It is 2001, and a nurse and an electrician are ready to buy their first home, a slice of suburbia with a small backyard and room for their young child.

They have saved diligently, setting aside 15 per cent of their wages for the past six years. Between them, they have accumulated $23,000, enough to cover a deposit on a modest home.

It is 2025, and their eldest is a teacher nearing 30. He has married a graphic designer, and the pair are on the hunt for a home of their own.

Just like his parents, he and his partner have saved 15 per cent of their wages for six years.

They earn more than their parents did, so they have amassed a tidy sum of $85,000, about double their parents once adjusted for inflation.

But the house their parents bought for $300,000 in today’s dollars, and still live in, is now worth $1.5 million. To afford that would take another four years at least, by which time it might be even more expensive.

It is Australia’s familiar housing story, repeated across families and cities. The social contract, where a middle-class job yields a middle-class home, has been left at the bottom of a house price mountain.

Back in 2001, the average house price was four times the yearly income for an average household — a ratio which required about six years of saving for a home purchase, just like our nurse and electrician.

Let’s call that the bottom of the mountain.

In the years since, incomes have doubled, but house prices have quintupled.

The result has sent the ratio way out of whack and nearly doubled the typical family’s required saving window. Viewed this way, it’s little wonder that housing has become the dominant economic anxiety for a generation now hungry for a solution.

Housing has been a prominent feature of the past two federal elections and is also front of mind for state governments. And over that time, the focus has shifted.

In the past, most government policies to improve housing affordability simply gave more money to people who wanted to buy homes — despite the warnings of economists that this would only make the problem worse by further inflating prices.

Those policies haven’t gone away. Just last month, the Albanese government enacted its plan to expand a 5 per cent deposit guarantee to all first homebuyers, against warnings from some quarters that this would turbo-charge the market.

But there is also growing recognition — and growing action — from governments at all levels persuaded by the evidence that building more homes, especially in the middle suburbs where people work and want to live, will make housing more affordable.

In 2023, the national cabinet struck a landmark agreement to reform the planning system, which has long acted as a brake on construction, with the aim of having 1.2 million new homes built over five years.

That target, set amid skyrocketing construction costs, appears doomed, but state governments are taking genuine strides on planning and the federal government has opened its wallet to encourage them. Over time, the tide could turn.

But how will we know if it does? What does success look like?

A generation in the making, a generation to fix?

That deceptively simple question receives surprisingly little attention. Even as politicians argue about what will “solve” the housing crisis, few are willing to say with clarity what they mean by “solve” and when it might happen.

That might be because long-range predictions are a recipe for disaster. As governments are learning the hard way with the 1.2 million homes target, even a short-term target can be derailed quickly.

But another reason might be that focusing on the solution highlights an inconvenient truth: a housing crisis that took a generation to create cannot be fixed easily.

The damage will likely take another generation to undo, unless the solution comes at the expense of those who already own their homes, pitting parents against children.

To see why, let’s return to the top of the mountain.

Ask a group of ordinary people what they imagine a solution to the housing crisis to be, and they might say something like: “Go back to the way things were”.

That may not literally mean returning prices to the levels of 2001. But what if we wanted to restore the same ratio between house prices and income, so that a typical family can once again afford a typical home with six years of saving?

On our graph, this would mean bringing our “house price mountain” back down to meet “income hill”. But to do this quickly — even if it were possible, which is far from clear — looks rather like jumping off a housing “cliff”.

Such a juddering transition, which is unrealistic, would in theory unleash chaos. Even the small blips you can see in the upwards trajectory of housing were painful for those with mortgages, who suddenly found the value of their assets heading south.

In 2008, for example, a months-long decline in house prices resulted in a spike in distressed sales and a hit to household incomes.

Some home owners found themselves with negative equity — paying off a bigger mortgage than what their homes were worth.

Of course, history shows that was a temporary phenomenon, meaning that most households were able to weather it. But a quick and permanent drop on a much larger scale would not be so rosy.

And the effect would not be contained to those who own the homes. As the finances of those with mortgages deteriorate, they have less money to spend, fuelling a broader economic downturn — the reason housing “crashes” often trigger recessions.

For that reason, politicians from both major parties are quick to emphasise they do not want house prices to decline. Instead, they are more likely to suggest a scenario where house prices grow more slowly than incomes, and incomes gradually catch up.

Michael Sukkar, the then-Liberal housing spokesperson, suggested something like this during the election campaign, a position which roughly aligns with Labor’s view.

Even that is not uncontroversial — Peter Dutton walked it back, saying house prices should grow by more than inflation. But what would it look like?

Suppose we set house prices to grow at 2.5 per cent per year, the same level as the Reserve Bank’s target for all prices.

And suppose we grow wages by 3.7 per cent, the long-run level Treasury projects in its intergenerational report.

This should not be treated as a prediction of the future, but rather as a projection of what might happen over a long period of time if prices grow at these rates on average.

It is immediately apparent that this doesn’t bring “the old normal” back any time soon. The income-to-housing ratio improves a little, but by 2050, a generation by now, homes would still be much more expensive than they were a generation earlier.

We can imagine a variety of scenarios between these two extremes.

For example, if we assumed house prices grow only at 1.5 per cent, we would get slightly closer to the old normal by 2050 — still slow progress, but a more tangible improvement to affordability.

Or imagine that prices flatline — the old normal returns in 2048, or just inside a generation.

Or suppose more drastically that prices fall by 1 per cent each year, which some economists say could be achieved without a spike in distressed sales, and without tipping many home owners into negative equity, if achieved gradually due to an expansion of supply.

A return to the old normal would be on the horizon, although still more than a decade away in 2036.

Governments do not set targets for house prices, and even if they wanted to it’s unlikely they could. Prices are shaped by interest rates, migration levels, housing supply and broader economic conditions no government would confidently predict over this time horizon.

It may also not be a realistic or desirable objective to return the ratio between house prices and incomes to exactly what it was in 2001. If governments did make predictions along these lines, they may wish to set their sights on winding back some of the shift, not all of it.

These are simplistic projections, not projections, which gloss over all of those important details to illustrate the basic dynamic: today’s policy debates are about shifting our housing trajectory, but change cannot be swift and smooth at the same time.

The scale of the affordability to restore the social contract of a generation ago would require either painfully slow improvement, or a painfully sharp adjustment.

Data notes: the figures used for the two couples are broadly consistent with the mid-range of incomes and house prices in each period and have been chosen to illustrate the effect of quintupled house prices and doubled wages. House price figures are from the Grattan Institute and the ABS, and wage and inflation figures are from the ABS.

Developer: Thomas Brettell**Design: Alex Palmer

Posted 9 hours agoSat 1 Nov 2025 at 8:09pm, updated 7 hours agoSat 1 Nov 2025 at 9:32pm