Treasury and RBA just ended Australia's Affordable Housing. Money Supply Surging | EP111

Australia’s property market is rising across the board. Beneath the surface, something is quietly unfolding — something that will rewrite how this market works. More and more banks are rolling out 40-year home loans, boosting people’s borrowing power simply by stretching out the term. At the same time, the Reserve Bank is quietly increasing the money supply, lifting M2 across the economy and driving asset prices higher. Add in soaring construction costs, ongoing immigration pressure, and government incentives to buy, and the future of the property market is crystal clear. Affordable housing in Australia is about to disappear. Even if you drop your standards to “just something livable,” for most people it is still a dream — because it’s simply unaffordable. For those who want to buy, there are only two options left. The first depends on luck. The second relies on your own hard work.

Affordable Housing Is Disappearing

Data analysis from Cortality shows that, over the past three years, properties in the bottom 25% by price have risen in value faster than those in the top 25%. It means the opportunity window at the entry level is closing fast. Every force you can think of—from market dynamics to government policy—is working together to weaken housing affordability. People trying to buy lower-to-mid-priced homes are facing faster price growth and a tougher problem. People in their 20s, 30s, and even 40s today can’t afford a home, no matter how hard they try.

Prices at the lower end are rising beyond everyone’s expectations—I know. Counterintuitive and against common sense. When wealthy buyers purchase homes, more bidders push prices up; that’s easy to understand. But people without much money are also scrambling to buy. The key questions are: how did they suddenly become able to pay, and why hasn’t the number of listings increased much? As affordable homes are sold off one by one, the stock that remains—and the homes that will come to market in future—are priced higher and higher. This is absolutely not a temporary blip or a normal economic cycle. Instead, multiple forces are acting together to speed up the disappearance of affordable stock. Homes that ordinary households could once afford are being systematically phased out through policy choices, market forces, and government intervention.

1.Soaring ConstructionCosts

Many people might think: Can’t we just build more homes? The reality is far more complex than it looks. In recent years, average construction costs in Australia have surged 52.6% compared with pre-pandemic levels—an astonishing jump.

Build times have also blown out. It now takes 50% longer to construct a home than before the pandemic. Houses that used to be finished in five to six months, on average, now take more than ten months to deliver. Interest on land held during construction keeps piling up, and developers are under growing financial pressure. Time is money; it’s hard not to raise prices.

Labour shortages make it worse. Major infrastructure projects are running full tilt—AUKUS base construction, Sydney’s second airport, Brisbane’s Olympic venues, Melbourne rail projects. These government-led “mega projects” are aggressively competing for skilled workers. A builder trying to find a top-tier plumber, carpenter, or bricklayer? Sorry—there’s a queue, and the rates are steep. Rising labour costs feed straight into total build costs. And the result? When builders can’t deliver at a reasonable cost, so-called “affordable housing” becomes empty talk, and new supply simply can’t fix affordability in the short term. So, will this surge in build costs be amplified by the immigration wave?

2.Housing Shortages And Immigration Pressure

You can sum up Australia’s housing crisis in three words: demand outstrips supply. And that “demand” is growing at a pace we’ve never seen before. ABS data shows that as at the first quarter of 2025, annual net overseas migration reached 316,000 people. What does that mean? Australia is adding 1,223 people every day. In a year, that’s more than half of Canberra’s population.

Roll back the clock a bit. In the 3rd quarter of 2023, net overseas migration hit a staggering 555,800—the highest on record. Although it has come down from that peak, 316,000 is still more than 30% above pre-pandemic levels. In the decade before the pandemic, Australia averaged 220,000 net migrants a year; now it’s doubled.

Where do these people go? They need somewhere to live. Are there enough homes? Absolutely not. From 2022 to 2024, migration-driven population growth created a supply shortfall of 179,287 dwellings. By state, the gaps are even more obvious: Western Australia is short 52,783; Queensland is short 48,737; New South Wales is short 44,533; Victoria is short 32,244. The only state without a net shortfall is Tasmania.

Now look at the gap between government housing targets and what’s actually happening. The federal plan is to build 1.2 million homes in the five years from July 2024—240,000 a year. Reality? In 2024, only 174,000 homes were completed, 66,000 short of the target (27%). New approvals were just 181,000, with starts about the same—both well below the 240,000 annual benchmark.

This sets up a classic economics problem: supply can’t catch demand. When migration stays high while construction—held back by costs, labour, and approvals—fails to keep pace, there’s only one outcome: prices and rents keep rising. And here’s the twist—policy settings are pouring fuel on the fire.

