Australia’s housing crisis is poised to worsen as the construction of new homes continues to lag behind the country’s burgeoning population growth, according to a stark warning from the Housing Industry Association (HIA). The association’s latest report highlights a significant shortfall in housing supply, exacerbated by simplistic interpretations of population data that fail to capture the true scale of the issue.

Tim Reardon, Chief Economist at HIA, emphasised the gravity of the situation, stating, “HIA estimates that Australia needed to build more than 250,000 homes last year just to keep pace with demand growth and begin reducing the housing shortage. Instead, we commenced construction of just 196,000 homes. That gap is why housing affordability continues to deteriorate.”

The release of new population statistics by the Australian Bureau of Statistics (ABS) is anticipated to reveal a population increase of approximately 420,000 people in 2025, with net overseas migration contributing around 300,000 of that figure. However, Reardon cautioned against oversimplified analyses that underestimate the housing demand. “Every time population data is released, commentators misrepresent the scale of the housing problem. They simply divide population growth by average household size of 2.5 and conclude Australia only needs to build 170,000 homes per year. This obtuse approach grossly underestimates the demand for homes and perpetuates a misunderstanding of the nature and depth of Australia’s housing shortage.”

The HIA’s report, titled “Beyond Population ÷ 2.5: Understanding Housing Demand in Australia,” argues that the traditional method of calculating housing needs based on population growth and average household size is flawed. Reardon explained, “New migrants and occupants of higher-density housing typically live in smaller households than the national average. This means population growth cannot be accurately translated into housing demand using a ratio of 2.5 people per dwelling.”

Moreover, the report highlights that factors such as economic growth, ageing populations, household formation, relationship breakdowns, and changes in employment locations all contribute to housing demand, independent of migration figures. “Australia would need to build more than 100,000 homes each year even if population growth fell to zero,” Reardon noted.

The National Housing Supply and Affordability Council (NHSAC) has forecasted a continued under-supply of housing through at least 2030. However, HIA’s modelling suggests an even more rapid deterioration of the housing shortage, driven by sustained population growth, declining occupancy rates, and low unemployment. “Demand for housing rises with a strong economy, not just population growth,” Reardon asserted.

The implications of the housing shortfall are far-reaching, with the potential to impact economic stability and growth. “Stronger economic growth also creates demand for more housing,” Reardon said. “But if demand and supply of homes remain out of balance and affordability continues to worsen, there is an increasing risk of poorly targeted policy responses.”

The HIA report also addresses the misconception that migration is the sole driver of housing demand, pointing out that other factors play a significant role. “Migration contributes to housing demand, but so do population ageing, household formation, relationship breakdowns, changing housing preferences and replacement demand,” Reardon explained. “The solution is not to deny that migration creates demand for housing. The solution is to ensure housing supply can respond to that demand.”

The report warns against planning migration around housing shortages, advocating instead for an integrated approach that aligns migration, infrastructure, and housing policies. “Stable and reliable migration supports labour force growth, economic growth and government revenue,” Reardon stated.

In response to the crisis, the Australian government has pledged $2 billion in investment in housing infrastructure, a move that Reardon described as “a significant step in the right direction to lowering the cost of new housing supply.” However, he emphasised the need for further action to address the underlying issues driving the housing shortage. “To make homes more affordable, governments need to lower the cost of delivering new homes to market. It is difficult for governments to lower the price of labour or building materials. Land prices however have increased two to three times faster than the cost of labour or materials.”

The HIA report concludes with a call to action, underscoring the urgency of achieving the Housing Accord target of 1.2 million homes. “The evidence is clear. Rents are rising, prices are rising and vacancy rates remain critically low. Australia is not building enough homes to meet last year’s demand growth, let alone reduce the housing shortage that already exists. Achieving the Housing Accord target of 1.2 million homes is therefore not optional. It is the minimum required if Australia is to restore affordability and give more Australians access to secure housing.”