Australia's Housing Construction Shortfall: Why 1.2 Million Homes Won't Be Built on Time

The Target vs Reality

In mid-2024, the Australian Government and all state and territory governments signed the National Housing Accord, committing to build 1.2 million well-located homes over five years to mid-2029. That works out to roughly 240,000 dwellings per year.

The problem is that Australia has not built at that rate in years — and every indicator suggests it will not reach it during the Accord period.

In the 12 months to March 2026, total dwelling completions across Australia were approximately 160,000 to 170,000 — roughly 30% below the annual target. At the current pace, Australia will fall 250,000 to 350,000 homes short of the Accord goal by 2029.

Why Construction Is Falling Short

Labour shortages

The construction industry is struggling to find enough skilled workers. Electricians, plumbers, bricklayers, and carpenters are in critically short supply. The National Skills Commission has listed most building trades in the top quartile of occupations with severe shortages. Apprenticeship completions in the trades have been declining for years, and immigration — while boosting demand for housing — has not delivered enough construction workers to match.

Material and input costs

Building material costs surged during and after the pandemic and have remained elevated. Timber, steel, concrete, and electrical components all cost significantly more than they did five years ago. While the rate of increase has slowed, prices have not returned to pre-pandemic levels. This makes new projects more expensive and reduces margins for developers, causing some to delay or cancel projects.

Planning and approval delays

Residential development approvals must pass through local council planning processes that are slow, inconsistent, and often contested by existing residents. The median time from development application to approval varies widely but commonly exceeds 6-12 months in major cities. Rezoning land for higher density — the type of housing most needed near employment and transport — faces particular resistance.

Insolvency and developer risk

The construction sector has experienced a wave of builder insolvencies since 2022, with hundreds of building companies entering administration. Many were caught between fixed-price contracts signed before the cost surge and actual build costs that far exceeded those contracts. This has left thousands of homeowners with incomplete builds and has made lenders, insurers, and buyers more cautious about new projects.

Interest rates and feasibility

Higher interest rates increase the cost of development finance for builders and reduce the pool of buyers who can afford new homes. Many projects that were feasible at a 3% cash rate are marginal or unviable at current rates. Developers are delaying project launches until pre-sale targets can be met, which requires buyers who can secure finance at today's rates.

What It Means for the Market

Prices

Persistent undersupply supports property prices even in the face of affordability headwinds. When demand consistently exceeds supply, prices find a floor. Most economists expect Australian property prices to remain resilient — particularly in well-located areas — precisely because not enough homes are being built.

Rents

The rental market is directly affected by the construction shortfall. Every dwelling that is not built is one fewer rental property available. With vacancy rates already at historic lows (around 1% nationally), the construction gap is a key reason rents continue to rise at 8-12% annually in most capital cities.

Use our Rental Yield Calculator to see how rising rents translate to yields at current property prices.

Regional variation

The shortfall is not uniform. Some regions — particularly outer-suburban greenfield estates — are seeing reasonable levels of new supply. The biggest gaps are in inner and middle-ring suburbs where medium-density housing (townhouses, low-rise apartments) is most needed but faces the strongest planning resistance.

Perth and South-East Queensland have seen relatively stronger construction activity than Sydney and Melbourne, partly due to more available land and faster approval processes.

What Buyers and Investors Should Know

For buyers

• New builds will remain scarce and expensive. If you are considering a new home, expect long wait times, limited choice, and limited room for negotiation on price.
• Established homes benefit from the undersupply. Limited new stock means more competition for existing homes, supporting prices in established suburbs.
• Check your borrowing power. Higher rates have reduced what many buyers can borrow. Use our Borrowing Power Calculator to understand your position before making offers.

For investors

• Rental yields are improving. Rising rents combined with flat or modestly growing property prices mean gross yields have improved in many markets. Model your returns with our Investment Property Yield Calculator.
• Vacancy risk is minimal. With national vacancies around 1%, the risk of extended void periods between tenants is low.
• New builds offer depreciation benefits. If you can find and afford a new property, the tax depreciation advantages (Division 40 and Division 43) are at their maximum. See our Negative Gearing Calculator to model the after-tax impact.

For anyone watching the market

The construction shortfall is a structural issue that will take years to resolve even under the most optimistic policy scenarios. It is the single most important factor supporting Australian property prices and rents in the medium term. Any assessment of where the market is heading must start here.

Check your borrowing power: Borrowing Power Calculator | Model rental returns: Investment Property Yield Calculator | Compare buying vs renting: Buy vs Rent Calculator.

Sources: ABS — Building Activity Australia, National Housing Accord, HIA — Housing Scorecard, Master Builders Australia, CoreLogic — Monthly Housing Chart Pack, Property Council of Australia.