Supply crunch tied to slower growth in dwelling prices
A new report revealed that slowing price growth in early 2025 had been driven by Australia’s failure to meet its National Housing Accord construction targets.
The National Housing Supply and Affordability Council’s (NHSAC) State of the Housing System 2025 report revealed that slower dwelling price growth in 2025 stemmed from Australia falling short of National Housing Accord home construction targets, leading to a tight supply.
The report showed that Australia’s home building levels are still well below those required to meet the National Housing Accord target of 1.2 million homes by 2029.
In 2024, only 177,00 dwellings were completed, out of the 223,000 required homes, bringing new housing supply close to reaching decade-low levels.
While Australia aims to build 1.2 million dwellings by 2029, the NHSAC forecast that even under the best economic conditions possible, only 938,000 dwellings will be completed.
However, the report showed that the underlying demand for housing is gradually moderating.
An analysis of changing demographic factors showed that national demand is expected to slow to 205,000 households in the 2024–25 financial year, and stabilise to around 175,000 households per year from 2025–26.
Even with the slight decrease in national demand, the net new supply of dwellings delivered by 2029 is expected to worsen to just 825,000 properties when accounting for the demolition of existing properties – 79,000 dwellings fewer than expected new underlying demand.
Supply falling well short of demand
Additionally, the report showed that the easing demand had halted the growth of dwelling prices.
Despite dwelling prices across the nation rising by 3.9 per cent over 2024, it noted that property value had slowed compared to the same period in 2023, when prices rose by 8.5 per cent nationally.
The slowdown was attributed to lower buyer interest arising from slower population growth since 2023, resulting in house and unit prices increasing by only 3.7 and 2.4 per cent over the year to March 2025.
Despite a slight uptick in demand and prices after the Reserve Bank’s February rate cut, the NHSAC warned that a housing shortage is still dragging down price growth nationwide.
The NHSAC said that various factors, such as the inadequate pipeline of workers and low productivity rates in the construction sector, were obstructing housing supply.
Additionally, various restrictive and complex planning approval systems further increased the costs, time frames and risks associated with residential housing delivery.
The Property Council of Australia (PCA) said the report showed the urgent need to streamline the residential building process.
PCA CEO Mike Zorbas said the warning over national housing supply remains loud and clear.
“We have seen the federal and state governments coordinate their efforts on boosting supply, but more must be done,” he said.
Zorbas blamed the costs associated with government approvals inhibiting investor activity in certain states, noting that “more than 30 per cent of the cost of a new home is government taxes and charges”.
He pointed to the high costs tied to government approvals as a barrier to investor activity in some states, as over 30 per cent of new homes’ costs come from taxes and charges.
“East coast states have daft foreign investment taxes that are barbed wire to overseas institutions that want to send their money to help Australian companies build the assets our cities need,” Zorbas said.
Housing delivery inadequate across the nation
According to the report, no state or territory is forecast to meet the target’s share, with the Northern Territory projected to fall the farthest by delivering only 3,000 homes or 31 per cent of its 11,000 home target.
Across the larger states, Queensland is expected to deliver 166,000 homes, or 79 per cent of its 194,000 home share of the housing target, while NSW is set to fare worse by building only 251,000 homes and fulfilling just 65 per cent of its 376,000 home share of the housing target.
At the other end of the spectrum, Victoria is expected to come the closest to its target of delivering the 306,000 home share of the national housing target, falling short of only 300,000 homes by 2029.
Zorbas said that streamlining approval processes for residential construction and implementing measures to increase the number of labourers in the building sector across states will be essential in delivering the housing targets.
“The least-cost answer for indebted states is to modernise our planning systems and put measures in place to boost the proportion of skilled workers coming into the country,” Zorbas said.
“We need to bring forward federal environment approvals and force power and water providers to stop delaying the delivery of new homes, industrial and commercial assets that our communities need as they grow,” he concluded.