Why Falling House Prices Might Be Exactly What Australia Needs

In Australia, talking openly about falling house prices is almost taboo — especially in a sector where homeownership is not just an aspiration, but a core pillar of wealth and economic stability. So when a leading property data provider suggests price drops could be good for the country, it’s worth paying attention.
That’s exactly what Eliza Owen, head of research at Cotality (formerly CoreLogic), has done in a refreshingly honest assessment of the housing market. At a time when both major political parties are clinging to the idea that house prices should keep rising — just not faster than wages — Owen is asking a different, perhaps more courageous question: What if lower house prices are actually the solution to Australia’s housing crisis?

A reality check on affordability
Let’s be clear: rising wages outpacing house prices would, in theory, improve affordability. But that’s a fantasy when house prices are already eight times the median income in many parts of the country. As Tarric Brooker has pointed out, it could take decades for income growth alone to bridge that affordability gap — decades many aspiring homeowners simply don’t have.

Meanwhile, current "affordability" policies from both Labor and the Coalition focus on helping buyers enter the market faster through grants, incentives, and smaller deposit requirements. The problem? These measures often end up inflating demand without addressing supply — which pushes prices even higher.

Owen’s blunt conclusion: if we truly care about affordability, then prices need to fall.

But can we afford falling prices?
Understandably, many Australians are nervous about the idea of property values going backwards. Real estate underpins more than half of all household wealth and makes up two-thirds of bank assets. The sector also supports around 11% of Australia’s economic activity and millions of jobs.

But Owen makes a compelling case that the economy — and most individual households — can handle a moderate drop. In fact, 95.7% of home resales in late 2024 still made a profit. Even a 10% fall in home values would leave nearly 89% of sellers ahead, with a median gain of $263,000. And at the macro level, the Reserve Bank estimates only about 10% of borrowers would fall into negative equity even if prices fell by 30%.

What’s in it for buyers?
For first home buyers, the benefits of a price correction are immediate and tangible.

A 10% price fall could slash the median deposit by $16,000.

Mortgage repayments would drop by around $100 a week.

Over the life of a loan, that could mean savings of more than $130,000.

And beyond the dollars and cents, there’s a broader benefit: the hope of owning a home becomes a real possibility again for younger Australians, without needing help from the bank of Mum and Dad or taking on unsustainable debt.

Lessons from the past
Australia has weathered housing downturns before — in 2017–2019, and again during 2022–2023 — without economic collapse. Western Australia saw prices fall more than 16% over five years after the mining boom, yet mortgage arrears stayed low and financial stability held. During that time, affordability improved markedly.

This highlights a key point: price corrections don’t have to mean financial disaster — provided lending standards are strong and borrowers are not overleveraged.

What do we want from housing?
It’s time to ask what housing is really for. Is it a speculative investment vehicle, or is it a fundamental human need?

Relying on ever-increasing property prices to drive economic growth is not a sustainable model. Just look at the aftermath of the housing bubbles in Ireland, Spain, and the U.S. Lower prices could shift household spending toward sectors like health, education, and technology — investments that could boost productivity and long-term national prosperity.

As Owen puts it, “Housing is not only an investment, but also something people consume.” If prices were lower relative to incomes, Australians could afford to spend more elsewhere — perhaps even boosting their earning potential in the process.

A shift in perspective
Falling house prices shouldn’t be feared as the beginning of the end — they might be the beginning of a new, more balanced era in Australian housing. One where affordability isn’t a campaign slogan, but a lived reality.

And perhaps the biggest shift we need isn’t in prices or policies — but in mindset.
Article references: ABC Business article