Aussie Developer Group Sounds Alarm on 400,000-Home Shortfall Across Key Cities

Australia’s capital cities are facing an undersupply of nearly 400,000 dwellings by 2029, according to a developer industry group, even as Asia Pacific and Western investors deploy capital in the nation’s residential market.

The estimated shortfall is based on the federal government’s target to build 1.2 million new homes nationwide in the next four years, the Urban Development Institute of Australia said in its 2025 State of the Land report. Despite positive signs of improving supply in the country’s greenfield market, the multi-unit sector — including build-to-sell and build-to-rent homes — remains mired in near-record low levels of output, it said.

New dwelling production is forecast to fall 11 percent this year, pushing up prices across all residential product types, according to UDIA. Housing supply shortages are set to continue amid elevated material input costs and labour shortages, with high inflation leading to cost-of-living pressures and interest rate hikes.

“The recommendations provided in our 2025 report for both state and federal governments, present a roadmap of what needs to happen to expedite new dwelling supply, improve affordability and allow the industry to drive improved productivity,” said UDIA national president Col Dutton.

Long Recovery Seen

In 2024, a 25 percent rise in sales of greenfield detached housing lots was counter-balanced by an underwhelming performance in the multi-unit sector that will continue to weigh on completions of new home supply for at least the next three years, according to the report.

“Despite some (patchy) improvements in multi-unit approvals, the considerable lag time between new multi-unit approvals and completions means that there will be a far longer recovery period for this sector than anticipated in the detached home market,” UDIA said.

Policy and regulatory reforms announced over the last 12 months to help fast-track new home supply have yet to bear fruit, with new housing production down 27 percent in 2024 compared with the most recent peak in 2017.

Last year saw 56,550 multi-unit completions, representing a similar volume to 2023 but a 21 percent decline against the decade average and a 40 percent drop from the volume of completions achieved in 2017.

“The outlook for multi-unit completions over the coming three years is for a circa 15 percent decline in net additions on 2024 levels to around 46,000 before a modest production increase in 2028 and 2029 to around 49,000 units,” the report said.

A more positive showing is forecast for the build-to-rent sector as various projects are completed over the next three years, with a gradual uptick from 4,220 BTR units in 2024 to 6,880 in 2025 and 8,610 in 2026.

UDIA’s recommendations for boosting supply include incentivising housing for middle Australia, fast-tracking infrastructure, releasing more land supply, prioritising housing-skilled migrants and halting constant changes in construction codes.

Investment Backslides

Investment in Australia’s commercial residential segment, which includes BTR and purpose-built student accommodation, fell 64 percent last year to A$1.1 billion (now $690 million), according to MSCI. Much of the total came from Japanese investors who allocated A$300 million to commercial residential, the data tracker said in its Capital Trends report.

Nearly 80 percent of 2024 BTR transaction volume related to completed (or upon completion) assets, with fewer development sites acquired for new BTR projects, per a separate Colliers report. Offshore investors accounted for 81 percent of volume, up from their 10-year average of 50 percent, the consultancy said.

Local Residential, a BTR platform backed by Macquarie Asset Management, earlier this month unveiled a new 312-unit apartment project in central Melbourne with a completed value of A$270 million. The announcement came after Local’s inaugural fund invested in a 406-unit project in South Melbourne and a 425-unit development in the city’s eastern Box Hill suburb.

In the PBSA segment, US giant Greystar is in the process of acquiring seven Australian student housing properties from a joint venture of Wee Hur Holdings and GIC for A$1.6 billion. Additionally, Sydney-based Scape has converted its flagship student housing fund into a A$6 billion open-ended core vehicle, securing a fresh A$1 billion equity commitment from key global investors and acquiring eight new assets.

Last August, Aussie construction major Lendlease and Japan’s Mitsubishi Estate announced a A$500 million joint venture to develop a prime residential project at 1 Darling Point Road in Sydney’s eastern suburbs. The 17-storey tower is planned to comprise a mix of luxury apartments and affordable worker housing.