How to tackle Australia’s housing crisis
by Brendan Coates
Australia’s housing problem has been building for decades. House prices have risen faster than incomes across Australia: in the early 2000s, house prices were about four times the median income. Today, the typical home costs about eight times the median income across most capital cities, and nearly 10 times in Sydney.
But housing has become even more expensive since the pandemic. Rents have risen sharply across Australia – by 80 percent in Perth, more than 50 percent in Brisbane and Adelaide, and roughly 20 percent in Sydney and Melbourne – in the past four years.1 Many vulnerable renters are struggling to keep a roof over their heads. And the growing gap between the housing “haves” and “have nots” is also worsening wealth inequality. The prospects for a more egalitarian Australia largely rest on whether we can make housing more affordable.
Housing is expensive because we haven’t built enough of it
Worsening housing affordability is a problem with many causes. Lower interest rates and strong migration over recent decades have both played a role; so has a lack of new social housing. But the heart of the problem is the fact we just haven’t built enough homes to meet the needs of a growing population, especially homes in places where people most want to live – that is, in established suburbs close to jobs, transport, schools and other amenities.
Heading into the COVID-19 pandemic, Australia had just over 400 dwellings per 1,000 people, which was among the least housing stock per person in the developed world. Australia is also one of only four OECD countries where the amount of housing per person went backwards over the past two decades. And Australia’s two biggest cities, Sydney and Melbourne, are some of the least dense for their size in the world. Melbourne’s population density is roughly half that of Toronto; Sydney’s is just three quarters, in the area two to 10 kilometres from the city centre.
Stringent planning controls have stopped us building the homes we need
The shortage of housing in Australia is largely a failure of housing policy. Australia’s land-use planning rules are highly prescriptive and complex. And the frameworks and processes that dictate what gets built where are hugely biased against change. For example, nearly half of all residential land in Melbourne is zoned for three storeys or less, and 77 percent of all residentialzoned land in Sydney is zoned R2 – low-density residential – which typically permits single homes only.
These rules reflect the politics of planning. Older and wealthier residents of well-located suburbs generally prefer their neighbourhoods to stay the same – and they get an outsized say. Whereas the people who might live in new housing in desirable suburbs, were it to be built, don’t have a voice. This results in “missing middles”: hectares of prime innercity land, close to jobs and transport, rising barely taller than two stories. And the populations of swathes of affluent suburbs in our biggest cities – precisely the places so many Australians want to live – are declining.
Allowing greater density would make housing cheaper
This is not what most Australians want. It is a myth that most Australians want a quarter-acre (or 1,000-square-metre) block. Many would prefer a townhouse, semi-detached dwelling or apartment in an inner or middle suburb, rather than a house on the city fringe.
In 2021, townhouses, apartments and semi-detached dwellings made up 44 percent of Sydney’s dwelling stock and 32 percent of Melbourne’s, up from about 39 percent and 27 percent, respectively, in 2011. This is still well short of the 59 percent and 52 percent respectively that residents say they want.
Urban infill could supply a lot of the new housing needed for a growing population while giving Australians more choice over where they live, and upzoning for more housing in established suburbs would make housing cheaper. The NSW Productivity and Equality Commission estimates that a 10 percent increase in housing supply – that is, over and above the level needed to match population growth – would lower housing costs by 25 percent.2
This isn’t merely theory. In 2016, Auckland, a city of 1.5 million, rezoned about three quarters of its suburban area to promote more dense housing. Researchers later found that the policy had boosted the housing stock by up to 4 percent. About three quarters of the extra housing built was two- and three-storey duplexes and townhouses scattered across the city. That extra housing reduced rent for two- and three-bedroom dwellings by at least 14 percent, compared to if the rezoning hadn’t happened, with the biggest fall in rents among cheaper dwellings.3
Auckland shows that planning systems must support much more zoned capacity than might be needed. Before the reform, central Auckland had zoned capacity for extra housing of about 1.5 times the existing population. Yet there was still a housing shortage, because much of that extra zoned capacity was in places where it wasn’t economic to build.
Urban density, if done well, can also add to neighbourhood amenity while preserving local green space. As the NSW Productivity and Equality Commission noted, “Several cities with similar populations but higher densities – such as Vancouver, Toronto and Vienna – outrank Sydney, Melbourne, and Brisbane on quality-of-life measures.”4 Building more housing in established suburbs is also cheaper for state governments. Infrastructure Victoria estimates that it costs between two and four times less to service a dwelling in an established suburb with infrastructure than it does for a new home on the suburban fringe. And meeting our emissions-reduction goals would become easier if our cities became denser rather than continuing to sprawl further outwards.
The policy winds are shifting
The good news is that change is afoot. The 2025 federal election was the first election where gen Z and millennials outnumbered boomers in every state and territory. And they, more so than their parents, seem to understand that housing will only get more affordable in Australia if we build a lot more of it. State governments in Victoria and New South Wales are acting by upzoning to allow more homes to be built in established suburbs of Melbourne and Sydney. The Victorian government’s train and tram activity centre program will upzone scarce innercity land around 60 transport hubs across Melbourne, and the NSW government’s Transport Oriented Development program will do the same around 45 precincts in Sydney. Victoria’s Townhouse and Low-Rise Code, and the Low- and Mid-Rise Housing Policy in NSW, will permit gentler density across Melbourne and Sydney, especially in the form of two- and three-storey townhouses, which are typically cheaper to build than multistorey apartment buildings. These reforms have the potential to unlock hundreds of thousands of extra homes in the coming decades in both cities, with some of the best infrastructure, amenities and public spaces.
Opinion polls in both NSW and Victoria suggest reforms are popular with the broader public, though state governments will need to hold the line in the face of opposition from those residents who don’t want more homes near their own. A lack of public confidence in the quality of what gets built also makes it harder to create the housing we so desperately need. But more housing doesn’t have to come at the expense of good design: the NSW Housing Pattern Book, for example, showcases high-quality, architect-designed plans for medium-density developments which will be made publicly available for developers and subject to a faster approval pathway.
Housing will become cheaper still if we can improve our capacity to build more of it: by supporting innovative new methods in housing construction; by growing our local construction workforce and bolstering it with more migrants with construction skills; and by supporting high-quality design that garners public support for more housing. Scarce and expensive housing is a problem we really can fix, but only if we all work together to get more housing built where people most want to live.