Australia is unlikely to see a London-style housing crash in the near term while rental vacancies remain very low and population growth continues to outpace new housing supply. A nationwide drop would likely require several shocks at once, such as rising unemployment, a sharp fall in migration, tighter credit and a spike in forced sales. The more probable outcome is uneven performance by city and dwelling type, with apartments in oversupplied pockets more vulnerable than detached houses in land constrained suburbs.
What is happening in London and Australia right now?
London’s market has softened in recent years, particularly in expensive and investor heavy segments. The United Kingdom faced a unique mix of drivers, including higher mortgage rates, post Brexit uncertainty and specific policy changes that reduced investor incentives in the buy to let sector. The UK limited deductibility of mortgage interest for individual landlords, replacing it with a basic rate tax credit, which lowered after tax returns for many investors. See the UK government’s guidance on these changes at gov.uk.
By contrast, Australian prices proved resilient through 2023 and 2024 despite higher interest rates, supported by very tight rental markets, strong net overseas migration and constrained construction. The Australian Bureau of Statistics projects continued population growth under most scenarios, which sustains underlying housing demand over time. See ABS projections at abs.gov.au.
ABS: Australia’s population in 2022, 26 million, is projected to reach between 34.3 and 45.9 million people by 2071. These are projections, not predictions.
Why is a London style crash less likely in Australia today?
- Very tight rental markets. Low vacancy rates point to excess demand for dwellings, which supports both rents and valuations. Independent trackers showed national vacancies near historic lows through 2023 and 2024, see SQM Research and major portals’ rental reports.
- Population growth outpacing new supply. ABS projections and recent migration data indicate demand pressure that new construction has struggled to meet, see ABS population and ABS building approvals.
- Stronger borrower screening. Since 2021, banks must assess new home loans with a minimum 3 percentage point interest rate buffer, which improves resilience to rate rises. See APRA’s rule at apra.gov.au.
- Policy settings that still support investment. Features such as negative gearing of rental losses and the capital gains tax discount persist, which helps sustain investor participation. See the ATO’s guidance on rental deductions and the CGT discount.
Rental vacancy rates remained around 1 to 1.5 percent nationally through 2023 and 2024 according to SQM Research, indicating an unusually tight rental market.
What could cause Australian house prices to fall sharply?
A true nationwide crash typically requires multiple stressors at once. The main candidates are:
- A jump in unemployment that triggers forced sales and weakens buyer demand.
- A sharp drop in net overseas migration that eases rental pressure and reduces household formation.
- Credit tightening, for example higher serviceability buffers or stricter lending standards that materially lower borrowing capacity.
- A supply surge from faster completions or build to rent scaling up faster than expected in specific sub markets.
- Adverse policy shifts that reduce after tax returns for landlords or second home owners without offsetting demand, similar to the UK’s buy to let changes.
- Persistently high interest rates eroding household cash buffers and pushing arrears higher. The Reserve Bank of Australia has noted most borrowers built buffers, but a minority are vulnerable, see the RBA’s Financial Stability Review at rba.gov.au.
How do houses and apartments compare for risk?
Detatched houses in established, land constrained suburbs tend to be less volatile because supply is slow to respond. Mid and high rise apartments are more cyclical, especially where many completions are due, service charges are rising, or building quality concerns deter buyers. London’s largest falls have concentrated in investor dominated and high cost segments, a pattern that could repeat in pockets of Sydney, Melbourne and Brisbane if investor demand weakens.
Which indicators should you watch?
- Unemployment and wages from the ABS. Rising joblessness is the clearest risk to prices.
- CoreLogic Home Value Index and auction clearances for early price momentum, see CoreLogic HVI.
- Rental vacancy rates and advertised rents, see SQM Research and portal reports.
- Net overseas migration and household formation, see ABS population.
- Building approvals and completions, a lead on future supply, see ABS building approvals.
- Mortgage arrears and hardship data from bank disclosures and regulators such as APRA.
APRA requires lenders to test that new borrowers could afford their loans if rates were 3 percentage points higher than the product rate, which reduces the share of highly stretched new loans.
What does this mean for buyers, owners and renters?
- If you are buying, focus on serviceability at today’s rates plus a margin, target assets with enduring demand drivers such as access to jobs and schools, and be cautious in towers or pockets with many new completions.
- If you own with a mortgage, keep or rebuild a cash buffer, consider partial or full fixes only if they suit your risk tolerance, and speak with your bank early if stress emerges.
- If you rent, near term relief depends on migration settings, completions and investor activity. Build to rent and social and affordable programs can help at the margin, but broad improvement requires sustained additions to dwelling stock.
Bottom line, Australia can have corrections, especially by segment and city, but a London style crash is unlikely without a clear shift in jobs, migration and credit. Watching the indicators above will give you an early read on whether the risk profile is changing.