3.Counterproductive Government Incentives

Are first-home-buyer policies a good thing? For buyers who receive them now, yes. For those who come after, not at all. These incentives quietly push prices higher, and the real beneficiaries aren’t buyers but sellers.

In October 2025, the Australian Government brought forward an expanded First Home Guarantee program. It allows first-home buyers to purchase with just a 5% deposit, removing income caps and quota limits, and lifting price caps—Sydney from $900,000 to $1.5 million, Melbourne from $800,000 to $950,000, Brisbane to $1 million.

Sounds appealing. But an independent analysis commissioned by the Insurance Council of Australia and conducted by Lateral Economics reached a startling conclusion: the expanded scheme will push prices up by 10% in its first year, especially in the very segments and price bands first-home buyers care about most. On a $700,000 home, a first-home buyer might save $21,000 to $28,000 in lenders' mortgage insurance, but the price would rise by $37,100 to $69,300—leaving them effectively worse off by $16,100 to $41,300.

History gives us a guide. In 2021, the NSW Productivity Commission studied the impact of buyer subsidies for new Sydney homes under $600,000 during 2010–2012. It found the policy distorted the market, encouraging purchases just under the $600,000 threshold. Buyers adjusted what they were willing to pay, some newcomers were pulled into the market, and most of the benefit flowed to sellers, not buyers.

So do these incentives really help first-home buyers? On the surface, yes. In practice, they throw more fuel on an already hot market. The true winners are vendors and existing owners watching their property values lift with the “subsidy.” Meanwhile, young people saving hard discover that while the government offers help, prices run even faster and buying gets harder. That’s the textbook definition of counterproductive. These measures help a few people on board in the short term, but they leave overall prices higher.

Does it feel like people who didn’t have much money suddenly found the means to buy a first home? The policy didn’t hand out cash. The main driver is an over-expansion of credit.

If you have any questions about property investment, please book a free 15-minute discovery call on our website. If you want a team offering one-stop service to help you build a property investment portfolio, achieve financial freedom and retire early, join our VISION Membership by booking a 30-minute obligation-free discovery session to start with. Or to keep it simple, our data-driven buyer's agency service can help. We buy and manage properties for our clients anywhere in Australia. Links to the service are in the description below.

4.Australia’s Home Loans are Getting Longer

Imagine this: you’re still paying off your mortgage all the way to retirement, even after you retire. Can you accept that? In Australia, this is becoming a reality for more and more people. Forty-year mortgages have become the “new normal” in the home loan market.

Here’s how this trend started. In December 2024, Pepper Money became the first Australian lender to formally offer 40-year mortgages to everyday borrowers. Then in September 2025, Great Southern Bank joined in, launching a 40-year product specifically for first-home buyers aged 18 to 40. Now, including G&C Mutual Bank, Australian Mutual Bank, RACQ, and Credit Union SA, at least seven lenders are offering 40-year terms.

Why has this happened? Put simply, homes are too expensive and young people can’t afford them. A Great Southern Bank survey of 1,000 Australians in June 2025 found that nearly one-third of Gen Z and Millennials, and one-fifth of Gen X, would consider a 40-year loan if it lowered their monthly repayments. Research from Finder also shows that one in three Australians says they would choose a 40-year mortgage if it meant paying less each month. Lower repayments sound great—so what are the downsides?

Let’s run the numbers. Say you borrow $600,000 at 6.5%. On a 25-year term, the monthly repayment is about $4,051. Stretch it to 30 years and it drops to $3,792. Push it to 40 years and it falls further to $3,513. You save a few hundred dollars a month—seems much easier. But hold on. Look at the total cost. On that same $600,000: total interest over 25 years is $615,000; over 30 years it jumps to $765,000; and over 40 years it soars to $1,086,000. In other words, a 40-year term means paying $320,000 more interest than a 30-year, and $470,000 more than a 25-year. Those few hundred dollars you save each month end up handing the bank hundreds of thousands extra.

Zooming out, 40-year mortgages are a symptom of Australia’s housing affordability crisis, not the cure. Mortgage affordability is not the same as housing affordability. Extending terms does reduce monthly repayments, but it inflates the total you repay, and it means more Australians will carry mortgages into retirement. This doesn’t solve the crisis—it delays it and makes it bigger.

