Australia’s inflation problem has a housing problem inside it. The RBA raises rates to slow consumer spending, dampen demand and slow the pace of price growth. But higher rates make mortgages more expensive, which pushes landlords to increase rents, which pushes up the cost of living, which gives the RBA reason to raise rates again. At some point it is worth asking whether the medicine is making the patient sicker – and what else could be prescribed instead.
This is not a criticism of the RBA – the cash rate is the tool it has. But the evidence is mounting that it cannot do this job alone as we discussed in our previous article “Why Rate Hikes May Never Work To Curb Inflation Quite Like They Used To” (linked here).
What the March 2026 Data Actually Shows
The REIA’s Housing Affordability Report for the March quarter 2026 makes for uncomfortable reading. The average Australian household is now spending 50.8 per cent of its median family income on mortgage repayments, with the average monthly repayment reaching $5,927 – up 11.3 per cent in twelve months. Affordability declined in every state and territory over the quarter, with New South Wales households committing 58.4 per cent of median family income to housing, Queensland at 53.2 per cent, and South Australia at 51 per cent.
REIA President Jacob Caine put it plainly: “Housing affordability is highly sensitive to interest rate movements, and the March quarter demonstrates just how quickly conditions can deteriorate when rates rise.”
PropTrack data adds further context: only 14 per cent of median income households can afford to buy a median-priced home anywhere in Australia today, down from 43 per cent just three years ago. In Sydney that figure is 10 per cent. These numbers represent a generation being progressively locked out of ownership – not because they are financially irresponsible, but because the primary tool being used to fight inflation hits them harder than anyone else.
The Feedback Loop Nobody Wants to Talk About
Housing costs make up roughly 21 to 23 per cent of Australia’s inflation basket, which means when housing gets more expensive, inflation goes up. When inflation goes up, the RBA raises rates. When rates go up, housing gets more expensive. Brisbane’s overall inflation is running at 5.2 per cent but its housing component is 12.3 per cent. Perth’s overall CPI is 4.4 per cent with housing at 8.6 per cent. Housing is not just contributing to Australia’s inflation right now. It is driving it.
There is a second layer to this, which we explored in our previous article linked here. A growing share of Australia’s population – older, mortgage-free Australians living on superannuation and savings – actually benefits from rate increases through higher deposit returns and in turn spends that additional income. Meanwhile working-age households bearing the full weight of higher repayments are cutting back. The tool is concentrating maximum pressure on the people least able to absorb it, while putting more money in the pockets of those it was never designed to reach.
So What Else Could Work?
We constantly hear that the RBA has one lever to manage inflation. The REIA data released this week is a timely reminder that one-lever approach is not working as intended – 50.8 per cent of median family income going to mortgage repayments, affordability declining everywhere, and a generation being priced out of ownership. For the households sitting on the wrong side of that ‘one lever’, that line is getting very old, very fast. The good news is that other levers do exist. Some are regularly discussed. One, which we think deserves far more attention than it gets, is not.
The government spending less
When the government is pumping money into the economy at the same time as the RBA is trying to slow it down, the central bank has to work harder and rates need to go higher to achieve the same result. Both the OECD and IMF have recommended that Australia’s fiscal and monetary policy work in the same direction rather than against each other. New Zealand is a useful example – the IMF noted that government spending restraint working alongside rate hikes allowed New Zealand to bring inflation back toward its target band more efficiently, and its central bank has been cutting rates since August 2024 as a result.
Smarter lending rules
Australia introduced a debt-to-income cap in February 2026, limiting how many high-debt loans lenders can write. This is a more targeted tool than a rate rise – it constrains risky borrowing without simultaneously raising deposit returns for every retiree in the country. The IMF has specifically recommended Australia maintain an active approach to these kinds of lending rules, tightening or loosening them as conditions change. Used well, they take pressure off the cash rate without the same broad side effects.
Building more homes
If housing makes up over a fifth of CPI and is running well above headline inflation, then bringing housing costs down will help to bring inflation down. Australia completed 177,000 dwellings in 2024 against underlying demand of approximately 223,000, according to the National Housing Supply and Affordability Council. The OECD and IMF have both called for planning reform and property tax changes to close that gap. More homes means lower shelter costs, lower shelter costs means lower CPI, and lower CPI means less pressure on the RBA. Supply reform takes time, but it does not price another generation out of the market while it works.
