Australia’s Housing Shortage: Why We’re Not Building Enough Homes and What It Means for Property Developers
Australia needs more homes.
The Federal Government wants 1.2 million new well-located homes built between July 2024 and June 2029. Yet Australia remains well behind the delivery rate required to achieve that target.
And here is the contradiction property developers should be paying attention to:
If Australia desperately needs more housing, why are so many residential developments still difficult to make financially viable?
Because Australia’s housing shortage isn't simply a demand problem. It's a housing delivery problem.
We have strong demand for housing, but between identifying a development site and handing over a completed home sits an increasingly difficult combination of planning, land costs, construction costs, labour shortages, finance, infrastructure and development risk.
For property developers, that creates both an enormous opportunity and an important warning.
A housing shortage creates demand. It does not guarantee development profit.
How Big Is Australia’s Housing Shortage?
The National Housing Accord target requires Australia to deliver approximately 240,000 homes every year for five years.
We aren't currently building at that pace.
The National Housing Supply and Affordability Council reported in August 2026 that, despite improvement in approvals and commencements, the 1.2 million-home target remains off track. Current forecasts indicate the national target may not be achieved until late 2030. (nhsac.gov.au)
Meanwhile, ABS figures showed dwelling commencements fell 11.2% in the March 2026 quarter to 48,012 dwellings. (abs.gov.au)
The issue isn't a lack of buyers or renters. The problem is getting enough projects from feasibility to completion.
Why Can't Australia Just Build More Homes?
On the surface, the solution seems obvious.
Housing is undersupplied.
Prices and rents are high.
The population continues to create demand.
So developers should build more.
Unfortunately, property development doesn't work that way.
Before another home reaches the market, someone needs to make this equation work:
Land + Consultants + Approvals + Contributions + Construction + Finance + Holding Costs + Tax + Contingency + Developer Margin
against:
Expected Development Revenue
If the revenue doesn't adequately compensate for the cost and risk, the project doesn't proceed.
It doesn't matter how badly Australia needs housing.
And that is the central problem.
We Need More Housing Where Development Is Often Hardest
Australia isn't short of land. It is short of appropriately zoned, serviced and commercially viable land in locations where people want to live.
Grattan Institute research found approximately 80% of residential land within 30 kilometres of central Sydney and 87% in Melbourne is restricted to housing of three storeys or fewer. (grattan.edu.au)
That matters because established areas already have much of what new communities require:
Transport. Employment. Schools. Hospitals. Shops. Utilities.
Increasing density around that infrastructure makes sense.
But for developers, rezoning alone isn't enough.
The moment a site receives additional development potential, landowner expectations often increase too.
Suddenly:
"My house isn't worth $2 million anymore. A developer can build eight townhouses here."
The vendor wants to capture the development upside before the developer has even started.
Meanwhile, the developer still carries the planning, finance, construction, market and delivery risk.
This is why:
Development potential is not the same as development feasibility.
Construction Costs Have Changed the Numbers
Construction is arguably one of the biggest barriers to new housing supply.
The National Housing Supply and Affordability Council reported that house construction costs were around 51% higher than before COVID. (nhsac.gov.au)
For developers, that can destroy a feasibility remarkably quickly.
Imagine a development originally modelled with a $10 million construction budget.
If the equivalent project eventually costs $14 million or $15 million, that additional cost needs to come from somewhere.
Either:
Land becomes cheaper.
Construction becomes more efficient.
Sales revenue increases.
Or:
The project doesn't get built.
This is why rising property prices don't automatically mean developers are making larger profits.
Revenue may have increased. But so has the cost of creating that revenue.
Australia Needs Builders—While Builders Are Going Broke
This is perhaps the strangest part of Australia's housing shortage.
We desperately need more construction capacity.
Yet 3,472 Australian construction companies became insolvent during the financial year ending June 2026, accounting for almost one-quarter of Australian company insolvencies.
Builders have been squeezed by escalating material and labour costs, subcontractor pricing and fixed-price contracts entered into under very different market conditions.
For property developers, there is an important lesson here:
The cheapest tender may not be the cheapest project.
Selecting a builder solely because they are significantly cheaper than everyone else can introduce enormous delivery risk.
Developers increasingly need to ask:
Is the price realistic?
Does the builder have the financial capacity to deliver?
What other projects are they carrying?
Is the proposed program achievable?
Are key subcontractors actually available?
Builder due diligence is no longer simply procurement. It is development risk management.
The Labour Problem Isn't Going Away Quickly
Even if Australia approved hundreds of thousands of additional dwellings tomorrow, somebody still needs to build them.
Housing competes for skilled trades with:
Infrastructure + Commercial Construction + Hospitals + Schools + Renewable Energy + Industrial Projects + Data Centres
The research provided for this article highlights growing competition for trades, including from the rapidly expanding data-centre sector.
That competition flows directly into development feasibility through higher subcontractor pricing and longer construction programs.
And for developers:
Every additional month of construction has a cost.
More interest.
More preliminaries.
More consultants.
More holding costs.
Later settlements.
Slower recycling of capital.
Construction productivity therefore isn't just a builder issue. It directly affects developer margin.
An Approved DA Is Not a New Home
This is another important distinction. Australia can approve thousands of additional dwellings without necessarily delivering thousands of additional homes.
An approved project may still stall because:
The construction tender is too high.
The valuation is too low.
Finance isn't available.
The developer cannot satisfy the equity requirement.
Presales aren't sufficient.
The market changes.
The project no longer achieves an acceptable margin.
The real housing pipeline isn't:
Planning → Approval
It's:
Site → Feasibility → Approval → Finance → Construction → Completion
Until a project reaches the end of that chain, it hasn't solved the housing shortage.
