Australia’s Housing Crisis: A Nation Falling Short

Eighteen months into a federal plan to build 1.2 million homes, Australia is 77,500 homes behind schedule. Record spending has failed to close the gap.

Australia is facing a complex housing crisis characterized by governments failing to meet ambitious construction targets, rising costs, conflicting planning policies, and debates over the most effective approach to increasing supply. Multiple layers of government—federal, state, and local—are involved in a struggle to balance the need for more homes with the economic, infrastructure, and community challenges of achieving that goal.

Federal Housing Targets Fall Short

The Australian government’s National Housing Accord set a goal of building 1.2 million new homes over five years, starting July 1, 2024. Eighteen months into this plan, the nation is 77,500 homes behind schedule. Since the accord’s start, only 282,500 residences have commenced construction, significantly below the targeted 360,000 for that period. To meet the overall goal, Australia must now build 262,000 homes annually for the next 3.5 years, exceeding the initial yearly target of 240,000.

This shortfall occurs despite record spending. In the past year, a record $110.5 billion was spent on new home construction. New home commencements in 2025 reached over 196,000, the highest 12-month total since the 2022 financial year. However, this figure remains below the required pace. As of the end of December, 12,391 homes were approved but not yet under construction nationwide, with New South Wales holding the largest share of these unstarted approvals.

On a state level, Victoria is approximately 44,000 homes behind its own 10-year target of 800,000 homes. In the year to September 2025, Victoria completed 54,323 homes, down from 61,702 the previous year. These completion figures are the lowest since 2014. Despite falling short of its own targets, Victoria continues to build more homes than most other Australian states, completing 10,000 more than New South Wales and 20,000 more than Queensland in the year to September 2025.

Key Obstacles to Construction

Economic Viability and Rising Costs

A 40% surge in construction costs over the past five years has made many projects financially unfeasible.

Multiple sources identify high construction costs as a primary barrier to new housing. Analysis from the Grattan Institute indicates that only 18% (approximately 110,000 homes) of the planned capacity in Melbourne's activity centres is currently commercially viable.

A Treasury brief from late 2024 also warned that soaring construction costs threaten to stall apartment developments in Victoria. Developers have stated that government financial investments are insufficient to attract housing investment, and construction costs in central Geelong are reportedly higher than in Melbourne.

Taxation and State Charges

High property taxes are repeatedly cited as a deterrent to investment. Specific taxes mentioned include:

• Victoria's land tax regime
• The Windfall Gains Tax
• The Absentee Owner Surcharge
• Developer charges, including a proposed tax of over $11,000 per new unit in activity centres

Industry groups, including the Housing Industry Association (HIA) and the Property Council of Australia, argue that these taxes make development unviable and deter investors. Investors accounted for 40% of new home builds in the past year.

Planning System and Delays

There is significant debate about the role of the planning system in the housing shortfall.

Claims of Local Council Delays:
Melbourne councils have disputed state government claims that they are the primary cause of delays. They cite market conditions, land banking, and state-level bottlenecks as factors. Data from the Municipal Association of Victoria indicates a gap between approved projects and completed construction. For example:

• In Maribyrnong, 9 out of 1,178 dwellings approved between 2023-24 have been completed, with 84% not started.
• In Ringwood, 50% of dwellings approved since 2016 remain unconstructed.

State Government Reforms:
In response, the Victorian government has introduced reforms to override local planning rules. The Development Facilitation Program (DFP) allows developers of major projects to bypass local councils and seek direct approval from the Planning Minister in exchange for affordable housing contributions. Another key policy, the Activity Centres Program, rezones 60 suburban hubs near public transport for high-density development, with building heights up to 20 storeys.

However, the DFP has been criticized for its limited output. As of February 2025, only six homes had been completed under the program, though 2,471 were under construction. Department officials anticipate an average lead time of at least two years between planning approval and construction start, despite the program's "shovel ready" branding. Critics argue that post-permit delays from referral agencies like Melbourne Water and VicRoads continue to slow projects.

Infrastructure and Land Banking

At the Geelong level, leaders have proposed a special economic zone with tax incentives to revitalize the CBD, citing empty shopfronts and low residential density. The council reports that 17 permits for CBD developments have been granted but are not being delivered due to high construction costs. In Bayside, a council has filed a Supreme Court case to compel the release of ministerial briefs related to activity centre planning, seeking greater transparency.

Proposed Policy Responses

Government of Victoria (Labor)

The Allan government's primary strategy is the Activity Centres Program, which aims to create capacity for over 300,000 homes by 2051 in 60 designated hubs. Developments that comply with new rules in these zones will be "deemed to comply," bypassing the Victorian Civil and Administrative Tribunal (VCAT). The government has also introduced a statewide Townhouse Code to standardize approvals for low-rise developments.