A tax that hits everyone’s spending, not just mortgage holders
The three options above are debated regularly in policy circles. Government spending, lending rules, and housing supply all feature in the standard conversation about inflation management. But there is a fourth option that rarely gets a serious hearing in Australia, and we think it is worth a discussion.
A targeted increase or broadening of the GST.
Unlike rate hikes, which concentrate the pain on mortgage holders while putting more money in the pockets of those with savings and investments, the GST applies to spending across the board – retirees, workers, investors, and everyone in between. If the goal is to reduce spending across the whole economy rather than just among those with a variable rate mortgage, a consumption tax is structurally better suited to that job than an interest rate.
To be clear, adjusting the GST is a government measure, not an RBA one. But that is precisely the point. It would require the government to act in coordination with, or at the direction of, the RBA’s inflation-fighting goals, in the same way that fiscal spending restraint does. The difference is that a GST adjustment is arguably more dynamic than cutting government spending, which is often committed years in advance and difficult to unwind quickly. A consumption tax rate is, in principle, adjustable in a way that locked-in infrastructure pipelines and social programs are not.
This is a politically difficult conversation – no government wants to raise the GST. But given what the current approach is costing ordinary Australians, it is a conversation worth having openly rather than leaving off the table entirely. The result could be a GST increase and more balanced rate rises working in concert – sharing the pain more equally.
What This Means for You
The first three levers are all legitimate tools, but none of them move quickly. Lending rules and housing supply take time to flow through to real outcomes, and government spending is often locked in years ahead.
A GST adjustment, while politically challenging and requiring agreement across federal and state governments, would apply immediately and broadly to spending across the whole economy rather than loading all of the pressure onto one group of Australians. When the REIA is reporting that the average household is spending more than half its income on mortgage repayments, the case for spreading that load more fairly across the whole economy becomes harder to dismiss. Unlike the cash rate, a consumption tax does not create winners and losers based on whether you have a mortgage or a savings account.
None of this changes what borrowers need to do right now. Rates are likely to remain elevated for longer than most had hoped. Understanding your borrowing position, structuring your debt efficiently, and making decisions based on the medium-term outlook are still the things within your control. But the broader policy conversation matters too – because the settings that get chosen in the next few years will shape the affordability environment that you, your children, and your community will be navigating for a long time to come.
Summary
The REIA’s March 2026 Housing Affordability Report is the latest evidence that rate hikes are not working as efficiently as they once did – and that the current approach is contributing to one of the biggest drivers of the inflation it is meant to be fighting. But the option that deserves more attention than it is getting is a coordinated, government-led consumption tax measure that spreads the demand-management load across the whole economy -not just the households with a mortgage.
That is a conversation Australia needs to start having.
This article draws on the REIA Housing Affordability Report March Quarter 2026, OECD Economic Survey of Australia 2026, IMF Article IV Consultation 2026, National Housing Supply and Affordability Council State of the Housing System 2025, and ABS CPI data. It does not constitute financial or investment advice.
Written by Andrew Whelan, General Manager – AP Group
AP Group are the leading pharmacy experts in Australia and specialise in helping first time buyers find the right pharmacy and secure the finance to support their purchase.
We connect existing owners with over 5000 ready and eager investors via our cutting-edge online Data Room. Our Data Room keeps confidential listing data secure and allows buyers to make informed decisions on each of our pharmacies for sale.
AP Group have built connections with all the major banks and a host of smaller lenders, ensuring that first time pharmacy buyers find a better deal.
About the Author:
When Andrew Whelan is not out pedalling his bike or looking after his two marvellous kids, he’s pedalling through pharmacy finance and strategy development.
Having been with AP Group since the beginning, Andrew has more than a decade experience in pharmacy and is an asset to the sales and finance division. He’s a numbers wizard, people person and sustainability champion — leading AP Group to achieve official Carbon Neutral Certification with Climate Active.
Before AP Group, Andrew spent more than a decade in the telecommunications and media industry including 7 years at Telstra in a variety of senior management roles and 3 years in the United Kingdom managing the commercial function for the British Sky Broadcasting — a time where it was the fastest growing broadband provider in the UK.
So it’s no surprise that he is well equipped to help customers with some of the biggest decisions they will ever make — buying a home or investing in a pharmacy — and helping to show them what’s truly possible.