Housing affordability at a record low – here’s four key ways to fix it

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By Dr Shane Oliver – Head of Investment Strategy and Economics and Chief Economist, AMP Capital | 25 Nov 2025

Key points

  • With the latest surge in home prices relative to incomes housing affordability is at a new record low. This is adding to a slide in home ownership and rising inequality.
  • The key to sustainably improving housing affordability is to better align immigration to housing supply, boost housing supply, encourage decentralisation and some tax reform.
  • There are no quick fixes, and we have a long way to go.

Introduction

For as long as I have been an economist, housing affordability has been an issue. But while it was once mainly a cyclical concern associated with bouts of high interest rates, from the 2000s it’s become a chronic problem. With national home prices at new record highs housing affordability has reached a new record low. This is a terrible situation for a country with so much land and a small population that used to pride itself on the “Aussie dream”. This note looks at what can be done to fix the problem and why at the same time we need to make sure – in the face of calls to slash immigration and densify our cities – we don’t throw the baby out with the bathwater and create bigger problems.

Housing affordability keeps getting worse

But first a quick recap – how did we get here? After strong gains in home prices over many years, Australian housing is expensive relative to income, rents & its long-term trend and by global standards. Poor affordability is apparent in a surge in the ratio of average dwelling prices to average wages(red line in the next chart) & household income (green line) – both of which have more than doubled since 2000 and with the recent rebound in prices are now at record highs.

Note home ownership data is only available from 5 yearly census. Source ABS, Cotality, AMP

The time taken to save a deposit has also doubled over the last 30 years and is now at a record 11 years. Sure, a first home buyer can now get in with a 5% deposit, but this is with 95% debt! And the deterioration in affordability has contributed to a falling trend in home ownership, along with a range of other factors(see the blue line in the previous chart).

Source: ABS, Cotality, AMP

Key drivers of poor housing affordability

The drivers of poor housing affordability are hotly debated. Many zoom in on things like tax concessions for investors, SMSF buying and foreign demand. But investor and foreign demand were not big drivers of the 20- 30% surge in prices over 2020-22. And property tax concessions are common in other countries, without such poor affordability. Rather the key drivers have been a combination of three things:

  • The downtrend from high interest rates at the start of the 1990s to low rates before and in the pandemic along with the increased availability of debt boosted borrowing ability and hence buyers’ capacity to pay for homes. But this is not the full story as lots of comparable countries have had low interest rates without such expensive housing. And interest rates are well up from their pandemic lows and yet affordability is even worse.
  • Housing supply (for reasons ranging from too much red tape to capacity constraints) has failed to keep up with a surge in demand for housing that started in the mid-2000s with rapid population growth.
  • The concentration of people in just a few coastal cities hasn’t helped.

Of these, the fundamental demand/supply mismatch is the critical factor behind poor affordability. This can be demonstrated in the next chart.

Source: ABS, AMP

Starting in the mid-2000s annual population growth jumped by around 150,000 people largely due to a surge in net immigration – see the blue line in the prior chart. This should have been matched by an increase in dwelling completions of around 60,000 homes per annum but there was no such rise until the unit building boom of 2015-20 leading to a chronic undersupply of homes – see the red line. The unit building boom and the slump in population growth through the pandemic helped relieve the imbalance but the unit building boom was brief and a decline in household size from 2021 resulted in demand for an extra 120,000 dwellings on the RBA’s estimates. The rebound in population growth post the pandemic then took property market back into undersupply again.

The next chart translates this into an estimate of the cumulative undersupply of dwellings in Australia. Up until 2005 the housing market was in rough balance. It then went into a massive shortfall of about 250,000 dwellings by 2014 as underlying demand surged with booming immigration. This shortfall was then cut into by the 2015-20 unit building boom and the pandemic induced hit to immigration. But it’s since rebounded again to around 220,000 dwellings, or possibly as high as 300,000 if the pandemic induced fall in household size is allowed for. The shortfall is confirmed by low rental vacancy rates.

Source: ABS, AMP

Four key things to improve housing affordability

Very high house prices and associated debt levels relative to wages pose two key problems. First, they pose the risk of financial instability should something make it harder to service loans. Second, the deterioration in affordability is resulting in rising wealth inequality, a deterioration in intergenerational equity, confining more to renting which will exacerbate wealth inequality (renters tend to be less wealthy over their lifetime than homeowners) and it is likely contributing to rising homelessness.

Some might see a house price crash as the solution. Yes, this would improve affordability – but it would likely also come with a deep recession and high unemployment which will make it hard for many to buy a house.

