Shrinking Supply, Soaring Demand: Australia’s Housing Shortage

Key Takeaways

1. Australia’s housing shortage is structural, not temporary.

Long-term issues, such as longer hold periods, suppressed investor activity, low social housing, and slow construction, are the main drivers behind limited supply.

2. Demand keeps rising despite economic challenges.

Population growth, smaller household sizes, and strong preference for city living continue to outpace housing supply, keeping pressure on both buyers and renters.

3. Established homes are not circulating in the market.

Stamp duty costs, lifestyle choices, and reduced affordability have led homeowners to hold properties for much longer, sharply reducing available listings.

4. Rental markets remain extremely tight.

Investor pullback, a shrinking social housing sector, and a very small Build-to-Rent sector have left renters facing low vacancy rates, high competition, and rising rents.

5. Prices and rents are likely to keep increasing.

With supply unlikely to rise quickly and construction pipelines still strained, the Australian property market will remain competitive, supporting continued price and rent growth.

Estimated reading time: 12-14 minutes

Introduction

If you are struggling to find a home in Australia, you are not alone. Amid shrinking supply and soaring demand, the housing shortage story remains largely untold.

Australia’s housing market is highly imbalanced. For years, supply has failed to keep pace with demand, resulting in one of the most persistent and widespread housing shortages in the country’s history. 

The Australia Housing Shortage affects everyone, including renters struggling to secure a home, buyers facing fierce competition, and investors navigating rising costs and stricter regulations.

While many people assume the issue is driven solely by high demand, the bigger story lies in how little supply is being added and how slowly existing homes are circulating through the market. The supply problem is not temporary; it is structural, long-term, and system-wide.

This blog breaks down what shrinking supply looks like, why demand continues to climb, and what these forces mean for renters, buyers, and the broader Australian property market.

What Shrinking Supply Looks Like

Australia’s supply shortage is most visible in a straightforward fact: established homes are not coming onto the market. Listings remain extremely low compared with historical levels, and new housing construction cannot fill the gap. The Supply Shortage Score (SSS) is a model that quantifies the relative degree of housing undersupply across regions, with key supply metrics influencing it. These include:

• Established Supply
• Future Supply
• Price Pressure
• Rental Pressure
• Housing Availability
• People Movement

Behind the facts sit deeper structural issues, and we’ll dive into them quickly.

1. Homeowners Are Holding Onto Their Properties Much Longer.

Across all major cities, the average time a person holds onto their home has risen steadily since 2008. Instead of selling after five or six years, many owners now hold properties for eight to ten years – sometimes even 11-12 or longer.

This decline in mobility has personal causes, such as:

• Higher living costs
  
• Families preferring stability
  
• Older owners ageing in place
  
• A strong belief in long-term property investment
  

But the most significant driver is stamp duty.

Stamp duty discourages people from moving.

Over the past few decades:

• Household incomes have grown slowly.
  
• Property prices have skyrocketed.
  
• Stamp duty thresholds have barely moved.
  

This means stamp duty now consumes a much larger share of a buyer’s income than it did, probably, 20 years ago. In cities like Sydney, Melbourne and Brisbane, it has grown far faster than household income.

Because moving triggers a massive tax bill, many owners choose to stay where they are,  even if their home no longer suits their needs. This reduces the number of established homes available for both buyers and renters.

2. Low investor activity has starved the rental market.

Another major cause of the supply shortage is the decline in investor participation. For most of the past decade, investors have made up a much smaller share of buyers in the established housing market.

Why? Investors have faced:

• Stricter lending rules
  
• Higher interest rates
  
• Land tax costs
  
• Lower thresholds for tax exemptions
  
• State policies aimed at discouraging investor purchases
  

This long-term pullback means fewer rental properties were added to the market. Although investor lending rose slightly in 2025, investor activity remains well below historical norms.

Because investors account for most of Australia’s rental properties, the drop has directly worsened rental supply and affordability.

3. Australia lacks diverse housing types.

The housing system relies too heavily on private investors. Other countries have larger shares of social housing and Build-to-Rent (BTR) developments, offering more balanced housing options. The share of social housing 

But in Australia:

Social housing is shrinking

Social housing’s share of all dwellings has been falling (with 7% in the 1990s, down to 4% in 2024). Population growth has far outpaced social housing construction, leaving many vulnerable households with limited options and increasing pressure on the private rental market.

Build-to-Rent is growing, but tiny.

Australia has only about 10,000 completed BTR homes,  just 0.1% of the total housing stock. Even with strong growth expected, BTR will remain below 1% of the national supply over the next decade.

This means individual investors will remain the leading providers of rental housing, particularly in the short to medium term.

Key Drivers of Rising Demand

While supply has slowed, demand for housing continues to grow. Several long-term trends fuel this rising pressure.

1. Rapid population growth

Australia’s population has grown quickly due to strong migration, returning residents, and international students. Each new household adds pressure to an already limited housing supply. Amidst this trend, vacancy rates have declined from 2% before 2022 to around 1.2% since then.

2. Smaller household sizes

More people live alone, couples have fewer children, and multi-generational households are less common. This means more dwellings are required to accommodate the same population.

3. Strong preference for city living

Capital cities and fast-growing regional hubs attract people for jobs, education, lifestyle, and infrastructure. These areas are also where supply is tightest.