5.The Invisible Driver: Money Supply (M2)

The four points above are micro-level factors we can see and touch. There’s also a macro factor almost no one talks about: the expansion of Australia’s M2 money supply. This is the deeper “engine” behind persistent rises in property prices.

First, what is M2? Put simply, M2 includes cash in circulation (M1), plus savings accounts, money market funds, and short-term deposits—money that’s “less liquid.” It’s a broad measure of how much money exists in the economy. When M2 grows, there’s more money in the system; when it shrinks, there’s less. The amount of money directly influences asset prices.

During the pandemic, to fight recession, the Reserve Bank of Australia (RBA) expanded the money supply on a massive scale—more formally, quantitative easing (QE). From March 2020 to February 2022, the RBA bought $300 billion in government bonds. That effectively injected new money into the system and expanded M2. The result? House prices took off. From mid-2020 to early 2022, Australian home prices surged more than 20%.

In 2022, to rein in inflation, the RBA entered an aggressive hiking cycle, lifting the cash rate from 0.1% to 4.35%. At the same time, it began quantitative tightening (QT)—stopping new bond purchases and letting maturities roll off—to try to reduce the money supply. The practical result? M2 growth slowed. Note: slowed growth, not an outright fall.

Despite the official rate not starting to come down until February 2025, M2 has quietly begun to expand again. CEIC data shows that by January 2025, Australia’s M2 was up 5.3% year-on-year, after 5.4% the previous month. What does that mean? The Money Printing has quietly restarted, and a wave of new money is flowing into the economy.

Picture the economy as a giant pool filled with water—the water is money. In the pool stands many people—think of them as assets—at different heights. When the central bank or government pours more water in—increases the money supply—what happens? The water level rises, and everyone standing in the pool is lifted. That represents asset values, including property, rising as money increases.

Investors already in the property market, using leverage, are like the people in the pool. When M2 grows and money expands, the nominal price of assets rises—not because the homes are better, but because the ruler we use—which is money—has stretched. Those sitting on the sidelines in cash are like people standing at the pool’s edge. They watch others rise higher and higher, but hesitate to jump in out of worry or fear. Their cash loses purchasing power as they wait.

The impact is very different for different groups. For people keeping their money in the bank, it’s painful—savings lose real value, and purchasing power deteriorates. But for people holding debt, it is great. Why? Because their debt—like a mortgage—is a fixed nominal amount. Say you owe the bank $500,000. As money loses value, inflation rises, and wages grow in nominal terms, that $500,000 becomes easier to carry. Ten years on, your salary may have doubled, but the amount you owe hasn’t; relative to your income, the weight “feels lighter.”

So for investors holding assets like property—and carrying debt—monetary expansion creates a kind of winning loop: assets appreciate while liabilities are diluted. That’s why so many investors are keen to use leverage to buy property. They’re not crazy; they understand the rules of a depreciating currency. If you buy with 80% leverage and put down 20%, when prices double, your equity grows fivefold. In an environment of ongoing monetary expansion, that wealth effect gets amplified.

Let me clear up a common misunderstanding: some property commentators say M1 is a leading indicator of asset prices. That’s not right. It’s M2. M2 is more stable, more comprehensive, and more closely correlated with nominal GDP and asset prices. Australia doesn’t currently publish M2, so you can approximate with M3—M2 plus things like large amounts of term deposits, bonds and institutional money market funds. The chart below of money supply against Australian home prices shows a very strong relationship.

History shows that over the long run, money growth and inflation are tightly linked. When money grows faster than the real GDP growth, the excess pushes up prices—consumer prices, services, and asset prices.

What does this mean for everyday people? If you hold only cash and savings, your purchasing power is going down. But if you hold property—especially using leverage—you actually benefit from monetary expansion. It’s not fair. I know. But that’s how a modern fiat currency system works.

So, while the renewed expansion of M2 isn’t as flashy as rate cuts or migration policy, it’s the “invisible engine” pushing Australian home prices higher. It provides liquidity to lift asset prices, dilutes debt for borrowers, and keeps feeding momentum into the property market. This isn’t a conspiracy theory—it’s basic monetary economics. Once you understand this, you can see the real forces behind Australia’s housing market more clearly.

