Key facts
- Australia's mortgage burden is now greater than when interest rates were around 17% in the late 1980s.
- In early 1990, interest payments on homes and consumer debt were 5.7% of household income.
- By early 2026, with rates at 8.3%, mortgage servicing will consume 5% of income, rising to 5.4% with consumer debt.
- Soaring home values have driven higher borrowing and lower homeownership rates.
- Housing affordability is at its worst level since records began in 1994.
Australia's mortgage burden has surpassed levels seen in the late 1980s, a period characterized by interest rates around 17%, according to new analysis by KPMG.
Terry Rawnsley, an urban economist at KPMG, stated that his research aims to counter the notion that previous generations had a harder time with homeownership. Data indicates that while interest rates are now significantly lower, soaring property values have compelled homebuyers to take on larger loans. In early 1990, interest payments constituted 5.7% of household income, with 3.4% for dwellings and 2.3% for consumer debt. By early 2026, with average home loan rates at 8.3%, households are dedicating 5% of their income to mortgages, and 5.4% when including consumer debt. This figure is expected to climb towards 6% as recent interest rate hikes fully impact borrowing costs.
Rawnsley noted that despite the common perception of the late 1980s and early 1990s as a peak period for housing stress, current borrowers are facing more challenging conditions. He acknowledged that homeowners in the past contended with other issues, such as double-digit unemployment rates. The aggregate data, while the best available, conceals a wide range of individual experiences, from first-time buyers heavily indebted to those who purchased decades ago with less impact from current rates.
Tim Reardon, chief economist at the Housing Industry Association (HIA), agreed that buying a home is more difficult now than in the late 1980s. He criticized recent tax reforms, including changes to capital gains tax and negative gearing, suggesting they could reduce essential housing supply. Reardon pointed to HIA analysis showing housing affordability is at its worst on record since 1994. He anticipates that any current price relief will be temporary, with short periods of decline typically followed by extended periods of rapid growth. Reardon believes successful housing policy should aim for stable home prices over a decade or more, with rental vacancies ideally above 3% to prevent significant price changes.