A new Grattan Institute report has called for sweeping planning reforms to fix Australia’s housing shortage, arguing that cities must “build up” rather than keep sprawling outward if affordability is ever to improve.
The report, More homes, better cities: Letting more people live where they want, says restrictive zoning and slow approvals are keeping prices high and locking young Australians out of the property market.
“Housing in Australia’s cities is among the least affordable in the world,” the report said. “For decades, we have not built enough housing where people most want to live.”
Lead author Brendan Coates said state governments should allow three-storey townhouses and apartments on all residential land, and permit six-storey developments as-of-right around major transport hubs and commercial centres.
“Developments of up to three storeys that meet clear standards should not need a planning permit,” the authors said.
According to Grattan, about 80% of Sydney and 87% of Melbourne residential land within 30km of the CBD is capped at three storeys or fewer, while three-quarters or more of land in Brisbane, Perth, and Adelaide is limited to two storeys.
“The key problem is that state and territory land-use planning systems say ‘no’ to new housing by default, and ‘yes’ only by exception,” the authors said.
Grattan’s modelling shows that allowing denser development could lift housing construction by up to 67,000 homes a year and cut rents by around 12% over the next decade. The changes could also reduce the median house price by more than $100,000.
The report estimates that Sydney alone could unlock capacity for more than one million new homes if restrictions were relaxed.
“Australia needs a housing policy revolution,” Coates said. “The equation is simple: If we build more homes where people most want to live, housing will be cheaper and our cities will be wealthier, healthier, and more vibrant.”
Both New South Wales and Victoria have already introduced reforms to boost medium-density housing, but Grattan says governments must go further — extending “gentle density” across all suburbs and easing height caps near transit.
At the federal level, the institute says Canberra should reward states for planning reforms rather than linking incentives to housing output targets that fluctuate with interest rates and build costs.
The call for denser cities comes as rising construction costs and tight supply continue to drive up prices and borrowing needs.
If implemented, the reforms could shift demand toward medium-density, infill projects, increase first-home buyer participation, and gradually ease affordability constraints in inner and middle-ring suburbs.
For more information, read this media release, access the full Grattan Institute report, and listen to their podcast.
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