New year, same challenges for Australia’s housing market
Despite some positive recent data, deep-rooted challenges within the construction industry continue to stifle housing supply growth.
For many Australians, home ownership and affordable renting feel increasingly out of reach. Housing affordability has emerged as a major election issue, with multiple surveys highlighting it as a top concern. However, as we move through 2025, efforts to boost housing supply—most notably the National Housing Accord, which aims to deliver 1.2 million homes between June 2024 and June 2029—are falling short.
Australia is simply not building enough homes. A surge in post-pandemic migration has intensified demand, while constraints in the construction industry have limited supply. Dwelling investment has dropped to a record low as a share of the economy, worsening the already severe housing shortage. Chart 1 highlights the stark gap between growth in population and dwelling stock.
Chart 1: Annual growth in population and dwelling stock
The persistent imbalance between supply and demand has pushed property prices higher in recent years. However, recent data suggests that price growth is beginning to slow. In the December quarter of 2024, the total value of dwellings in Australia rose a modest 0.2% with only net additions to stock offsetting a slight fall in property prices. Annually, growth slowed to 4.4% compared to 8.1% in December quarter 2023.
Recent building activity figures paint a mixed picture. Dwelling approvals surged by 6.3% in January 2025, marking a significant 21.7% increase compared to the same time last year. However, not all housing types have shared in this growth—house approvals inched up just 1.1%, while approvals for other dwellings soared 12.7%. Despite these improvements, dwelling approvals remain below historical levels and far from sufficient to meet current demand.
Similarly, dwelling commencements in the September quarter rose by 4.6%, but remain historically low. While new housing projects are starting, dwelling completions have declined, exacerbating construction backlogs. In the first quarter of the Housing Accord, dwelling completions fell to around 45,000—far below the 60,000 required per quarter to meet the five-year target.
Labour shortages continue to be a major roadblock. Job vacancies in the construction industry are up 33.7% between November 2024 and the same period in 2019, leaving 22,200 positions unfilled. This labour shortage has driven up input costs, compounding the financial strain on developers.
The Productivity Commission’s report on productivity in housing construction reveals an alarming trend. Over the past 30 years, labour productivity in dwelling construction has declined by 12%, whereas overall productivity in the broader economy has increased by 49%. The slowdown is largely attributed to inefficiencies in house construction, rather than in higher-density housing.
Complex and slow approval processes, limited innovation, and workforce constraints have all significantly extended construction timelines. A decade ago, the average time to complete a home was 6.4 months. Today, that figure has risen to 10.4 months, further delaying much-needed housing supply.
Ultimately, a recovery in dwelling investment has long been anticipated, but ongoing labour shortages, high material costs, rising financing expenses, and approval delays are still holding back development. While construction costs are now increasing at just one-fifth of their peak 2022 pace, they remain nearly 45% above pre-pandemic levels.
Although conditions are expected to improve over 2025, Deloitte Access Economics expects fewer than 1 million new dwellings to be completed over the next five years – well short of the National Housing Accord target of 1.2 million homes.
This newsletter was distributed on 11th March 2025. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Amy Kerrigan, Graduate Economist at Deloitte Access Economics
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