Other policies that won’t work, include: grants & concessions for first home buyers (as they just add to higher prices); abolishing negative gearing (which would just inject another distortion into the tax system and would adversely affect supply), although there is a case to cap excessive use of negative gearing tax benefits; banning foreign purchases altogether (as they are a small part of total demand and may make it even harder to get new unit construction off the ground); and a large scale return to public housing (as a major constraint to more units is excessive costs and delays, and just switching to public housing won’t fix this).

There are no quick fixes, but here are the four key things that need to be done to fix affordability:

  • First, match the level of immigration to the ability of the property market to supply housing and reduce the accumulated housing shortfall of around 200,000-300,000 dwellings. – we have clearly failed to do this since the mid-2000s and particularly following the reopening from the pandemic, and this is evident in the ongoing supply shortfalls. Our rough estimate is that immigration needs to be cut back to around 200,000 a year (see here where we looked at the issue in detail) from 316,000 over the year to the March quarter.
  • Second, build more homes – the commitment by Australian governments to build 1.2 million homes over five years was a welcome move down the path to boost supply. One year into it though and we have only completed 174,000 homes and approvals are only running around 190,000 homes annually, so we are well below the implied 240,000 annual target. To meet the target will require relaxing land use rules, less red and green tape, shifting to faster ways to build including with modular and pre-fab homes, encouraging build to rent affordable housing, training and importing far more tradies and refocussing more on units. In terms of the latter the only time we consistently built more than 200,000 homes per annum was in the unit building boom of the 2015-19 period.
  • Third, decentralisation to regional Australia – this needs appropriate infrastructure and measures to boost regional housing supply.
  • Fourth, some tax reform – including replacing stamp duty with land tax (to make it easier for empty nesters to downsize) and reducing the capital gains tax discount (to remove a pro-speculation distortion).

But don’t throw the baby out with the bathwater

But in seeking to address the problem we need to act in a balanced way. In particular, immigration has been a huge benefit to Australia by boosting labour supply and addressing labour shortages, supporting state and federal budgets, slowing the aging of the population, boosting innovation and enhancing cultural diversity and vibrancy. In particular, via international students who count as immigrants, it helps drive more than $50bn in education export earnings each year, which is our fourth biggest export earner behind iron ore, coal and gas. Ideally, universities should be able to have as many foreign students as they like providing they house them on campus as this would take pressure off existing housing.

Secondly, observing that Australian cities are very low density compared to cities in Europe, Asia and parts of the US (see the next chart) has led some to suggest that the solution to poor affordability lies in densifying our cities. For example, a plan from the Grattan Institute proposed allowing three story units to be built anywhere in Australia’s capital cities. This extreme form of YIMBYism would be a monumental mistake – not only would it push city land values further into the stratosphere exacerbating inequality but it will put the nail in the coffin of the quarter acre block at the centre of the “Aussie dream” epitomised in films like “They’re a Weird Mob” and “The Castle” and the TV show “Neighbours”, which is one of the things that has made Australia great and why people want to come here. Going down the path of even bigger, congested cities seen internationally is not a solution. Which is why allowing more units in Australian cities should be seen as a short-term measure with decentralisation to regional centres being the long-term solution.

Source: Grattan Institute

Share market wobbles – what are the negatives and positives?

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By Dr Shane Oliver – Head of Investment Strategy and Economics and Chief Economist, AMP Capital | 18 Nov 2025

Key points

  • Rich valuations, AI bubble worries and uncertainty about central bank rate cuts are the main negatives for shares at present and could see recent falls extend further.
  • Against this though, global profit growth remains strong and there is no sign of recession suggesting that the broad trend in shares may remain up.
  • For investors and super fund members, the danger in trying to time corrections and bear markets is that you miss out on longer-term gains. The key is to adopt an appropriate long-term investment strategy and stick to it.

Introduction

November so far has seen a pretty wobbly ride for shares. From their October highs, US shares are down 3.2% and Australian shares are down 5%. More significantly perhaps concerns about a bubble in equity markets focused around AI have escalated since we had a look at the issue early last month (see here) with more high profile commentators and investment experts expressing concern. And share markets have not been helped by a scaling back in expectations for near term rate cuts in the US and uncertainty about whether there will be further rate cuts at all in Australia. This note looks at the key negatives and positives for shares.

The negatives for shares

Several negatives hang over shares.

