Government housing targets are looking increasingly out of reach under current market conditions, with Cotality head of research Eliza Owen (pictured) warning that the bottleneck lies in the build phase, not in planning reform.
“While state and local governments focus on approvals and improving the feasibility of new projects, building companies continue to be stretched thin across an already swollen pipeline and reducing margins,” Owen said in a Cotality analysis.
Owen’s comments come as the National Housing Supply and Affordability Council warns Australia is on track to fall 262,000 homes short of its 1.2 million target, with just 177,000 completions in 2024 – one of the lowest supply levels in a decade.
The closest Australia has come to meeting a 1.2 million dwelling completion target in five years was in 2019. Owen noted that conditions then were very different:
While completion rates were higher, outcomes were mixed – homeownership fell, investor capital growth was weak for many 2010s apartments, and widespread defects left some dwellings uninhabitable.
States have implemented zoning reforms, pattern books for approved designs, and financial incentives for developers. However, Owen said high interest rates, affordability constraints, and post-COVID cost increases are keeping approvals low.
In the year to June, total dwelling approvals averaged 15,611 a month – well below the 20,000 a month needed to meet the national target. Unit approvals surged 34% in June but remain far below their 2017 peak.
Owen warned that pushing more approvals into the system without addressing construction capacity is “like turning up the tap on a bath that is already full.”
The number of homes in the pipeline is similar to the 2010s but is now paired with longer build times and higher costs. “Dwellings are being approved but getting ‘stuck’ in the commencement and construction phase,” Owen said.
Owen stressed that the real focus should be on getting approved projects completed.
“Making homes faster and cheaper to build, while still maintaining quality, resilient homes is the key challenge for policymakers to focus on right now,” she said.
The Productivity Commission estimates dwelling construction productivity has fallen 12% since the mid-1990s. On the demand side, Owen said policy changes such as winding back negative gearing and capital gains tax concessions, introducing broad-based land taxes, or including the family home in the pension asset test could ease the strain on new construction.
Such reforms would “have the added benefit of easing capacity in new home construction, rather than risking more inflationary pressures,” she said.
With the National Productivity Summit set to debate both supply- and demand-side reforms, Owen concluded: “If governments are serious about delivering 1.2 million homes, they must focus on building capacity, lifting productivity, and ensuring every approved home actually gets built.”
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