Australia has faced a persistent housing undersupply since the mid-2000s. This shortage has kept prices high, straining affordability. In fact, demand for new homes is roughly 180,000 per year, but supply is only projected to reach about 190,000 per year – well short of the 240,000 pace needed to meet the federal 1.2 million target over five years. Our estimates show an accumulated deficit of around 200,000 dwellings. Tight rental markets reflect the vacancy rates in major cities are under 2%, record lows. This means almost all housing stock is occupied. In short, supply simply hasn’t kept up with years of population growth.
This undersupply has major implications for buyers and investors. More people are moving here (net overseas migration drove about 76% of population growth in the year to Dec 2024), and households are smaller on average, an assumption AMP notes will be tested in the 2025 Census. These trends boost demand for homes, especially compact, well-located dwellings. Smaller homes are scarce relative to rising single- and two-person households.
Compounding the shortage, homebuilding productivity has been weak. Regulations, labour and material shortages, and slow land releases mean construction runs inefficiently. Indeed, housebuilding productivity (dwellings completed per hour worked) has fallen about 53% over 30 years. Until construction can be sped up, the shortfall will persist. Despite government incentives (like the National Housing Accord for 1.2 million homes), hitting the target is unlikely without major reforms.
Key Takeaways for Buyers and Investors
- Undersupply means growth. Years of demand outpacing supply have driven home prices upward. Experts expect this to continue. AMP Economics forecasts national home values rising about 7% in 2025 and a further 8–10% in 2006. In practice, that means capital growth may be easier to find than bargains – so buying now can lock in value ahead of the next price surge.
- Timing is crucial. With rates easing and first-home incentives in place, borrowing power is improving. The Reserve Bank’s cuts will likely fuel demand even as construction lags. Waiting may mean paying much more later. A buyer’s agent can help clients act on tight windows, sourcing homes before the next upswing.
- Choose the right locations. Look beyond inner-city hype. Growth areas – outer suburbs, regional fringes or “suburban growth corridors” with new infrastructure – often see strong demand but have more supply constraints. Conversely, very expensive established areas have price ceilings. A buyer’s agent uses local market intel and data to find pockets where buyer interest exceeds new listings, even if those areas sound unconventional at first.
- Long-term demand is solid. Even if prices are currently high, fundamentals are strong. We have a high rate of migration and more single-person households than in previous decades. These forces don’t disappear, so property demand should stay robust. Investors, in particular, can leverage this – a strategic, long-term view (versus short-term yield chasing) is key.
- Use professional guidance. In a market this tight, experienced buyer agents add value. They are best at uncovering off market deals and negotiating till the best possibility and match clients to the best suburbs for growth.
Key2Dreamz is here to help. We know the markets in Sydney, Melbourne, Brisbane and more. From picking the right suburb to closing the deal, we guide you at every step so you can buy with confidence in today’s tight market.
Contact Key2Dreamz today at +61 439 260 917 or book a free consultation to discuss how we can apply these trends to your advantage.