  • First, shares are expensive. This is nothing new but is clearly evident in relatively high price to earnings multiples. The forward price to earnings ratio on US shares is at 23.5 times, not far below the 1999-2000 tech boom high. The PE on Australian shares is well above its tech boom high despite a recent fall. Related to this, the risk premium offered by shares over bonds – the gap between the forward earnings yield and the 10-year bond yield – is very low in the US and Australia versus the post-GFC period.

Source: Bloomberg, AMP

It should be noted that thanks to lower bond yields the equity risk premium now is more attractive than it was prior to the 1987 crash or the tech wreck. And valuations are a poor guide to timing market movements. That said, high PEs and the low equity risk premium compared to much of the last twenty years warn of a slower return potential ahead and provide less of a buffer should things go wrong.

  • Second, shares have had several years of strong gains, with the last bear market in global shares being in 2022. Shares did have sharp falls into April this year on Trump’s tariffs, but the falls were less than 20% and were quickly reversed. Over the last 3 years US shares have returned 23%pa, global shares 21%pa and Australian shares 13%pa. History warns that after a run of strong above average years a weaker year and often a bear market can come along.
  • Third, there are signs of a bubble forming in AI shares with investor enthusiasm for AI related exposure. We covered this in the note last month referred to earlier. Specifically, the Magnificent Seven (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla) have risen more than 30-fold over the last decade dwarfing various other bubbles and they have disproportionately driven the US share market accounting for 50% or more of its gains since 2023.

Source: Bloomberg, AMP

  • Fourth, there has been increasing uncertainty around how much central banks will cut interest rates – notably in the US and Australia – and this has been a key driver of weakness in shares since their October highs. The US money market now sees only around a 45% chance of a December rate cut. This is raising concern on several fronts as US jobs data has shown signs of weakening lately and less rate cuts may mean higher bond yields which in turn pressures share market valuations. In Australia, higher than expected September quarter inflation and associated worries about capacity constraints have seen the RBA adopt a more cautious data dependent approach with the money market seeing just a 40% chance of another rate cut.
  • Fifth, there remains immense uncertainty around the lagged economic impact on US economic growth of Trump’s tariffs.
  • Finally, there remain concerns about excessive public debt levels in several countries including the US and ongoing geopolitical risks.

The positives

Against this backdrop, a number of positives provide some offset.

  • First, profit growth in the key direction setting US share market remains strong. The September quarter earnings reporting season has seen 82% of results beat expectations which is above the norm of 76% and profit growth is on track for around 15.5%yoy. Tech profits are running around 28%yoy, which contrasts with the “dot.com” stocks in the late 1990s tech boom which were making little in the way of profits. September quarter profits have generally surprised on the upside globally as well.

Source: Bloomberg, UBS, AMP

  • Related to this, business conditions PMIs – derived from business surveys – are at levels consistent with reasonable economic growth. And Australian economic growth is gradually improving which should lead to stronger ASX listed company profits next year. So, there is no sign of recession which is important because major bear markets in shares tend to be associated with recession – although this is no guarantee as shares often lead the way.

Source: Bloomberg, AMP

  • Third, Trump is now cutting tariffs as next year’s mid-term elections come into focus. Trump won the 2024 election largely on the back of dissatisfaction with “cost of living” increases, but recent Democrat election victories confirm that swing voters are now deserting him because he has added to the cost of living. To avoid a disaster in next year’s mid-terms he is swinging back to measures to reduce the cost of living. This was already evident in his acceptance of the latest trade truce with China which saw both sides removing imposts and threats on each other with no resolution to the key issues. But it signalled that we are well passed “peak Trump tariffs” with Trump having little choice but to back down with China as he couldn’t afford another escalation in his politically unpopular tariffs. His pivot was also evident in his talk of tariff rebates and floating the silly idea of a 50-year mortgage. But after the Democrat victories early this month the pivot is in full swing with tariff exemptions on imports of food items – like beef, tomatoes, bananas, oranges, fruit juices, nuts and coffee. This means removing tariffs that were only imposed earlier this year. So much for his argument that foreigners pay tariffs and there is no impact on prices for Americans! And his chopping and changing won’t do anything for businesses trying to work out where best to locate production – but that’s a separate issue. The key is that Trump is pivoting to more market and consumer friendly policies.
  • Fourth, measures of investor sentiment are still not showing the euphoria often associated with major market tops and bubbles don’t normally burst when there is so much talk about them.
  • Fifth, while there is much uncertainty about how much further interest rates will fall our view remains that both the Fed and RBA will cut rates further. We are allowing for three more US rate cuts and one more RBA rate cut, albeit not till around May next year.
  • Finally, we are now entering a positive period of the year for shares from a seasonal perspective. Shares typically rally from November into the new year as part of the Santa rally.

