New home construction in Australia is expected to rise this year, driven by a surge in investor demand for house and land packages. However, experts warn that the increase remains insufficient to meet government housing targets, leaving key states struggling to supply enough homes for growing populations.
This article appeared on The Age, highlighting research from Oxford Economics Australia that forecasts a 4.5% rise in total dwelling commencements for the 2025 financial year. Despite the increase, the expected 166,900 new homes fall well short of the 240,000 annual target set by the federal government.
Investor Demand Shifts Towards House and Land Packages
A key factor behind the rise in housing starts is the growing interest from investors in detached homes. According to Timothy Hibbert, head of property and building forecasting at Oxford Economics Australia, more investors are choosing house and land packages over off-the-plan apartments.
“There’s a lot less apartments on the market for off-the-plan sales,” Hibbert explained. “Part of that increase may be that demand that used to go into off-the-plan apartment developments is now just shifting its way into the detached house market.”
Data from the Australian Bureau of Statistics (ABS) supports this trend, showing a sharp increase in investor activity. In New South Wales, home loans taken out by investors for new housing construction jumped by 71% in December 2024 compared to five years earlier. In Victoria, the increase was even higher at 76%.
Apartment Construction Lags Amid Rising Costs
While detached home construction is picking up, attached dwellings—such as apartments and townhouses—remain stagnant. Forecasts indicate that the number of attached dwelling commencements will stay largely unchanged from the previous year.
Industry experts cite labour shortages, planning delays, and rising costs as key barriers to apartment development. Tom Devitt, senior economist at the Housing Industry Association, noted that the cost of land and construction remains a significant challenge.
“Land and construction costs are too high both for people to afford those kinds of housing volumes and for it to be viable for the industry to build,” Devitt said. “The other big barrier is the shortage of skilled workers that are going to be needed.”
Regional Growth Outpaces Major Cities
While Sydney and Melbourne struggle with high land prices and planning constraints, other regions are experiencing a construction boom. Western Australia, Queensland, and South Australia have seen stronger growth in new housing developments, buoyed by rising property prices.
Hibbert also pointed out that Victoria’s weakening house prices have made buying existing homes more attractive than building new ones. Meanwhile, Sydney faces land constraints on its outskirts and a lower supply of new apartments than in previous years.
Shortfall Remains Despite Rising Demand
Despite the projected increase in housing starts, experts agree that Australia will fall well short of the government’s ambitious target of 1.2 million new homes over five years. AMP chief economist Shane Oliver estimates that 185,000 new homes will be built this year—well below the 240,000 annual requirement.
“Even if you ramp it up to 240,000 you’re really just catching up to the level we should have been building over the last few years given the surge in population,” Oliver said.
He added that achieving the 240,000 target would require significant changes, and progress so far has been slow, leaving Australia far behind schedule nearly a year into the plan.