The Great Housing Paradox: High Demand Doesn't Always Mean Developer Profit
This is probably the most important part of the article for property developers.
Australia can simultaneously have:
A serious housing shortage
and
Residential developments that aren't financially viable.
There is no contradiction.
Imagine a simplified project:
Cost | Amount |
Land | $4.0m |
Construction | $8.0m |
Consultants, approvals & contributions | $1.0m |
Finance & holding costs | $1.0m |
$0.5m | |
Subtotal | $14.5m |
The developer still needs to account for GST, marketing, selling costs and, critically, a sufficient development margin for the capital and risk involved.
If the completed development isn't worth enough, the project doesn't work.
It doesn't matter whether 100 people would happily buy the dwellings.
Demand doesn't override development mathematics.
Where Is the Opportunity for Property Developers?
This doesn't mean Australia's housing shortage is bad news for developers.
Far from it.
The shortage may create substantial development opportunities over the next decade.
But the opportunity isn't:
"Australia needs houses, so buy development sites."
The opportunity is finding the mismatch between what a market needs and what it currently supplies.
Depending on the location, that could mean:
Duplexes. Townhouses. Terraces. Low-rise apartments. Mid-rise apartments. Secondary dwellings. Build-to-rent. Mixed-use developments.
The key is identifying the right product for the right micro-market.
A national shortage of housing doesn't mean every suburb needs the same housing.
Developers should be asking:
What housing is undersupplied here?
Then:
Can this site deliver that housing profitably?
That is where opportunity begins.
Don't Overpay for Land Because Australia Has a Housing Shortage
This deserves particular attention.
When governments announce rezonings or increased density, landowners quickly become aware of the potential.
A property that once accommodated one dwelling may suddenly accommodate four, eight or twenty.
And the vendor naturally wants a share of that upside.
The danger is paying so much for the development potential that there is nothing left for the developer.
Remember, the developer still carries:
Approval Risk + Construction Risk + Finance Risk + Market Risk + Time Risk + Capital Risk
If the landowner captures the entire development margin in the purchase price, the project may never be viable.
At OwnerDeveloper, this is why we continually return to one principle:
Prove the feasibility before you fall in love with the site.
What Australia's Housing Shortage Means for Developers
Australia's housing shortage is real.
So is the opportunity.
But developers shouldn't interpret strong housing demand as permission to become less disciplined.
In fact, the opposite is true.
When land, construction and finance costs are high, small mistakes become very expensive.
Successful developers need to identify sites where several things align:
Appropriate planning controls.
The right housing product.
Realistic land value.
Efficient design.
Achievable construction cost.
Suitable finance.
Acceptable development margin.
The shortage creates the demand. The developer still has to create a viable project.
The OwnerDeveloper Approach: Follow the Feasibility, Not the Headlines
At OwnerDeveloper, we don't recommend buying development sites simply because Australia needs more housing.
We start with a different question:
What does this particular market need, and can this particular site deliver it profitably?
That requires understanding planning, market demand, construction cost, finance, development strategy and delivery risk before significant capital is committed.
Through our Development Management services, we assist developers from site acquisition and feasibility through planning, design, procurement, construction and completion.
And through our Superintendent services, we provide independent oversight during construction to help protect time, cost, quality and the pathway to Practical Completion.
Because Australia's housing shortage will not be solved by developments that only work on paper.
It requires projects that can actually be financed, built and completed.
Australia Doesn't Need More Housing on Paper
The National Housing Accord has focused attention on how many homes Australia needs.
But targets alone won't solve the problem.
A rezoning isn't a home.
A DA approval isn't a home.
A feasibility isn't a home.
A presale isn't a home.
Housing supply only increases when a project successfully moves through:
Land → Feasibility → Approval → Finance → Construction → Completion
For property developers, Australia's housing shortage presents a significant opportunity—but only when the fundamentals stack up.
Australia's housing shortage creates demand. It does not guarantee development profit.
The developers best positioned to benefit won't simply be those chasing the housing shortage.
They'll be the ones who find the right site, in the right market, for the right housing product, and make the numbers work before committing their capital.
Frequently Asked Questions
What is causing Australia’s housing shortage?
Australia’s housing shortage is being driven by a combination of population and household growth, insufficient housing supply, planning constraints, high construction costs, skilled labour shortages, infrastructure limitations and development finance pressures. The challenge is not simply demand—it is getting enough viable developments from site acquisition through to completion.
Is Australia on track to build 1.2 million new homes by 2029?
No. Australia is currently behind the delivery rate required under the National Housing Accord, which targets 1.2 million new well-located homes between July 2024 and June 2029. Current forecasts indicate the target is likely to be reached later than originally planned.
Does Australia’s housing shortage create opportunities for property developers?
Yes, but a housing shortage does not automatically make every development profitable. Developers need to identify locations where genuine housing demand, planning potential, achievable construction costs, finance and the right housing product combine to create a commercially viable project.
Why are housing developments still unviable when demand is so high?
High land prices, construction costs, finance costs, infrastructure contributions, approval delays and development risk can consume the potential margin. Strong demand cannot compensate for a project where the development mathematics simply does not work.
How can property developers benefit from Australia’s housing shortage?
Developers should focus on finding the right site, in the right market, for the right housing product rather than simply following national housing-shortage headlines. Detailed feasibility, market analysis, planning due diligence and realistic construction costing should be completed before significant capital is committed.
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An approved DA is not a new home. That section really stood out. Approval is only one step—projects still have to get financed and actually built.
This really explains the contradiction in the market. We keep hearing that Australia needs more housing, but that doesn’t mean every development actually stacks up financially.