Only two paths for ordinary people

If you’ve grasped the micro and macro trends above, you can fully understand why Australian home prices keep rising. Price growth is a trend, and no one can stand in its way. Some say if people’s spending power doesn’t rise, prices won’t rise; if people can’t afford homes, prices can’t go up. It’s true many can’t buy—but many still can. Even if real wages don’t grow, the forces that push prices up—money supply, currency depreciation, inflation, government subsidies, and credit expansion—are powerful and unstoppable. Some might push back: but US home prices haven’t risen much in recent years. True—Americans’ main financial reservoir is the stock market, while in Australia it’s property. Others say New Zealand and Canada property markets haven’t seen big gains, so Australia will eventually follow. I’ve already made two videos explaining the property market in those two countries in detail—take a look if you’re interested.

What does Australia’s future look like? Those who can afford homes have already bought—and they’ll keep buying more. Those who can’t have two choices. First: go all in just to get on the train. Maybe your parents can chip in; take every government subsidy you can; borrow from relatives and friends. One way or another, buy a property first. If that still doesn’t work, there’s only one option left. Earn more. The era when a decent job naturally meant you could buy a home is gone. For young people today, without standout achievement, buying a home is next to impossible. Work harder, save harder, invest what you save, and when the balance is enough for a deposit, buy as soon as you can. That’s the only way.

From what I see, only a small percentage of Australians will manage to buy through hard work, because too many people don’t want to put in the effort. They spend their time complaining about unfairness online, then head out to protest—without considering how to improve themselves to earn more. For new migrants, the determination to change their lives is much stronger. More and more will manage to buy through hard work and money discipline. In the end, the likely outcome is that Australians who already own property, together with hardworking new migrants, will become the landlords of those who refuse to try. If you’re ready to move forward—if you want to use property investing to change your life—come talk to AusPropertyStrategy and join our membership.

Watch the video version of the blog on YouTube.

15 Minutes Free Consultation (Limited-Time Free Offer)

If you have any questions about Australian real estate, we invite you to use our 15 Minutes Free Consultation service. Once you have filled in the form, a professional property investment strategist will be in touch with you. They will assess your needs and provide fundamental advice. This service is designed to help answer general property-related queries. BOOK NOW.

VISION Membership

Our Flagship Service: VISION Membership. Your One-Stop Property Investment Manager – Build a Tailored Portfolio and Achieve Financial Freedom

Whether you're an employee, a professional, a business owner or even a new migrant, everyone has a financial goal for the future. The VISION Membership is designed to solve all the pain points in your Australian property investment journey through one single, comprehensive service.

By analysing your current financial situation and long-term goals, we'll tailor a property investment plan just for you. Our team will match you with the ideal mortgage structure, tax strategies, wealth planning, and legal support, empowering you to go further, faster, and smarter on your path to financial freedom.

VISION Membership is perfect for busy individuals who want a professional team to create, expand and manage their Australian investment portfolio. If you're looking for a dedicated team, including real estate investment experts, mortgage brokers, accountants, financial planners, and property solicitors, VISION Membership is your ideal solution.

Start with an obligation-free 30-minute discovery session on Zoom. BOOK NOW.

VISION Buyer’s Agent

No time for inspections? Tired of dealing with pushy selling agents? Unsure how much to offer or feeling nervous about auctions? Worried about buying the wrong property? If any of these sound like you, AusPropertyStrategy's Australia-wide VISION Buyer's Agent Service is here to help.

We provide end-to-end support to help you build an optimised property portfolio and achieve your financial goals—whether you're investing interstate, refinancing, or planning post-settlement leasing or resale. Our services cover everything from suburb research and property selection, to price negotiation, auction bidding, and post-settlement support.

Start with an obligation-free 30-minute discovery session on Zoom. BOOK NOW.

real estate australia,real estate investing,australian property,australian housing market,australian economy,australian property investment,australian property market,buying property,australian real estate,mortgage brokers brisbane,first home buyer,Australian Real Estate,Australian Real Estate Investment,Australian Property Investment,Real Estate Investment,Property Investment,Property Investment Australia,Passive Income,Positive Cash Flow,Australia Real Estate Investing,Australian Real Estate Investors,Australian Property Investors,Vision Wealth Mentors,Vision Real Estate Investors Australia,financial freedom, freedom through property investment,real estate investors,property investment,passive income,positive cash flow,real estate course,real estate courses,real estate training,australian property market,property investment brisbane,property investment sydney,melbourne property market,investing in brisbane,investing in melbourne,how to invest in property,buying properties,start investing in property,property investment strategy,how to buy investment property,property investing tips,best suburbs to invest in sydney,locations real estate,prime location,property growth by suburb,capital growth suburbs