Source: Bloomberg, AMP

So, while the risk of a further near-term pullback in shares is high, a more severe fall may not come till next year. And in the meantime, still strong global profit growth, little indication of a recession and the likelihood that central banks will still cut rates further suggest the broad trend in shares may still remain up. However, 2026 could be a rougher year as it’s another mid-term election year in the US. Since 1950 US shares have had an average top to bottom drawdown of 17% in mid-term election years.

Implications for investors

The bottom line is that stretched share market valuations are warning of the risk of a further fall in share markets and it’s possible that AI enthusiasm has run ahead of itself. But stretched valuations are a poor timing tool for market movements. As we saw in the 1990s any bubble could inflate further, well beyond when commentators and experts start to worry about it. Either way, rough periods are an inevitable part of share market investing but trying to time them is hard, so the key is to adopt an appropriate long term investment strategy and stick to it.

Bubble trouble – is AI enthusiasm driving a bubble in shares?

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By Dr Shane Oliver – Head of Investment Strategy and Economics and Chief Economist, AMP Capital | 8 Oct 2025

Key points

  • Rich share market valuations are warning of the risk of a pullback in shares amidst fears of a bubble and it’s possible that enthusiasm for AI has run ahead of itself. But the fundamentals behind this are arguably far stronger than they were at the time of the late 1990s tech boom.
  • For investors and super fund members, the danger in trying to time corrections and bear markets is that you miss out on longer-term gains. The key is to adopt an appropriate long-term investment strategy and stick to it.

Introduction

Lately, some commentators and investment experts have been expressing concern about a bubble in equity markets with some referring to excessive optimism about AI and drawing comparisons to the late 1990s tech boom. Some have been advocating holding a higher proportion of funds in cash in response. This note looks at the key issues and what it means for investors. As the concerns centre on the direction-setting US share market, we will focus mainly on that, as any fall there will impact Australian shares.

Why the bubble worries?

The concerns about a bubble reflect a combination of factors:

  • First, shares have been enjoying very strong gains led by the US with most at or around record levels. The US share market is up 35% from its April US tariffs driven low & has returned 25%pa over the last 3 years with global shares returning 23%pa and Australian shares 15%.
  • Second, valuations are stretched with the forward price to earnings ratio on US shares at 23.6 times, not far below the 1999-2000 tech boom high of 26 times. The PE on Australian shares is well above its tech boom high. Note PEs were above current levels in late 2020/early 2021 due to distortions caused by the pandemic.

Source: Bloomberg, AMP

Related to this, the risk premium offered by shares over bonds – the gap between the forward earnings yield (inverse of the forward PE) and the 10-year bond yield – is very low in the US and Australia.

  • Third, the US share market has been disproportionately driven by a group of tech stocks. For example, the Magnificent Seven stocks (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla) have been accounting for 50% or more of the gains in the S&P 500 since 2023 despite being about one third of market capitalisation. This arguably leaves US shares very vulnerable to the performance of this narrow group of tech/AI focussed companies.
  • Fourth, this narrow group of stocks have surged in value over the last decade initially reflecting FAANG (Facebook, Apple, Amazon, Netflix & Google) enthusiasm that has morphed into AI enthusiasm since Chat GPT was released in 2022. As can be seen in the next chart the Magnificent Seven group of stocks have risen more than 30-fold since 2015 dwarfing various other “bubbles” over the last decade including the tenfold rise in the tech heavy Nasdaq into 2000.

Source: Bloomberg, AMP

  • Fifth, while there is a high level of corporate interest and investment in AI, evidence that they are reaping a benefit is mixed with many projects at the pilot stage with issues around data, culture, leadership and skills. In other words, AI hype may have run ahead of the reality.
  • Sixth, speculative assets like gold and bitcoin have also been strong, suggesting speculative attitudes may be starting to take hold.
  • Finally, share markets appear to be disconnecting from a long worry list that includes: uncertainty around US tariffs and their impact; the slowing US jobs market; messy US economic policies and the latest shutdown; uncertainty as to whether the Fed will cut rates as much as the 4-5 cuts the US market is expecting; concern about public debt sustainability in the US, France, UK and Japan; & elevated geopolitical risks particularly with escalating tensions between Russia and NATO and the risk of secondary tariffs on countries importing Russian oil.

But could this time be different?

