Slowing housing construction and increasing migration could see Australia’s annual shortage of homes surge towards half a million in the next few years, a leading economist has warned, as the property industry calls for urgent red tape cuts to speed up supply bottlenecks.
With the Iran war crisis sending fuel prices soaring and causing chaos across supply chains, affecting everything from cement to plastics to fertilisers, the federal government’s National Housing Accord target of 1.2 million new homes by 2029 is looking like an increasingly distant fantasy.
New figures on Wednesday confirmed no state or territory was on track to meet its targets, with the National Housing Supply and Affordability Council’s first quarterly report showing building completions had fallen by 2 per cent over the past year despite approvals rising 9 per cent.
Meeting the target would have required building 240,000 new homes per year from 2024.
In the five quarters since the start of the Accord, 219,000 homes have been completed — and that number is all but certain to fall further behind as the fuel crisis and rising interest rates send shockwaves through the economy.
At the same time, fresh data last week showed net overseas migration has begun to rebound.
Arrivals minus departures for the September quarter of 2025 reached 87,821 and 311,000 for the prior 12 months — accounting for three quarters of the 1.6 per cent total population growth in that period.
The latest ABS figures mark the first time since the 2022-23 surge that net overseas migration has stopped falling, suggesting the government is on track to blow well past Treasury’s mid-year forecasts of 260,000 in 2025-26 and 225,000 the year after.
Treasurer Jim Chalmers’ May budget is expected to show a revised forecast of a little over 300,000.
AMP chief economist Dr Shane Oliver said in the absence of a quick and dramatic increase in home building, the estimated current housing shortfall of 200,000 to 300,000 would remain for “some time to come”.
Housing approvals — as opposed to completions — have ticked up from around 160,000 to 190,000 on an annualised basis, but “the problem is you’ve still got a bit of a gap there”.
“Even if the 190,000 are all built, it’s way below the Housing Accord target of 240,000 a year,” Dr Oliver said.
“And in the meantime, we’ve got this huge backlog built up. Nine months ago, when rates started to fall, it seemed like we were going in the right direction again. Building material costs were not falling but slowing down, availability had improved … now unfortunately we’re going in the wrong direction again without having closed the gap or met the target.”
Dr Oliver said if housing construction slowed to around 150,000, and net overseas migration remained above 300,000, the shortfall of homes could reach 300,000 to 400,000 in the next two to three years.
“It depends on how severe the supply setback is, given the current pressures from rates and [building supply shortages],” he said.
“I’d say it would probably take a few years to push us to the 300,000 to 500,000 range. If you’re running a 20,000 shortfall a year, it’ll take you five years. If it’s bigger, say if immigration stabilised at the higher number above 300,000 and housing construction slows from 180,000 to 150,000, then you might get to a 300,000 to 400,000 shortfall in two to three years’ time.”
Dr Oliver has been making the case for several years that net overseas migration needs to be brought down to pre-Covid levels of at least 200,000 for a few years in order for housing construction to catch up.
“I haven’t changed my view,” he said.
“The 240,000 housing target is a worthy objective. In the absence of a big cut in immigration, you need that to get on top of the shortfall.
“But at the moment it looks like we’re not going to get either — we’re not going to get the 240,000, and we’re not going to get lower immigration numbers. If we stabilise at around 300,000 [net overseas migration] that’s still very high, and means that your underlying demand level on an annual basis is somewhere in the order of about 190,000 new homes.”
Matthew Kandelaars, group executive of policy and advocacy at the Property Council, said the national data “shows that at this point in time we’re not going to meet the housing target”.
“It is still achievable, but we need to take some urgent steps to make sure we’re delivering as many homes to purchase and rent as we can,” he said.
Housing targets had “focused state on some of the low-hanging fruit when it comes to streamlining planning systems” but Mr Kandelaars said gap between approvals and completions highlighted continued bottlenecks.
Annual building completions were down 3 per cent in NSW, 12 per cent in Victoria, 16 per cent in Tasmania and 13 per cent in the Northern Territory.
