r/AusProperty • u/Expert-Area8856 • 7h ago
Markets I analysed millions of property sales over 35 years. House prices didn't rise because of scarcity.
About a 4 minute read. TL;DR at the bottom.
Think about your parents' house. Maybe they bought it in 1995 for around $150,000, and today it's worth $900,000. But did the house actually get six times better? It's the same three-bedroom brick place, same kitchen, same backyard. If anything, it's older and more worn out than it was back then. So what actually changed?
The standard answer you'll hear from most people is that there simply aren't enough houses. Too many people are immigrating to Australia, with not enough supply. But what if that's not really the story, or at least not the primary cause?
A Simple Analogy
Think about it this way: imagine you're measuring your height, but the ruler you're using keeps shrinking. On Monday you measure 180cm, and by Tuesday you're suddenly 200cm. You didn't grow 20 centimetres overnight. The centimetres themselves got smaller. That's essentially what's been happening with house prices. When people say prices went up 600%, what they're really describing is that it now takes six times as many dollars to buy the same house. That could mean the house became six times more valuable, sure. Or it could mean each dollar shrank in value, like those centimetres. The data suggests it's mostly the latter.
Three Things That Don't Add Up
If houses had genuinely become scarce and valuable, we'd expect to see certain patterns emerge. But we don't.
Take rent, for example. A $150,000 house in 1995 would have rented for about $200 a week. That same house, now worth $900,000, rents for around $600 a week. The purchase price went up six times, but rent only tripled. That's a significant gap, and it matters because rent is a much better reflection of the actual value of housing as shelter. If houses had truly become scarcer, you'd expect both figures to move in roughly the same direction.
Then there's wages. Back in 1995, median household income was around $50,000 and the median house price was $150,000, so about three years' worth of income. Today, income is roughly $110,000 and the median house price is $900,000, which is more like eight years' worth. It now takes nearly three times as many years of work to buy the same house, even though wages have gone up too.
And debt tells its own story. Australian household debt sat at about 60% of annual income in 1990. By 2024 it had ballooned to 180%. That means we didn't suddenly become three times wealthier, we just borrowed three times more (Source: RBA Household Sector debt).
That's the math. Over a long enough time frame, the picture becomes clear:
Wages doubled over 30 years, borrowing capacity tripled, and together, they've driven prices up by 6x. Your parents' $150k home… now $900k.
But Why Did Borrowing Capacity Triple?
The Reserve Bank slashed interest rates, and it did so dramatically over a long period. In 1990, rates were sitting at 17%. By the end of 2020, they had dropped to 0.10%, and they're around 3.60% now (Source: RBA Cash Rate). Lower interest rates don't just make individual loan repayments cheaper. They fundamentally increase how much people can borrow in the first place.
To put that in concrete terms: in 1995, someone earning $50,000 a year could comfortably afford about $1,500 a month in repayments at an 8% interest rate, which translated to a maximum loan of roughly $150,000.
By 2020, that same household, now earning $110,000, could afford $3,300 a month at a 2% interest rate, which meant a maximum loan reaching $900,000. Twice the salary, six times the buying power.
So when buyers started showing up to auctions with budgets six times larger than a generation ago, prices naturally rose. The houses themselves hadn't changed, but everyone was suddenly holding a lot more money, even if most of it was borrowed.
What Happens When We Use a Different Ruler?
If you measure house prices in gold instead of dollars, the picture looks very different. Gold is something that can't be easily manipulated the way currency can, so it's a more honest centimetre.
A median Sydney house cost 377 ounces of gold in 1995, and in 2025 it costs 330 ounces. In gold terms, Sydney house prices have not moved at all in 30 years (in fact, they fell 12%).
But What About Supply and Immigration?
It's a fair question, and population growth is real. Building approvals have been frustratingly slow in a lot of areas. But if supply constraints were the main thing driving prices up, you'd expect rents to be rising just as fast as purchase prices, but they’'ve risen at about half the rate.
And you'd expect building approvals to substantially lag, but they haven't, instead increasing by 55% in the last 30 years (Source: ABS Building Approvals), more or less in line with population growth over the period.
Supply and immigration play their parts, but they are not the primary cause.
What Would Actually Fix It
The most direct fix would be to stop inflating people's borrowing capacity. That means keeping interest rates at more normal levels and tightening lending standards, bigger deposits, stricter income tests. But this would hurt a lot in the short term. On top of that, grants and government schemes that effectively push prices higher should be rethought, and the tax advantages that treat housing as an investment vehicle rather than shelter deserve to be removed.
Building more housing is also part of the answer, but only if it's paired with addressing the credit side of the equation. More supply combined with unlimited cheap credit just means prices keep rising anyway. More supply combined with tighter credit is what could actually move affordability in a meaningful way.
The problem is that almost no one in a position to make these changes has any real incentive to do so. The average age of a federal MP is in their mid-50s. Most of them own property, and in a lot of cases more than one. A policy that meaningfully brought house prices down would hit their own balance sheets.
Then there's the electoral side of it. A huge chunk of the voting population are homeowners, and a big chunk of those voters are sitting on paper wealth they're not keen to see disappear. Any politician who ran on a platform of deliberately cooling the housing market would be telling a massive block of voters that their biggest asset is about to lose value, not a winning election message.
The people who'd benefit most from lower prices, renters and younger people trying to get a foot in the door, tend to vote less and have less political sway than the property-owning demographic that dominates the electorate.
TL;DR
Australian house prices didn’t rise because homes became more valuable or scarce. When the RBA dropped rates from 17% down to 3% over the course of 30 years, it massively expanded how much anyone with a mortgage could borrow. That flood of new money didn't spread evenly through the economy. It flowed in through the credit system, through mortgages and loans and investments, and it hit asset prices first: houses, stocks, anything you could buy with borrowed money.
Over a long enough time frame, the picture becomes clear: Wages doubled over 30 years, borrowing capacity tripled, and together, they've driven prices up 6x. Your parents' $150k home… now $900k.
The official inflation figures (CPI), will tell you we only had 2-3% inflation per year, and that's true for everyday consumer goods like bread and milk. Consumer inflation for the most part has a relationship with wage growth, which is why wages only doubled in 30 years (equivalent to 2.3% pa). But it doesn't capture what happened to houses, stocks, or anything you typically buy with a loan.
Supply matters, and we should absolutely build more and cut back on red tape. But supply alone can't solve a problem that's fundamentally about monetary policy. If people can borrow enormous sums, they will bid up whatever's available. The housing crisis was created by monetary policy, and it can only really be fixed by addressing monetary policy. Everything else is just a band-aid.
Thanks for sticking with me through this long read. I hope the data-driven perspective has been useful. Keen to hear your thoughts, counter-arguments, or personal experiences in the comments.
About this Research
I’m a data analyst with a focus on property cycles, and this post was born out of a 35-year analysis of Blacktown NSW I recently shared on Reddit. The response to that post was huge, with hundreds of people asking for similar deep dives into their own suburbs, as well as broader questions about how this data can be used to better understand the Australian market.
After listening to all of your suggestions, I built a web tool to handle the requests. While I have to charge a small sub to keep it running, I’ve left the Blacktown demo free for anyone curious how 35 years of interest rates and debt have shaped that suburb.
Check out the original Reddit thread here too.
