Why Cheaper Australian Homes Are Now Falling Faster Than Pricier Ones

Conisbee identifies the cause directly: property investors have traditionally concentrated on the affordable end of the established housing market, drawn by lower entry prices and stronger rental yields. The Budget's negative gearing and CGT changes, effective from 12 May, substantially reduced the tax advantages of buying established investment property. Investor demand withdrew from exactly the market segment that first home buyers had been relying on for the cheapest stock. Higher interest rates compounded the slowdown, but Ray White's analysis points squarely at the tax changes as the driver of the divergence between cheap and expensive homes.

Why This Matters for the Market's Shape

The mechanics here matter more than the headline percentages suggest. Ray White's Conisbee calculates that rental yields would need to rise from around 3.95% to 5.15% to compensate investors for the Budget's tax changes. That would require rents to climb by roughly 30%, property prices to fall by about 23%, or some mix of the two. Until one of those adjustments happens, Conisbee argues cheaper properties will keep underperforming — even once the broader market stabilises, because the investor segment that historically supported demand at that price point has structurally changed its calculus.

This creates what Conisbee calls a genuine dilemma for first home buyers. Before purchasing, cheaper prices and less investor competition work in their favour — and that dynamic has already been reinforced by the 5% deposit scheme, which the Albanese government says has supported more than 102,000 first home loans in the year since its expansion, averaging roughly 8,400 new buyers a month since June. But once a first home buyer owns the asset, they want it to appreciate like everyone else. If cheap-end prices keep lagging while investors stay on the sidelines, recent entrants risk years of underperformance relative to the broader market.

APF analysis of its city-level clearance dataset shows a national auction clearance rate of 46.5% as of 24 October 2026 — with Brisbane at just 20% and Sydney at 45%, both cities where Cotality has recorded the sharpest price falls.

Interest rates are compounding the squeeze on both sides of the market. Comparison site Canstar estimates this year's four RBA hikes have stripped $47,400 from the borrowing capacity of someone on the average full-time wage of $108,650, per The Guardian. Prices would need to fall roughly 10% to fully offset a 1 percentage point rate rise, and no suburb has reached that threshold yet. For borrowers trying to work out whether fixed or variable exposure suits a longer downturn, independent rate-tracking tools such as REAStats provide suburb-level context that sits alongside the national averages discussed here.

Background: Property Tax Changes and Wealth Storage

The Budget's negative gearing and CGT reforms sit within a much broader question Australian investors have been asking all year: is residential property still the most tax-efficient way to store and grow wealth, or are the settings shifting toward other asset classes? For a side-by-side look at how property performs against an alternative wealth store over the long run, see our guide on Property vs Gold — Which is the Better Wealth Store?. Investors weighing whether to hold, sell, or redirect capital toward new-build stock — which largely escaped the May changes — should also consult our Australian Property Tax Guide for the full mechanics of how negative gearing, CGT and depreciation interact under the current rules.

Depreciation remains one of the few levers investors can still pull to improve after-tax returns on established property, and our guide to Property Depreciation Schedules explains which deductions survive the current settings. The Guardian notes RBA governor Michele Bullock said on Tuesday the central bank considered holding rates amid a weak housing market but lifted anyway, warning that falling prices would likely worsen housing supply by making new construction unprofitable — a dynamic that further favours new-build investment over established stock in the current tax environment.

What This Means for Buyers, Sellers and Investors

For first home buyers, the message from Ray White's data is mixed. Cheaper stock is more accessible right now because investor competition has thinned, and the 5% deposit scheme continues to support roughly 8,400 new entrants a month. But buyers entering at this price point should understand they may be purchasing into a segment facing structurally weaker medium-term growth, at least until rental yields climb toward the 5.15% level Conisbee says would be needed to lure investors back.

For existing investors holding established property at the affordable end, the calculation has changed since 12 May. AMP chief economist Shane Oliver, cited by The Guardian, says rate hikes, tax hikes and poor confidence are pressuring prices nationally, with rising distressed listings and unemployment risking falls of up to 15%. Investors considering whether to sell, hold, or pivot toward new-build or commercial stock should model both the CGT implications of selling now and the depreciation benefits of holding, rather than reacting to monthly Cotality prints in isolation.

For sellers at the cheaper end of the market, particularly in Brisbane where every suburb recorded lower prices between June and September per Cotality data, the practical implication is realistic pricing. Buyer's agent Joe Trucchio told The Guardian that interest rates have become "the biggest conversation" among hesitant buyers, and that the spring selling season has not produced the pickup vendors expected. Sellers waiting for investor demand to return to pre-Budget levels may be waiting through a longer downturn than previous cycles, given Ray White's own modelling suggests that return is contingent on a 23% price fall or a 30% rent rise that has not yet materialised.