Inflation and Housing Affordability in Australia: The Role of Policy Uncertainty and Urbanization

This paper examines how inflation, economic policy uncertainty (EPU) and urbanisation affect housing affordability in Australia. The study uses secondary-source data (ABS series) and a simple city panel (Sydney, Melbourne, Brisbane and Perth), in conjunction with the housing inflation component of the indicator (mortgage rate) to establish a connection, followed to show inflation and urbanisation are pressures exerting their stress on affordability in parallel. Sydney is shown to have experienced the largest annual rise (≈12.5%: 6.2pp inflation, 6.3pp urbanisation). The relatively linked movements were represented via weak inverse correlation (r≈−0.14), therefore we recommend separate state and federal policy levers for these returns to housing affordability. Low-income renters are often exposed to pay ≥30% of their income towards housing, while middle-income first-home buyers are now experiencing tighter serviceability and deposit requirements. Regional areas may appear to be cheaper areas to rent or purchase... yet likely contain unrecognised stress. We propose adjusted transitions over the near-term (indexed cap on rent movement, offset mortgage-stress for all welcome), followed by longer-term supply reforms (diminished approval times, mid-rise infill, Build-to-Rent), but acknowledge the limitations of our data collection that relates to a range of 12 months up to 2024.