Western Australia saw completions rise 16 per cent, while South Australia was up 7 per cent, Queensland was up 4 per cent and the ACT was flat.
The National Housing Supply and Affordability Council report outlines a number of key state-level initiatives to boost supply, including zoning reforms and streamlined planning approvals.
But Mr Kandelaars said delays in “last-mile infrastructure” and slow post-permit approvals were dragging out completion rates, while a heavy burden of taxes, fees and charges — making up about 30 per cent of the price of a new home — was also hurting supply.
“How do we streamline power, water, sewerage, all those politically boring things? How do we ensure better tax and investment settings?” he said.
“In Victoria, the greenfield process is you get a precinct structure plan approved, from there that in itself kicks off a two to three-year process getting the post-permit approvals — water, engineering, sewerage. That could be Melbourne Water, Sydney Water, Western Power in WA … you can’t get these housing starts without these pipes in the ground.”
Mr Kandelaars pushed back on the suggestion that immigration should be lowered to reduce demand.
“It’s a question that just doesn’t go away … it’s a far more complex question than what the simple headline-grabbing answer might suggest,” he said.
“Obviously, Australia is a nation that has its roots firmly in immigration; it’s been a wonderful thing for our nation, our society, but also our economy. That should not be forgotten. The question we ask is actually about the mix of migration, rather than the overall numbers coming to the country.
“Rather than jumping immediately to questions of overall numbers, the far more important question is are we getting the mix right? Are we getting enough migrants in to build the homes we need and work in the care economy?”
He said the number of skilled migrants carrying a construction trade coming to the country — about 1.8 per cent over the past two decades — was “far too low”.
“You can easily double that number at a minimum,” he said. “Less than two in every 100 is nowhere near enough.”
Housing Minister Clare O’Neil said Wednesday’s data showed the National Housing Accord was making “good progress”.
“Fixing a problem generations in the making takes time, but we’re seeing good progress in housing supply across the country with more homes being approved, more homes being built, and importantly — they’re being delivered faster,” Ms O’Neil said in a statement.
“This progress provides a solid foundation for the industry to navigate supply chain pressures emerging from the conflict in the Middle East.
“This is about making sure we can keep building the homes Australians need, at the scale required.
“There’s more work to do, but this shows that when governments at all levels and industry work together, we can get homes built faster and at scale.”
With the Iran war fuel crisis sending costs for building materials and freight soaring by up to 30 per cent, the federal government held urgent talks with the construction sector on Tuesday as fears of another pandemic-like shock grow.
Brad Duggan, chief executive of Metricon Homes, the country’s largest home builder with 5000 projects currently in the pipeline, said comparisons to Covid “at this stage are very premature and alarmist”.
“There are some parallels in terms of global disruption but it’s very different to Covid,” he said. “The pandemic caused a full system shutdown across the industry.”
The Master Builders Association said builders were under the “triple threat” of soaring diesel prices to keep vehicles and equipment running, rising transport costs to get products and services to sites, and building product cost increases and supply chain uncertainty.
In the week ending March 22, the national average petrol price was up 18.5 cents to 238.0 cents per litre, according to the Australian Institute of Petroleum (AIP), while diesel was up 36.8 cents to 282.4 cents per litre.
Panic buying has seen a growing number of service stations across the country run dry.
In NSW, 32 service stations were completely out of fuel on Wednesday — all in regional areas — while 313 were out of one type of fuel, 187 of which were out of diesel. In Victoria, 72 were out of diesel and 115 were out of petrol.
“A shortage of diesel is a big risk for the industry,” Master Builders NSW executive director Matthew Pollock said on Thursday.
“It’s hard to point to a building material or a construction site that isn’t somehow exposed to diesel prices. If we start to see prolonged diesel shortages then we will be looking for the Minns Government to intervene.”
Prime Minister Anthony Albanese has called a national cabinet meeting with state premiers for Monday to consider new emergency measures to conserve fuel including carpooling, working from home when sensible and public transport discounts.
