Expert suggests construction bottlenecks are the main hurdle to meeting housing targets
Australia’s efforts to address housing shortages by increasing approvals for new dwellings may not be enough to meet ambitious government targets, according to an industry analyst.
According to Eliza Owen (pictured), head of research at Cotality, constraints within the construction sector and market conditions are limiting the effectiveness of policy measures aimed at boosting supply.
In August 2023, the government set a goal to deliver 1.2 million new homes in five years. However, industry observers have questioned the feasibility of this target, noting that governments have limited influence over many factors affecting housing demand and supply. While state and local authorities have prioritised streamlining approvals and supporting new projects, building companies are facing ongoing pressures from a large backlog of work and shrinking profit margins.
Owen’s analysis highlights that the closest Australia has come to meeting such a target was in the five years leading up to 2019, a period marked by different market conditions. At that time, the cash rate averaged 1.6%, compared to 4.18% since July 2024. Units accounted for a larger share of approvals, and investor activity was higher, with investors making up nearly 45% of new housing finance nationally at their peak in 2015. Foreign investment was also more prominent, with new home purchases by overseas buyers exceeding 10% for much of the previous decade.
Despite the high number of completions during that period, housing outcomes did not necessarily improve. “More dwelling completions are not necessarily a mark of success for the Australian housing landscape,” Owen said. “Homeownership rates fell, capital growth for investors in 2010s apartments was poor, and some new dwellings were uninhabitable due to defects.”
Recent years have seen state governments introduce measures to accelerate planning and increase new home purchases. For example, New South Wales has launched a pattern book for approved designs, upzoned areas for higher density, and proposed finance guarantees for eligible developers. Victoria has enacted similar zoning changes and offered stamp duty concessions, while Queensland has moved to streamline development approvals.
However, these initiatives have not led to a significant rise in approvals. High interest rates, affordability issues, and reduced buyer confidence – partly due to rising construction costs between 2021 and 2023 – have contributed to subdued demand. Over the year to June, monthly dwelling approvals averaged 15,611, below the decade average and well short of the 20,000 per month needed to reach the government’s target.
Although unit approvals surged 34% in June, this followed a cash rate cut and a sharp drop earlier in the year. “State and local governments can influence dwelling approvals, but interest rates are an extremely important factor as to whether there is market demand for new housing and whether developers will seek approval for new projects,” Owen said.
The construction pipeline remains congested. As of March 2025, more than 219,000 dwellings were under construction, with an additional 30,000 approved but not yet started. Delays in completion and rising costs have become more common, with many projects stalled in early stages. “It’s like turning up the tap on a bath that is already full,” Owen said, noting that without expanding the construction sector’s capacity or productivity, adding more approvals could worsen inflationary pressures, especially as the industry calls for lower interest rates.
Owen argues that government policy should focus on delivering existing projects rather than simply increasing approvals. Productivity in dwelling construction has declined by 12% since the mid-1990s, according to the Productivity Commission.
“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 analysis also points to the need for demand-side reforms, such as reconsidering negative gearing, capital gains tax concessions, and introducing broader land taxes. These measures could reduce pressure on the construction sector by moderating demand for new housing.
Attention is now turning to the National Productivity Summit, where leaders from government, industry, and unions are expected to discuss reforms affecting both supply and demand. “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,” Owen said.
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