Over the years I have seen numerous bubble calls only for the market to keep going up or see nothing more than a brief correction. There are several arguments against the bubble call making it all a shade of grey:

  • First, while the risk premium offered by shares is low, bond yields today are much lower than when the tech boom peaked in early 2000 when they were over 6%, so the equity risk premium is at least better than it was back then particularly in the US.

Source: Bloomberg, AMP

  • Second, while the chart above showing a comparison of “bubbles” highlights the extreme gains in the Magnificent Seven it probably exaggerates the case for a bubble. It shows gains much bigger than the tech heavy Nasdaq going into 2000, but this time around Nasdaq has not gone up anywhere near as quickly. There is a danger in focussing on a select group of stocks – just as there was last decade when the FAANG stocks were said to be in a bubble. Perhaps the comparison should be the “dot com” stocks of the late 1990s.
  • But here there is a notable difference. Dot com stocks were making little in the way of profits, but Magnificent Seven stocks are making huge profits as a group with very strong profit growth, running around 30%yoy. Profit growth for US tech companies generally is around 17%yoy. More broadly US company profit growth has continued to surprise on the upside and is likely to have been around 11.5%yoy in the September quarter.
  • Fourth, while initial results on the benefits of corporate investment in AI are mixed, it was inevitable that this will take time, but anyone who has used AI tools can see the huge benefit they offer in doing things faster (like doing the research for these notes!) and boosting productivity. Related to this AI systems, or specifically large language models, are very data and computationally intensive and will require a significant build out of data centres which in turn will mean high levels of business investment and demand for raw materials like copper.
  • Fifth, while global business conditions PMIs – i.e. surveys of how businesses are faring – have slowed they are still at levels consistent with reasonable economic growth. In other words, there is no sign of recession which is important because major bear markets in shares tend to be associated with recession – although this is no guarantee as share markets often lead the way.

Source: Bloomberg, AMP

  • Sixth, measures of US investor sentiment show optimism, but they are arguably not yet indicative of euphoria towards shares that may be associated with a major share market top. See the next chart.

The Investor Sentiment index is based on a composite of surveys of investors and investment advisers and options positioning. Source: Bloomberg, AMP

Related to this, bubbles don’t normally see lots of people doing bubble searches online so the surge in Google searches for an “AI bubble” since June may be a positive sign from a contrarian perspective, i.e. that we are not in a bubble yet.

Source: Source: Google, AMP

  • Finally, while there is no doubt a speculative element in investor demand for gold and bitcoin pushing their prices up, their surge partly owes to demand for a hedge against feared unsustainable public debt levels, worries that this might be monetised (i.e. where governments allow higher inflation to reduce the real value of debt) and geopolitical threats. So, record high levels of both are not necessarily a sign of a broader speculative mania.

Implications for investors

What are investors to make of all of this? There are four key points.

  • Rough periods – corrections and sharp bear markets – are normal in share markets and are the price we pay for the higher returns compared to defensive assets they provide over the long term.
  • Rich share market valuations are warning of the risk of a pull back in shares and it’s possible that enthusiasm for AI has run ahead of itself. But the fundamentals behind this are arguably far stronger than they were at the time of the late 1990s tech boom.
  • Either way it’s very hard to time share market moves. There were warnings of “irrational exuberance” in US shares in 1995, and it went on for another five years. The danger in trying to time corrections and bear markets is that you miss out on the longer-term gains.
  • The key is to adopt a long-term investment strategy appropriate for your risk tolerance, financial situation and age and stick to it.

Tailored Lifetime Solutions named Count Financial Firm of the Year

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Tailored Lifetime Solutions has been awarded the Firm of the Year at the 2025 Count.ed Conference on Hamilton Island.

Chosen from a strong field of finalists, Tailored Lifetime Solutions was acknowledged for our professional excellence, commitment to clients and contribution to the advice community. The awards shine a spotlight on the Count network’s most outstanding firms and professionals, recognising achievement in growth, leadership, innovation and service to the financial services sector.

Andrew Kennedy, Group Executive, Wealth at Count, congratulated Tailored Lifetime Solutions on the achievement.

“These awards highlight the incredible calibre of professionals across the Count community. Tailored Lifetime Solutions has demonstrated remarkable dedication and impact, and this award is a fitting recognition of their success.”

Reflecting on the award, Tailored Lifetime Solutions said it was an honour and a Team achievement.

“At the end of the day, our main goal is to make a real difference for our clients and to help them achieve the outcomes that matter most in their lives. Having said that, it is nice to be recognise by our peers for the hard work undertaken by our Team.”

Matt Cronin, David Kelsey, Todd Jeffrey receiving the award for Firm of the Year at the 2025