Home values across the nation’s capital cities have suffered their biggest fall in almost four years, led by sharp drops in Sydney and Melbourne as interest rate settings, expensive dwellings and the federal government’s property tax changes combine to slow the market.
As new figures show the nation’s housing market has never been less affordable, data compiled by Cotality, released on Wednesday, showed national dwelling values dipped by 0.4 per cent in June. It was the largest single monthly fall since December 2022.
Sydney house values alone tumbled by 1.5 per cent in the month to be 4.2 per cent lower since the start of the year. In Melbourne, house values fell another 1.3 per cent with values 1.2 per cent down over the past 12 months.
Some cities continue to grow, with house values in Perth lifting another 0.7 per cent to be 23.6 per cent up over the past year, while in Brisbane they lifted by 0.2 per cent to be 16.8 per cent higher than this time in 2025.
The government has come under attack from the Coalition over the strength of the property market, with claims the budget’s changes to negative gearing and capital gains tax have left some people in so-called “negative equity” – where a person owes more on a property than it is worth.
Cotality research director Tim Lawless said three factors were weighing on the property market, including the government’s tax changes and the Reserve Bank’s three interest rate hikes between February and May.
“Even before interest rates rose by 75 basis points, we were seeing affordability hurdles weighing on buyer demand,” he said.
“Higher cost-of-living pressures, deeply pessimistic sentiment and a further dampening of demand via property taxation changes announced in the federal budget are all contributing to weaker housing conditions.”
Over the past three months, total dwelling values in Sydney (minus 3.2 per cent), Melbourne (minus 2.6 per cent) and Canberra (minus 1.3 per cent) have all gone backwards. But they have lifted in every other capital city market, led by Darwin’s 5 per cent and Perth’s 2 per cent.
Year-on-year, Melbourne dwelling values have fallen by 0.9 per cent. They have climbed everywhere else, although both Sydney (0.3 per cent) and Canberra (2.9 per cent) have experienced increases well short of the inflation rate.
Despite the drop in values, the median house value in five capitals – Sydney ($1.6 million), Brisbane ($1.2 million), Adelaide ($1.01 million), Perth ($1.1 million) and Canberra ($1.04 million) – remains above the $1 million mark.
Those high prices were reflected in the Housing Industry Association’s latest measure of affordability, which found the nation’s property market was at its most expensive since it started collating data in 1994.
According to the association, in the March quarter Sydney remained the least affordable capital in the country, with home buyers needing 2.1 times average income to service a typical mortgage. The typical monthly mortgage repayments have now climbed to $6788 a month.
Sydney has now almost matched by Brisbane, which is just short of 2.1 times average income. The typical monthly mortgage repayment in Brisbane has soared by more than $700 to $5822 over the past year.
Perth is the third-least affordable city, at 1.9 times average income to service a mortgage, just ahead of Adelaide. Servicing costs in Melbourne have eased to 1.53 average incomes.
The association noted that the RBA’s rate rises had been a key factor in making homes less affordable. The data pre-dates the government’s tax changes.
The Reserve Bank held interest rates steady at its meeting earlier this month, with markets now expecting it to hold them at 4.35 per cent until late next year.
Minutes of the June meeting showed the bank is aware that its previous rate rises, and the government’s tax charges, will affect the property market, noting that if there was a “material weakening” in prices it could slow the economy.
“Members noted that conditions in the housing market had eased by more than expected, reflecting the recent increases in the cash rate, tax changes announced in the Australian government budget and the broader economic environment,” the minutes showed.
In parliament, Liberal leader Angus Taylor targeted the impact of the government’s property tax changes, asking how many first home buyers had fallen into negative equity since the budget’s release.
Treasurer Jim Chalmers said the Coalition was becoming “increasingly desperate and more than a little bit pathetic” with its questions over policies aimed at making the housing market fairer to all Australians.
“They’re about making sure, for the first time, in a quarter of a century, that first-home buyers and particularly young Australians get a fair go in a housing market that has locked them out for too long,” he said.
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Shane Wright is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X or email.
