The number of homes starting construction in Australia is expected to increase over the next few years. It’s driven by population growth, low unemployment and falling interest rates. According to the Housing Industry Association (HIA), long-term structural issues continue to pose risks to housing affordability and national supply targets.

HIA chief economist Tim Rearson says the sector is indicating improved confidence following a period of weak activity, particularly in apartment construction.

“We expect new home commencements to increase steadily through the second half of the decade,” Tim says.

“Detached house building will lead this recovery, peaking in 2027, with apartment construction set to follow as market conditions and policy settings improve.”

Continuous constraints, including land shortages, regulations and taxes, are increasing the cost of construction and limiting supply, therefore continuing to drive up the cost of both renting and buying a home.

The HIA report expects home building will fall 20% short of the Australian Government’s target of 1.2 million new homes over the next five years.

“We need to unlock land, streamline planning processes, and remove barriers to investment if we are to meet the housing needs of a growing population,” Tim says.

“Australia has the capacity to deliver, but it will take a coordinated response from all three tiers of government to overcome these constraints.”

While detached housing is showing rapid growth in Western Australia, South Australia and Queensland, it remains sombre in New South Wales and Victoria. Apartment construction is yet to recover from a collapse in foreign capital caused by punitive state taxes and is expected to rebuild gradually towards the end of the decade.

This growth will increase by ongoing demand from migration and Olympic-focused building in Brisbane.

“Housing demand is not going to decline with a rise in interest rates. It is continuing to grow along with the population,” Tim says.

“Structural reforms are needed now to shape affordability, economic opportunity and living standards for the next generation.”