4. Rental pressures are pushing more people to buy

Record-low vacancy rates and rising rents mean some households are trying to move into ownership sooner, adding further pressure on buyer demand.

Together, these factors keep demand strong even when economic conditions soften.

Regional Differences and City Hotspots

Not all areas experience the housing shortage equally. Some cities face more extreme pressure due to population patterns, land availability, local planning rules, and construction capacity. Close to 65% of Australia’s population lives in the five capital cities of Melbourne, Sydney, Brisbane, Perth, and Adelaide. 

Sydney

Limited land, high construction costs, and complex planning rules create deep structural supply issues.

Melbourne

Strong migration and a slower construction pipeline have pushed vacancy rates down and increased competition for homes.

Brisbane and Southeast Queensland

Rapid interstate migration and the desire for houses in these subtropical climate areas have outpaced new housing completions, leading to sharp rent increases.

Adelaide and Perth

These cities were under-built for years, and surging population growth, coupled with inadequate new construction, has left minimal buffer in supply.

Popular regional areas

Regions with fast population growth but limited building capacity, such as coastal towns and lifestyle hubs, face some of the tightest supply conditions in the country.

Impacts on Renters

Record-low vacancy rates

In many cities, vacancy rates sit below around 1.2%, meaning very few properties are available at any given time.

Rent increases

Intense competition pushes rents higher. Many renters now spend 30–50% of their income on housing.

More competition at inspections

Renters often attend multiple inspections, with dozens of applicants competing for the same home.

Reduced stability

Limited supply means renters face shorter stays, fewer options, and more stress when leases end.

Impacts on Buyers and Investors

Fewer listings and greater competition

With fewer established homes coming on the market, buyers face bidding wars and quick sales.

Persistent price growth

Despite higher interest rates and cost-of-living pressures, home prices remain strong because supply cannot keep up with demand. This leads some to speculate about a housing bubble in Australia, but in many cases, price growth is rooted in genuine scarcity rather than overheating.

Improved rental yields for investors

Tight rental markets mean higher yields, making property investment more attractive again, especially in undersupplied areas.

Challenges for first-home buyers

Saving for a deposit and competing against investors or upgraders remains incredibly difficult in an undersupplied market.

Policy Responses and Planning Solutions

Governments must recognise the severity of the Australia Housing Shortage and implement corrective reforms, including the following:

• A more evenly distributed population.
• National targets to build more homes in the next five years.
• Funding for social and affordable housing.
• A more efficient planning system to speed up land release and housing approvals.
• A fairer tax system to encourage stock mobility.
• Planning reforms to speed up approvals.
• Incentives for Build-to-Rent developers.
• Infrastructure investment to unlock new land.
• A more investor-friendly policy environment.

However, most of these policies take years to turn into completed homes. As a result, the short-term outlook remains tight.

Short and Medium-Term Market Implications

1. Prices are likely to keep rising.

Supply remains limited to meet demand, supporting continued price growth.

2. Rental markets will stay tight.

Low vacancy rates and rising rents are expected to continue for several years.

3. Supply will remain slow.

Labour shortages, high construction costs, and planning delays mean the construction pipeline will take time to recover.

4. Affordability pressure will continue.

Both renters and buyers will feel ongoing financial stress due to limited housing options.

Practical Tips for Renters and Buyers

For Renters

• Broaden your search to nearby suburbs with more supply.
  
• Prepare application documents early.
  
• Consider longer lease terms for stability.
  

For Buyers

• Get pre-approval before making offers.
  
• Work with a residential buyer’s agency like InvestorKit to find off-market opportunities.
  
• Focus on areas with long-term population and infrastructure growth.
  

Conclusion

Australia’s housing supply crunch is not a short-term problem: it is the result of long-standing structural issues affecting supply, mobility, and diversity of housing types. The combination of long hold periods, reduced investor activity, limited social housing, and slow construction has created a system where demand continually outstrips supply.

Until supply improves, the Australian property market will remain competitive, with rising prices and tight rental conditions. Understanding these dynamics can help renters, buyers, and investors make informed decisions, even in a challenging environment.

FAQs

Which areas in Australia are most affected by the housing shortage?

Sydney, Melbourne, Brisbane, Adelaide, Perth, and many fast-growing regional hubs experience the most severe shortages due to rapid population growth, housing demand concentration, and slow supply.

What are the main reasons behind Australia’s housing shortage?

Longer hold periods, high stamp duty costs, reduced investor participation, limited social and Build-to-Rent housing, and rapid population growth.

How does the housing shortage affect renters and homebuyers?

Renters face rising rents and low vacancy rates. Buyers face limited listings, higher prices, and more competition.

Are property prices expected to keep rising due to the shortage?

Yes. With supply still far below demand, prices and rents are likely to remain elevated in the short to medium term.

References:

[1] – Prezi.com – Housing Market Presentation

[2] – YouTube.com – Housing Market Discussion

[3] – InvestorKit.com.au – Australia’s Housing Crunch: Not Just a Supply Problem, But a System Problem

[4] – InvestorKit.com.au – Australia’s Housing Supply Crunch FY25-26 Whitepaper

[5] – AustraliaInstitute.org.au – Is Population Growth Driving the Housing Crisis? Here’s the Reality