Instead, in New South Wales, where the recent decline in housing prices has been the largest, the unemployment rate has continued to trend down. It is now at levels last seen in the early 1970s. The unemployment rate has also trended lower in Victoria. So, the origins of the current correction in prices do not lie in interest rates and unemployment.
Rather, they largely lie in the inflexibility of the supply side of the housing market in response to large shifts in population growth. It is useful to start with the national picture (Graph 5). Australia's population growth picked up noticeably in the mid 2000s and it took the better part of a decade for the rate of home building to respond.