Interest rates are gaslighting an entire generation
Getting into the property market is a bit like trying to join a Monopoly game halfway through writes Jessica Brady.
The past few years have brought noise and headlines dissecting the nail-biting roller-coaster ride that is interest rate changes.
There is nothing quite like it to spark fiery debates and divide between generations battling it out in the contest of who had it harder.
But what if we looked beyond the spats of buying that daily latte, the avo on toast, and even beyond interest rates, and discussed the real culprit – which is responsible for fewer and fewer young people having a fighting chance at buying a home.
It’s not an interest rate problem.
It’s a house price problem.
Every time the Reserve Bank meets, mortgage-holders brace for another blow. But we’re not talking about why – we’re just telling people to “tighten their belts to fix inflation”.
Isn’t it time to stop gaslighting a generation and face the reality: The property-purchasing game has fundamentally changed.
It’s like you’ve joined a long-running Monopoly game. You’re starting out with nothing while everyone else has grabbed the most prestigious places, added those cute green little houses and started making bank … You’ve barely passed go, every role of the dice is expensive.
It’s time we were honest about the fact that Australia’s house-to-income multipliers are some of the highest in the world. That it requires new homeowners to sign up to a serious amount of debt. Debt that’s so heavy to begin with that even small increases can make it unbearably painful. Get whacked with a bunch of interest rate increases in quick succession (à la 2022 and 2023), and many are buckling at the knees from the sheer weight of their mortgages.
Surely it’s clear that interest rates alone are not the issue – already this year we have had two (modest) rate reductions – and people aren’t dancing in the street with fists full of spare cash ready to fritter away.
Yet young people are too often told to grin and bear it, because “that’s adulthood, kid” and you should feel that you are one of the “lucky” ones who have managed to get in. You should be overjoyed to be shouldering that giant lump of debt you can barely manage.
It could be worse … you could be renting in a market that has made securing a lease a national full-combat sport. See – lucky. And smile more while you’re at it. Oh, and your rates are due.
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Social media is littered with well-meaning but often patronising comments that claim to have the winning formula for property purchase success. They often include radical never-before-considered ideas like working harder, spend no money on anything that brings you even an ounce of joy, or buying so far out that your daily commute leaves you so tired and exhausted you forget how unhappy it makes you.
The sad reality is that people are already working more hours than ever before, commuting daily for longer periods than decades ago, and wanting to be able to afford a coffee should not be considered a criminal offence. For many, it’s still not working.
What if, despite all these “solutions”, house prices are still too high?
What if we are honest about the fact that house prices have exploded in recent years, benefiting many who got in at reasonable prices and leaving others out to dry?
What if we stopped saying closing our borders to migration was a silver-bullet easy-fix and recognised that we have had successive governments failed to keep up with growing dwelling demands? That even when our borders were closed, house prices climbed.
What if it is the case that younger people really are being locked out and left behind with no end in sight?
The official cash rate sits at 3.85 per cent (as of May 2025), down slightly from its recent 2023 peak. Historically, that’s not high. In the late ’80s, interest rates hit 17 per cent.
But here’s the difference: Debt levels today are astronomically higher. Read that again.
In 2002, the average dwelling price was about five times the average income. Today, it’s:
- 9.1 times the median national income
- 13.3 times the median income in Sydney (CoreLogic and Grattan Institute, May 2025)
The Sydney median house price is now over $1.2 million, while the median income is about $90,000. While interest rates are numerically lower than past decades, their impact is far more brutal – because the base debt level is so much bigger.
Every 0.25 per cent shift has a massive ripple effect on monthly repayments and household budgets.
From free education to debt for life
Yes, there is no shying away from the fact that the double-digit interest rates in the ’80s were brutal, but many of those mortgage-holders bought young and got free education.
That changed in the late ’80s when the government introduced HECS. Since then, the cost of higher education has shifted onto students’ shoulders.
Currently, if you earn $159,664 or more, you’ll pay 10 per cent of your income towards your HECS debt. If you earn just over $100,000, you’re charged 6 per cent. That’s on top of tax, super, rent or mortgage repayments and day-to-day living expenses.
HECS debt reduces savings and borrowing capacity. For many first-home buyers, having little left at the end of their pay packet after all their costs pushes them years further from homeownership. The average first-home buyer is now in their 30s. A growing number of people are staring down the barrel of retiring while still having a mortgage. Terrifying.
If you do manage to buy, welcome to mortgage stress
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ANZ’s latest Housing Affordability data reveals:
- 50 per cent of household income now goes to mortgage repayments for those with new loans. That’s well over the 30 per cent “housing stress” marker;
- Renters aren’t spared, spending an average of 33 per cent of their income on housing.
That leaves precious little room for savings, super contributions, investments, or emergencies.
The myth of ‘we had it worse back then’
I’m not here to ruin your family barbecues, but I think most young people are sick of being told: “We paid 17 per cent interest. Young people today don’t know how easy they have it”. Thanks, Uncle Kev.
What gets forgotten in this conversation is that in the 1970s and ’80s, median house prices were three-four times average income.
According to the Australian Housing and Urban Research Institute, even at the 10 per cent interest rates of the day, an average wage could support a loan of $25,000 – meaning you’d have a deposit gap that was only about one year’s income. Most households buying in these times did so with one income.
Today, Sydney first-home buyers likely need two incomes, a six-figure deposit and probably parental assistance. For a mortgage that will then eat up half their combined earnings and likely have them in debt until retirement age.
How much has home ownership changed?
In 1981, according to Grattan, nearly half (45 per cent) of 25-34-year-olds in the lowest income band were still able to buy a home. Today, that figure is about 25 per cent.
Even for those in the middle-income bracket, homeownership levels have fallen from 70 per cent to under 50 per cent. In the highest income band, it dropped from 70 per cent to just under 60 per cent. Across all income levels, home ownership for people in their mid-20s and 30s has gone down.
This is not a story of people not trying hard enough or using all their money to buy expensive things (although that can happen). This is what happens when you shift from a system of affordable housing and free education, to one where supply is tight, investors have deep pockets (and generous tax-breaks) and access to ownership is either debt-fuelled or luck-dependent.
A fragile state to live in (for decades)
Interest rates have become a national obsession – but they’re just the scapegoat.
The problem is house prices that grow at a rate that most people can’t out-save.
When debt is so high that a 0.25 per cent rate hike can break a household budget, you don’t have a resilient economy – you have a fragile and broken one.
When someone says, “just cut back on brunch”, they’re not giving helpful advice. They’re revealing how little they understand about the compounding pressures people face.
Ask them to join the Monopoly game half-way through and see how easy they find it. After a few spins around the circuit they’ll change their tune – which, ironically, is exactly why the game of Monopoly was invented.
Jessica Brady is a qualified financial adviser and leading money expert. She is on a mission to educate and empower everyday Australians to be better with money through her online money programs and via the Financially Fierce Podcast. You can learn more at jessicabrady.com.au
This article is general advice only; the comments above do not take into account your objectives, financial situation or needs.
Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. Jessica is licensed through Paragem Pty Ltd – AFSL 297276. ABN 16 108 571 875, Authorised Representative Number 001259972.
This article first appeared on View.com.au. Read the original here
