The Housing Supply Crisis:
Policy Failures, Rising Costs and a Shrinking Market

REAL STORIES

The housing market is under pressure—
no doubt about it.

But contrary to the headlines, this isn’t a cultural standoff between generations, landlords and tenants, or migrants and locals. It’s a matter of supply. Or rather, the failure to support it. What’s often lost in the noise is the role that government policy, rising costs, and regulatory pressure play in constraining development and reducing rental availability. The result? Fewer homes being built, investors exiting the market, and rents continuing to rise.

Construction Is Harder Than Ever — and More Expensive

The cost of building new homes in Australia has increased sharply, and much of that is due to choices made at a policy level. Planning and zoning constraints at state and local government levels continue to delay approvals and limit new supply. On top of that, changes in building codes, compliance obligations, and local council levies have added cost and complexity. At the same time, the pool of available tradespeople has tightened. Investment in vocational training has stagnated, and union-negotiated site rates have driven up labour costs. Bringing in workers from overseas isn’t a viable solution either: most construction roles aren’t included on the skilled migration list, effectively cutting off a long-used source of trades talent. All of this has a knock-on effect: developers can’t make the numbers work, so fewer projects are launched, and more sites sit dormant.

A Vanishing Investor Class

Investors have been backing out of the residential market. Data from Homes Victoria shows more than 24,000 rental homes were lost in the 12 months to September 2024. That’s not just a data point—it translates to thousands of tenants having fewer homes to rent.

There are several reasons for this:

Rising Land Taxes: Escalating levies—particularly in Victoria—have made it financially unsustainable for many to hold investment properties. For our clients, this has become a key reason to exit the market entirely.
Higher Mortgage Costs: Three years of interest rate hikes have left landlords grappling with inflated repayments, in many cases eroding any net yield.
Heavy-Handed Regulation: While tenant protections are important, the balance has tipped. Layered and often inconsistent regulatory changes have increased the cost and complexity of being a landlord. Many are deciding it’s no longer worth it.

Overseas Investment Has Been Sidelined

Until recently, overseas buyers played a significant role in enabling large-scale apartment developments, especially by pre-purchasing units and paying higher stamp duties and foreign buyer surcharges. In effect, they underwrote roughly half the financial viability of new apartment projects. But recent tax increases and tighter restrictions have shut off that capital flow. As a result, developers can’t achieve presales targets, funding dries up, and projects stall before a shovel hits the ground.

Shortages Are a Policy Outcome — Not a Market Failure

It’s convenient for politicians and commentators to point fingers—at landlords, at migrants, at intergenerational habits—but that misses the point. Housing affordability and availability are ultimately about supply. And supply hinges on planning policy, the cost of delivery, and the regulatory environment for investors and developers. If governments are serious about fixing this, the starting point is straightforward: make it easier to build. That means streamlining approvals, allowing higher-density development where demand exists, and reassessing the cumulative impact of taxes and regulation on investment. Without that, the squeeze will continue—and so will the consequences.

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