Shock pay rise you’ll need to keep up with home price rises

How much you’ll need to earn to afford the average Aussie home next year has been revealed – and it’s a surprising change.

Sydney home seekers will need a nearly $15,000 a year pay rise by the end of 2026 to keep pace with projected rises in house prices – even with multiple interest rate cuts, alarming analysis shows.

It was revealed that someone hoping to buy a median priced house in Sydney would need to earn an annual household income of $282,000 by the end of next year to afford the purchase, up from about $268,000 at the start of 2025.

Someone buying a median priced Sydney unit would need to earn $158,000 a year by the end of 2026, an increase from the $150,000 required at the start of the year.

The Finder.com.au research analysed what homebuyers would need to earn to buy an average-priced home in Sydney if recent KPMG forecasts for the market were to eventuate.

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Housing supply is expected to continue being strained, leading to high demand at auctions. Picture: Julian Andrews

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KPMG forecast Sydney house prices would rise by an average of 3.3 per cent this year and 7.8 per cent next year, with unit prices to rise an average 5 per cent in 2025 and 6.1 per cent in 2026. KPMG pointed to interest rate cuts and housing shortages as the main drivers of the price rises.

Finder’s modelling of the KPMG forecasts assumed buyers would benefit from two interest cuts of 0.25 per cent each this year.

Finder.com.au insights manager Graham Cooke explained that the benefits of small cuts in interest rates would be mitigated by rises in prices.

This would result in the required income to afford houses and units rising even though the cost of debt was cheaper, he said.

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Australia is falling behind critical housing supply targets, which is fuelling more price rises. Picture: Getty Images

“As long as the increases in prices remain bigger than wage increases property will continue to get more unaffordable, even if buyers get a little bit of rate relief,” he said.

“The average income required to buy a home is already significantly higher than the average wage.”

Australian wages rose by an average of 3.2 per cent over the past year and have not increased by more than 4.3 per cent on any year since 2005, according to the ABS.

Given this record, most Aussies with aspirations of buying a home would probably not pocket the kind of pay increase needed to keep up with the housing market, Mr Cooke said.

It was more likely they would instead watch prices rise at a much faster rate than their wages, Mr Cooke said, noting that a $15,000 pay rise was a big ask for most people.

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Finder.com.au head of consumer research Graham Cooke.

“Needing to earn that much more in a single year will make buying a home even more of a struggle. It’s already a challenge and this will make it even more so,” he said.

Mortgage repayments and the kind of income homebuyers needed to earn to afford them was only half the story, Mr Cooke added.

“It’s only part of the challenge. The other is trying to save a deposit,” he said.

“Price rises will increase the amount of deposit you have to pay plus the stamp duty. You will have to earn more to pay the mortgage as prices grow but you’ll also need to earn more to save fast enough to keep up with the increased deposit requirements.”

The Finder research factored in a 30-year mortgage and a home was deemed “affordable” if the repayments did not exceed 30 per cent of income – the mark of mortgage stress.

$15,000 average wage rises in two years would be unprecedented for the employment market as a whole.

Forecasts of more price rises come as an Urban Development Institute of Australia report showed a 400,000 shortfall in the supply of dwellings needed to contain population growth by 2029.

The report said the apartment sector was “mired in near record low levels of output, which is weighing heavily on aggregate dwelling production”.

It added that housing supply shortages were set to continue due to elevated materials costs, labour shortages and inflation.

The shortage “underpins the current rental and housing affordability crisis,” the UDIA said.

SuburbTrends analyst Kent Lardner said the only way many homebuyers were able to keep up with the market was if they already owned a home and could use the equity rises to fund a big part of their next purchase.

Mike and Amy Day, with kids Louie, Zoe and Evan, are selling a designer home in Roseville Chase at auction. Picture: Rohan Kelly

Roseville Chase resident Mike Day said his family were able to buy and sell multiple homes over the years by holding for a few years and then adding value to the block before selling.

The family had previously lived in an 80-year-old house for six years, but Mr Day, a builder, eventually had it knocked down and replaced with a designer house that they’re now selling at auction through McGrath agent Craig Ireson.

They’re on the hunt for a new home but don’t expect it to be easy, Mr Day said. “Homes around this area get snapped up pretty quickly and often there isn’t anything special about them.”

Originally published as Shock pay rise you’ll need to keep up with home price rises