The government has stated that some key reforms are still being implemented and their full impact is yet to be realized. A government spokesperson said the system is being overhauled to cut red tape and reduce costs.

Victorian Liberal Coalition

The opposition has proposed a contrasting plan focused on:

1. Expanding the CBD: Extending Melbourne's Capital City Zone to inner suburbs like Southbank, North Melbourne, and Collingwood to allow for higher-density development, including skyscrapers.
2. Reversing Activity Centres: Removing state-imposed high-density overlays in the 60 suburban activity centres and returning planning control to local communities.
3. Accelerating Greenfield Development: Speeding up precinct structure plans for outer suburban growth areas.

The Coalition has stated they would repeal the activity centre plan if elected.

Critics, including the Grattan Institute and RMIT professors, have characterized the plan as election-focused, protecting middle-ring suburbs while shifting density to Labor and Greens strongholds. The Coalition has not explicitly addressed the "missing middle" of medium-density housing.

Federal Government

At the federal level, the Albanese government has committed to building 1.2 million homes over five years. All states and territories are reportedly behind these federal targets.

Industry and Expert Recommendations

• Tax Reform: The HIA, Property Council, and UDIA have called for reducing taxes on housing and construction, cutting land tax, and removing charges like the Windfall Gains Tax and Absentee Owner Surcharge.
• Workforce and Infrastructure: Master Builders has advocated for increased investment in housing infrastructure, streamlined national construction codes, and more support for apprentices and skilled migration.
• Direct Government Intervention: RMIT Professor David Hayward argued that the government cannot rely solely on the private market and needs to finance housing directly.
• Expansion of Program: YIMBY Melbourne supports the expansion of activity centres, while the Grattan Institute has recommended increasing height limits in outer areas and expanding the program to high-demand suburbs.

Affordable Housing and Specific Projects

Development Facilitation Program (DFP) and Cash Contributions

The Victorian government's DFP allows developers to bypass local planning rules for major residential projects in exchange for affordable housing contributions. A key element is that developers can meet this requirement with a cash payment equal to 3% of construction costs to the Social Housing Growth Fund, instead of providing actual units. The government states that over 11,000 homes have been approved, with more than 20% intended for social or affordable housing.

In Boroondara, approximately 800 homes were fast-tracked, but only about 59 affordable dwellings were guaranteed because three of four projects opted for cash contributions.

Critics, including community groups and RMIT experts, argue that cash contributions may not equal the value of foregone affordable housing and lack transparency. The government has stated it allocates the fund based on demand, with no requirement that funds be spent in the same local government area as the development.

Key Contested Projects

Several specific projects highlight the tensions between development, community concerns, and government policy:

• Kew (Leo's Fine Food and Wine Site): Developer Orchard Piper, backed by billionaire James Packer, proposes an 18-storey tower with 194 apartments through the DFP, exceeding the 16-storey local limit. Residents have raised concerns about traffic and neighborhood character, while the state government stated the proposal will be considered on its merits.
• Mount Scopus Memorial College, Burwood: A 10-hectare site is slated for up to 4,200 dwellings as part of the DFP's "Unlocking Strategic Sites" scheme. Whitehorse Council released a proposal showing buildings up to 45 storeys, contradicting the school's assertion of a 20-storey limit. The Department of Transport and Planning stated the council tabled a previous iteration by error.
• Town Hall Place, Melbourne CBD: Lendlease has proposed a 16-storey commercial development exceeding the 40-metre height limit, with plans submitted directly to the Planning Minister. Shadow diagrams indicate the tower would overshadow the Flinders Street Station clocks. Heritage and community groups have raised concerns.

Warnings from a Decade of Policy

Confidential cabinet briefings from December 2014 revealed the newly elected Andrews government was advised of the need for significant planning reforms to address population growth and housing supply.

Senior officials highlighted the pressure of 110,000 new residents per year on services, infrastructure, and land use. Bureaucrats recommended updating the planning system, increasing density in established suburbs, using surplus government land for housing, and piloting inclusionary zoning.

However, more than a decade later, the proportion of new housing in established neighborhoods has declined from 56% (2014-2023) to 50% (2024-2025), moving in the "opposite direction" to government intentions, according to property researcher Angie Zigomanis. The pilot inclusionary zoning program had delivered no dwellings by 2023.

Experts have noted that Melbourne's historical focus on greenfield housing has helped control prices, but at significant infrastructure and community costs, and that the government was slow to prioritize planning and housing.