The Great Housing Crisis

Housing Crisis or Housing Justice?

Melbourne housing prices are down 7% in the past 4 months and are projected to drop a total of 12% peak to trough₁.

As I rode the train home and flicked through the Australian Financial Review, I stumbled upon this headline;

What Australia Can Learn from New Zealand's Property Crisis Fix₂

If you’re anything like me, you see headlines about housing slumps and think; wait isn't this what we were all asking for?

Can something that is bad for the economy be good for me?

I wasn’t sure. 

So as the city skyline continued to shrink in the distance and I retreated into the leafy suburbs that surround Melbourne’s train lines, I turned to myself and asked; If a housing price correction is so detrimental, why does it make the prospect of me buying a house in the future seem just a little bit more accessible?

To that I told myself that this is probably indicative of the paper knowing their target audience. I share little with the business minded 40-somethings that make up much of The AFR’s reading base, so having conflicting perspectives is unsurprising (and somewhat reassuring).

But, as any good economist does, I felt the need to try and wrap my head around two vastly conflicting perspectives on the same issue. So, settle in, there’s a bit of economics to unpack.

Firstly, let's set the scene.

Housing in Australia is [in]famously pricey. We have all seen the phrase Cost-of-Living splashed across headlines for the better part of a decade (so much I’ve started saying it in my sleep). But what some of us may not know is that rising house prices are widely considered the villain in the cost-of-living story, with rent and mortgage costs sinking their claws deeper into household budgets.

Australian house prices have increased, in real terms, by 69% in the past 20 years and 26% in the past 10₃. Through this, housing has positioned itself as a safe-haven for risk-averse, long-term investors.

So, after a glorious 20-year, infallible, reliable and exorbitant housing price trajectory, what has led to Australia’s biggest housing slump this century?

We can break this down into 2 major factors:

1. Tax break changes in the federal budget which make owning investment properties less attractive, outlined in our May Edition of The WESS edit₄. And

2. Back-to-back interest-rate hikes, with a projected third hike, making the cost of borrowing increasingly expensive.

So, as the train started to empty out and I had enough room to take a deep breath, I started my investigation.

From that, I think I’m qualified to tell you who this housing slump is good for.  

Fortunately, the answer is; you and I. 

At first glance, it looks like good news for first-home buyers, now and in the future

Without the pressure of having to sell their house in a market slump, first-home buyers are currently recipients of the upside market risk on the buy-side – by being able to purchase houses for 15% less than they would have in April – without being subject to the downside market risk on the sell-side, for now.

Moreover, price changes are sticky. When housing prices fall today, they fall in the future. 

For me, this was sounding like good news, I thought I had my answer: falling house prices are good for people who want to buy houses at some point. I was almost content to spend the rest of my train ride swapping my AFR reading for people watching and doomscrolling. 

But with the last dregs of productivity from my 3pm coffee, I decided to persist, dig a little deeper and ask:

Who is a housing slump bad for? 

The bad news; also, you and I.

A lot of this comes down to behavioural economics. Ideas like consumer sentiment and business confidence, might feel beneath us since they are the bane of a resource-optimising economist’s existence, but ultimately, they are central to the growth, market inefficiencies, and spending. So, let's break this down and consider what this means for you.

Consumer sentiment 

This is one of those economic terms that sounds significantly more complicated than it actually is. In essence, it asks a fairly simple question: how good do Australians feel about their financial situation and the economy₅?

And, as it turns out, how we feel about our money can matter almost as much as how much money we actually have. Absurd, I know.

I’ll put it like this; a key way Australians tend to perceive their wealth relates to their houses.

Decreased housing prices don’t just eat into your net worth, they also influence how much money you feel as though you have to spend, despite the unchanging digits in your bank account (evidence of the fallible human brain I suppose). This is how dropping house prices trickles its way into our consumer sentiment. 

So how does the downside of falling consumer sentiment compare to the upside of dropping house prices for university students like us?

Let's consider future me. In 10 years, I will be 30. According to DTP, I, a commerce-related-degree university graduate, will be looking to enter the housing market for the first time₆ (oddly specific, but apparently true).

Further, being self-interested – as all rational economists should be – I’ll only care about the implications that fluctuations in the market have on my prospects over any other altruistic concerns. For that reason, only, future me will love today’s housing corrections. Anything that makes buying a house cheaper in 10 years? Works for me!

But how will today’s fluctuations be adverse to future me?

The Good News: consumer sentiment is the opposite of sticky! Its fickle and doesn’t hold grudges. Ergo, in a healthy economy, which most developed economies tend to be in the long-run, my consumer sentiment should be thriving and I’ll be ready to trade in my life savings for a 1-bedroom studio-apartment that rivals the size of my dad’s shed (maybe good news was an exaggeration).

The OK News: despite a current slump, the housing market will undoubtedly continue to grow. Whilst these prices in 10 years may reflect a slightly lower price than they would have if not for today’s price-correction, supply-and-demand does its thing, and housing keeps its spot on the podium as one of Australia’s most valuable assets.

The Bad News: Housing price slumps today have lasting implications for housing market growth in the future. 

Remember the pesky consumer sentiment I mentioned earlier? Whilst it might not hold grudges in the future, right now, it is directly linked to business confidence, which drives things like investment and guess what? Property development. 

And ultimately, let’s not forget the core of the housing price issue: to make houses cheaper, you need more houses. 

There is only so much burden budget changes and interest rates can bear. Ultimately, to decrease prices we must increase supply (revolutionary, I know). And today, slumps in the housing markets are detrimental to the development of new housing supply because they influence business confidence in the construction industry.

That is to say that downturns now, put a future economy on the back foot, sometimes in ways it is hard to recover from.

And let’s not forget that the wages future me uses to buy a house are a victim of today’s economic landscape.

So, whilst I may be a future buyer, I’m also a future worker, consumer, renter, taxpayer and potentially homeowner. A housing crash today might make the house I want cheaper, but it also makes the economy I have to earn my money in weaker.

By the time the train pulled into my stop, I had somehow spent the entire journey thinking about housing prices. I thought back to my original question:

Can something that is bad for the economy be good for me?

My new answer: yes. And no.

Perhaps this is what happens when you read the AFR on public transport.

1. Lucy Slade. The Sydney Suburb where Housing Prices Dropped 585k. Australian Financial Review. 1 Sep 2026.

2. Nick Fildes. What Australia Can Learn from New Zealand's Property Crisis Fix. Australian Financial Review. 24 Aug 2026

3. OECD (2025). OECD Data Explorer. [online] Oecd.org. Available at: https://data-explorer.oecd.org/vis?df.

4. Ahmed, A. The Budget Breakdown. The WESS edit. May 2026. 

5. Melbourne Institute of Applied Economic and Social Research. Annual CASiE Survey. 2026

6. Department of Transport and Planning. Property Sales and Statistics. December 2025 quarter. June 2026.