Think falling prices will fix Sydney’s housing crisis? Think again

October 26, 2026 — 5:00am

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Sydney has long been cast as ground zero for Australia’s housing affordability crisis.

The share of residents who live in a home they own is at historic lows, astronomical prices are a persistent source of public anxiety, and ambitious building targets have been set in the hope of making housing more attainable.

Now Sydney is in the midst of a sustained property downturn. Since peaking in December 2025 the city’s median house price has fallen 7.9 per cent, Domain figures released this week show.

Dr Nicola Powell, Domain’s chief economist, says home values in Sydney have dropped faster than in any capital city this year.

“This is an entrenched downturn now for Sydney, and it is broadening,” she says.

Many aspiring home buyers will welcome the recent pullback in prices, although four interest rate hikes by the Reserve Bank this year, which has driven the downturn, have made it harder for new home borrowers to service a mortgage.

The property slump and rising interest rates have also affected the outlook for residential building across the city. Economists warn falling property values and higher borrowing costs could hamper the construction of new homes, at least in the short term.

So what does Sydney’s property price slump mean for the longer-term supply challenge at the heart of the housing crisis?

‘Classic’ Sydney downturn

Sydney’s median home value rose by 60 per cent between 2019 and 2025, reaching a record $1.8 million just before Christmas. That median has since fallen by $143,062 to $1.66 million, according to Domain’s data. Prices dropped almost 5 per cent in the three months to September 30, the steepest quarterly decline in four years.

The value of a typical Sydney home is now back to where it was in late 2024.

Property prices in Sydney were quick to react to the upward shift in official interest rates........

© The Sydney Morning Herald