Home buyers hoping to crack into the Australian market are facing some of the toughest affordability constraints since interest rates reached 17 per cent in the late 1980s.
Numbers crunched by Commonwealth Bank economists show servicing a mortgage on a new place, with two sets of wages, is almost as challenging as it was when interest rates surged well into double digits more than three decades ago.
The bank's analysis was based on two average full-time earners, with a combined income of $200,000, servicing a mortgage on a newly bought median priced home, which is sitting at $720,000.
A string of interest rate hikes starting last year have been pushing up the cost of borrowing money, with the Reserve Bank lifting the cash rate by a further 25 basis points at the November meeting to 4.35 per cent.
And, after rising interest rates triggered a downturn last year, home prices have been recovering strongly, with national home prices as tracked by real estate data firm Corelogic close to finding a record high.
In a note, CBA economist Harry Ottley said the affordability gap between Australia's two biggest cities, Sydney and Melbourne, and the other less pricey urban markets had hit its most extreme point since 1998.
In Sydney, average dual income earners would be paying more than 30 per cent of their total household income - a marker of housing stress - towards repayments on the median prices home.
This was the first time this affordability threshold had been reached, based on available data.
Under these conditions, Mr Ottley said Sydney was approaching affordability constraints that would like slow down home price growth.
The bank is forecasting a more restrained four per cent increase in Sydney home prices in 2024 compared to the 10 per cent lift predicted for 2023.
The harbourside city's four per cent expected lift over 2024 is also below the five per cent growth forecast across all capital cities next year.
Renters have also been under financial pressure, with ultra-low vacancy rates continuing to push prices up.
Housing advocates have been pushing for a commitment to more social homes in submissions to the federal government's national housing and homelessness plan.
Everybody's Home spokeswoman Maiy Azize said the proportion of social housing had been "falling off a cliff" while housing stress and homelessness had grown.
"Renting has never been less affordable," she said.
"Housing stress has become the fastest growing cause of homelessness."
Roughly five per cent of the residential housing stock is publicly owned and Everybody's Home is recommending a 10 per cent target to reflect declining affordability.
Limits on capital gains and negative gearing tax exemptions were also recommended along with redistributing tax revenue to build new social and affordable homes.
