Unit prices now unaffordable for average income-earners as investor activity soars to decade high

Property investor activity has soared to the highest level in more than a decade with average-income earners now struggling to even get a loan to buy an apartment in some cities.

Australians locked out of buying a house are turning to units, with double-digit annual price growth in Brisbane and Perth outpacing the value increase in homes with a backyard.

During October, property investor lending across Australia climbed by 0.9 per cent, which was the highest monthly increase since December 2014.

On an annualised basis, that worked out at 10.6 per cent increase, data from the Reserve Bank of Australia showed.

Increasing competition from first-home buyers, thanks to the new 5 per cent Deposit Scheme, is adding further heat to an already hot market, and locking out existing homeowners hoping to upgrade to a new property.

Sydney is no longer the only market where the average, full-time worker on an annual salary of $104,520 can’t buy the median-priced apartment with a 20 per cent mortgage deposit, borrowing at their maximum capacity. The middle-market apartment price of $896,743 would require two incomes to get a mortgage unless a prospective borrower was a particularly high income earner.

Brisbane is now also an unaffordable unit market with the mid-point price soaring by 15.8 per cent in the year ended November 30 to $792,896, new Cotality data showed, making it Australia’s best-performing market for either a house or an apartment in an area with a booming population.

At their maximum borrowing capacity, an average-income earner could borrow $627,120 to buy a $783,909 property.

But even then, the average-income earner would struggle because the Australian Prudential Regulation Authority, which regulates banks, has announced that from February, debt-to-income ratio loans of six or more would be restricted to 20 per cent of a lender’s loan book.

Cotality head of research Tim Lawless said investors were pushing prices higher, despite the fact the RBA is no longer expected to cut interest rates in 2025 or 2026.

“It just highlights how enthusiastic investors are at the moment in terms of their activity in the housing market,” he told The Nightly.

Mr Lawless is doubtful APRA’s crackdown on high-debt lending, targeting both investors and owner-occupiers, would have much of an effect on slowing down home price growth.

That’s because Australia’s big four banks and most lenders are well below APRA’s upcoming 20 per cent cap for high-debt loans.

“This is a pretty light touch from APRA but it certainly does send a message,” he said.

During the September quarter, investor loans made up 40.7 of all new mortgages, almost double the 20.9 per cent level for first-home buyers, based on Australian Bureau of Statistics data. The Federal Government’s fast-tracked 5 per cent Deposit Scheme, which allows all first-home buyers to get in with only a small deposit, came into effect on October 1.

The investor share was far higher than the long-run average of a third of the market.

State of housing

In 2025, the Reserve Bank of Australia’s interest rate cuts in February, May and August boosted property values.

Brisbane’s apartment market was the strongest among the capital cities. The Queensland capital’s house market was also the strongest, with values soaring by 12.2 per cent in the year ended November 30 to $1.111 million.

Brisbane’s weekend auction clearance rate of 71.5 per cent also marked a huge surge from 48.6 per cent a year earlier, Cotality data showed.

Gavin Croft, Ray White’s chief auctioneer in Queensland, said apartments under $1 million in the inner city and the outer suburbs were particularly in demand. The average registered buyer at auction was now aged 30 and taking advantage of the Federal Government’s 5 per cent Deposit Scheme for first home buyers.

“It’s playing a big role in it. It’s really fuelling it,” he told The Nightly.

“It’s the old first rule of anything when you’re wanting people to buy: make it easy for them to buy.

“Doesn’t matter whether you’re inner city, that’s particularly buoyant. But even further out, those real affordable suburbs further out than the city, you’ve got, really, really, really well sought-after.”

Investors on top of that are adding to demand in Australia’s strongest housing market.

South-east Queensland’s population was expected to reach 4.5 million by the 2032 Brisbane Olympics and had grown by an annual average of 2.2 per cent during the past five years, well above the national average of 1.5 per cent, new KPMG data showed.

“Investors are starting to enter back into the market,” Mr Croft said.

“We’ve got attraction from both overseas and local. The top end has got some real energy around it as well as the bottom end.

“You’ve got both ends of the spectrum.”

Perth was the next best market with apartments soaring by 14.9 per cent over the year to $657,944. House values in the West Australian capital grew by 12.9 per cent over the year to $955,832.

Adelaide is also doing well despite having weaker population growth than the national average. Its auction clearance rate of 85.2 per cent was the highest in the nation.

The median house price has soared by 8.2 per cent to $948,328 while the equivalent price for apartments also climbed by 8.2 per cent to $651,039.

Melbourne’s house price increase has been weaker at 5 per cent over the year, taking values to $978,392. Unit values went up by a more subdued 2.2 per cent to $637,830.

The Victorian Government’s land tax on investors has weakened the Melbourne market, which receives a high number of overseas migrants.

“Even though there are disincentives in Victoria, a lot more investors are going to be looking for medium to longer-term capital growth in Melbourne,” Mr Lawless said. “It’s going to become more and more attractive for investors despite the higher taxation environment.”

The Federal Government has no plans to revisit the 50 per cent capital gains tax discount or negative gearing, after Labor lost the 2016 and 2019 elections with a plan to halve the capital gains concession to 25 per cent and limit property investor tax breaks to brand new properties.

The Coalition was re-elected at both elections opposing those plans with only the Greens now advocating curbs on capital gains tax concessions and negative gearing.

Australian home prices haven’t dropped significantly since the 2017 to 2019 period, before COVID. This is when national property values fell by 8.4 per cent after APRA tightened the rules requiring lenders to restrict interest-only loans to 30 per cent of their total new loans.