Why can’t we build enough houses?

Australia’s housing market is at the forefront of this federal election campaign and politicians’ minds. Both major parties are spruiking signature policies to address the housing crisis at the top of the list for many voters.

What makes building a home so difficult in Australia? Is there a solution on the horizon? We spoke to a range of industry experts to find out.

The edge of a Manor Lakes housing estate, near Melbourne.Credit: Jason South

Feasibility and financing

To reach the federal government’s ambitious 1.2 million new home target announced in 2022, housing development will need to speed up dramatically. At the end of last year, almost 50,000 approved dwellings in Greater Sydney had not started construction.

Stuart Ayres, CEO of the Urban Development Institute of Australia’s NSW branch, says the core constraint of delivering of housing in Australia is its feasibility. For a project to be feasible, the amount it costs to build must match the purchaser’s buying ability.

“This means that the concentration of new apartments tends to be in areas where there’s already high levels of density and there’s already high values associated with property … the high cost to construct can be absorbed by those markets,” Ayres says.

At the end of last year almost 50,000 already approved dwellings in Greater Sydney had not started construction.Credit: Eamon Gallagher

When it comes to building away from the city centre, he says, the cost it takes to construct a dwelling is often higher than the price buyers are willing to pay.

“That impacts … the ability for finance to finance projects, but probably more importantly, the developer’s willingness to start a project at all. Just like any other normal, logical business person, they would not start a project if they believe they’re going to lose money,” Ayres says.

Building costs

Since the onset of the pandemic, it’s estimated that housing construction costs in Australia have jumped more than 30 per cent, according to CoreLogic’s Cordell Construction Cost Index.

What was initially a rapid growth in costs has since slowed, the report says, rising by just 0.4 per cent over the past three months. Costs have risen by 2.9 per cent in the last year – below the pre-COVID decade average of 4 per cent.

But material costs aren’t the only price tag associated with building a house. A lodgement fee, planning permit fees, a refundable crossing deposit and an inspection fee must all be paid to the local council. There are government levy charges for jobs which cost more than $10,000. All new buildings must meet energy efficiency requirements as set out by the National Construction Code.

Head of research at CoreLogic Tim Lawless says that the overall cost of building a dwelling is still increasing, and from an already high base.

“The explosion of costs for the construction industry is still there, and it’s not getting any better. It’s not likely to go backwards either – we’re not likely to see construction costs fall,” Lawless says.

Tim Lawless, head of research at Core Logic.Credit: Peter Rae

“The cost of labor is extreme … [and] we’ve actually seen residential construction productivity go backwards … The industry itself hasn’t innovated as it should, and hasn’t adopted more modern building practices,” he says.

Labour shortages

A major building report released in 2024 by Build Skills Australia – a jobs and skills council established by Labor to address workforce planning and training needs – estimated a shortage of close to 200,000 construction workers during 2025.

Lawless says that an existing lack of skilled tradespeople is worsened by the fact that many projects are competing to hire from the same small pool of workers.

“At a time when we want to build 1.2 million homes in five years, which we’ve never done as a nation before, we’re in a labor market that’s got extraordinarily low labour supply levels,” he says.

“We’re also in this really unique situation where amid this shortage of trades, we’ve got a record amount of public infrastructure being built … of course, that typically pushes the price of labour higher.”

Denita Wawn, CEO of Master Builders Australia, says enough isn’t being done to increase the national labour workforce. Measures like prioritising training, assisting migrants to utilise overseas qualifications or incentivising women to join the industry are potential solutions.

“When you’re building anything, whether it’s a house, high-rise or a detached ... you’re relying on about 40 odd trades to complete the task,” Wawn says. “A high-rise building used to take two years to build, it’s now as high as three years … and in the building industry, time is money.”

Permits and planning hold-ups

Before breaking ground on a housing project, approvals are needed from all relevant authorities. Wawn says securing what’s required can be a significant hurdle.

“The layers of regulation, the constant reviews, the constant capacity to appeal ... that’s all leading to significant delays, which again costs money,” she says.

Planning hold-ups also originate from other residents and neighbours. NIMBYs and YIMBYs frequently clash over construction of new housing developments, especially in urban areas. Wawn says many communities are reluctant to embrace new housing developments, partially because they often lack new infrastructure to go with it.

“There’s a real frustration about a lack of overarching planning … to ensure that there is an amenable community to live in,” she says. “But you also find that people don’t want any additional population in their communities, just simply because they want things to remain the same. And therefore they themselves can delay planning approvals.”

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.