Housing affordability in Australia is expected to deteriorate by 2026, as the number of approvals for new home construction continues to fall about 50,000 units short of the targets set by the government.
Experts now believe it could take a full decade for nationwide planning reforms and changes in the construction sector to begin delivering tangible results, increasing the supply of new homes and improving affordability.
Recent data from the Australian Bureau of Statistics on building approvals indicate that by the end of November, approvals had been granted for 193,299 new homes over the past 12 months. This represents an increase of more than 20,000 units compared with the same period last year and marks the highest level since mid-2022.
This rise is largely attributed to an increase in approvals for apartments and residential units, with notable gains across all states. Queensland recorded the highest monthly approval rate for this property category since 2016.
However, Tom Devitt, Chief Economist at the Housing Industry Association, noted that part of the increase in approvals is due to higher values of existing homes in this segment, which has made investment more attractive.
He also expressed doubts that the target of building 240,000 homes annually (or 1.2 million homes by July 2029) under the National Housing Accord would significantly improve real affordability for individuals seeking reasonably priced housing.
The agreement is considered a cornerstone of the Albanese government’s efforts to address the housing crisis affecting people across the country. Nevertheless, current data show that approvals are running about 50,000 units per year below the required target, meaning renters and prospective homebuyers are likely to face increasing challenges by 2026.
Devitt confirmed that policymakers hope rising values of existing apartments will encourage more approvals, but said this would not be sufficient to meet the broader housing targets. As a result, housing affordability is expected to continue deteriorating over the course of this year.
He added that the market is currently showing early signs of recovery, but will not reach the necessary level without supportive public policies. Other data from the Australian Bureau of Statistics show that the average cost of building a new home has now reached a record high of AUD 519,906, up 6.5% from last year. States such as South Australia and Victoria recorded the largest increases, at 16.4% and 7.9% respectively.
According to an analysis by Oxford Economics, housing remains one of the main drivers of the consumer price index. The firm noted that rising prices may not immediately lead to higher interest rates, although the possibility of future increases remains. Devitt believes interest rates are now more likely to rise than was expected six months ago, but he does not anticipate an increase during the first half of 2026.
Regarding the medium-term outlook, Oxford Economics forecasts that annual new approvals could reach 240,000 by mid-2028. However, improvements in housing affordability are unlikely before the end of the decade, and possibly not until after 2030.
The challenges facing the housing sector highlight the urgent need for greater efforts to stabilise the market and meet growing demand, especially as more than one million new homes are required to resolve Australia’s worsening housing crisis.
