise by up to $9 per week over the next four years due to expected policy changes at the Federal level.

“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 observed. This potential increase in rent costs could exacerbate the financial strain on Australians who are already grappling with rising living expenses.

Mr Caine emphasised the necessity of a coordinated policy approach to address these pressing issues. “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.”

The REIA’s report underscores the urgent need for policymakers to address the dual challenges of housing affordability and rental stability. As interest rates continue to rise, the pressure on Australian households is expected to intensify, making it imperative for government and industry stakeholders to collaborate on solutions that can provide relief to both homebuyers and renters.