State of the Housing System 2025

Introduction

The National Housing Supply and Affordability Council (NHSAC) has released its pivotal State of the Housing System 2025 report, painting a sobering picture of the nation’s housing landscape. While there are faint glimmers of stabilization, the overarching narrative is one of persistent crisis: housing affordability continues to erode, new supply remains critically low, and the gap between those who own homes and those who do not is widening into a chasm. This document serves as the Council’s second annual report, providing a vital evidence base for policymakers, industry, and the community.

A System Under Strain

In 2024, the dream of secure, affordable housing moved further out of reach for many Australians. Nationally, dwelling prices rose by 4.9%, while advertised rents increased by 4.8%. Although these growth rates are slower than in 2023, they still outpaced median household income growth of 4.3%. Consequently, a median-income household now needs to spend a staggering 50% of its income to service a new mortgage and 33% to pay rent on a new lease.

The supply of new housing is near a decade low. Only 177,000 dwellings were completed in 2024, significantly short of the underlying demand of approximately 223,000 dwellings. This shortfall of 68,000 homes adds to an already significant backlog of unmet need. Looking forward, the Council forecasts that only 938,000 new homes will be built over the five-year National Housing Accord period (2024-2029), falling drastically short of the 1.2 million target. When accounting for demolitions, net new supply will trail new household formation by 79,000 dwellings, ensuring that affordability pressures will remain a fixture of the Australian experience for years to come.

The Housing Accord Target: Ambitious but Suitable

A core element of the report is the Council’s formal advice on the suitability of the 1.2 million new well-located homes target under the National Housing Accord. Despite the grim forecast, the Council assesses that the target remains suitable. It serves a crucial function: highlighting the magnitude of the challenge, galvanizing collective action across governments and industry, and providing a benchmark for accountability.

The Council argues that an ambitious target should exceed business-as-usual outcomes. With projected demand plus demolitions requiring over 1.017 million homes, the 1.2 million target sends a necessary signal. However, the report is unequivocal that current policy settings and economic conditions specifically high interest rates, construction costs, and structural barriers make the target unachievable without a radical shift in approach. No state or territory is forecast to meet its implied share of the target, with New South Wales projected to reach only 65% of its allocation.

Housing Market Conditions: The Feasibility Gap

The primary reason for the supply crunch is what the report terms the project feasibility gap. For many developers, particularly in the higher-density sector, the cost of land, materials, labour, and financing now exceeds the expected sale price of the completed dwellings.

While cyclical constraints are easing material price growth has normalized to 1.6%, and labour shortages are showing tentative signs of improvement structural constraints remain the principal barrier. Labour productivity in housing construction has actually fallen by 12% over three decades, even as the broader economy grew 49% more productive. The industry remains fragmented, with low rates of innovation and an over-reliance on a shallow pool of skilled trades.

The report highlights a critical bifurcation in supply. Detached housing is showing resilience, expected to reach a three-decade high by the end of the decade as construction costs stabilize. In contrast, the supply of higher-density dwellings (apartments and townhouses) is forecast to remain woefully low. This is driven by poor project feasibility, a lack of pre-sales due to borrowing constraints, and long lead times for approvals.

Housing Affordability: A Deteriorating Landscape for All

The State of the Housing System 2025 report breaks down affordability across all tenure types, revealing a universal squeeze.

For aspiring homeowners, the situation is bleak. The average time required to save for a 20% deposit has blown out to 10.6 years. The ratio of dwelling prices to median household income has risen to 8.0. More starkly, the share of homes for sale that a median-income household could afford has fallen to a record low of just 14%. While the Reserve Bank’s easing cycle may provide some relief, the report warns that lower interest rates will likely boost prices, offsetting gains for first home buyers.

For renters, the crisis is acute. The share of income needed for a new lease rose to 32.9% nationally. Using the 30/40 rule (lower-income households spending >30% of income on rent), over 50% of lower-income renters were in rental stress in 2023. This stress is becoming persistent, with 60% of those affected experiencing it for two or more consecutive years.

The report makes a critical link between housing system and wellbeing. Renters in rental stress are more than twice as likely to report low life satisfaction and experience material deprivation such as lacking home contents insurance or having less than $500 in savings for an emergency. For First Nations households, the situation is even more dire, with 36% of Commonwealth Rent Assistance (CRA) recipients still in rental stress even after receiving the payment.

Non-Market Housing and Assistance: The Safety Net Stretches

With the private market failing so many, demand for non-market housing system has exploded. Waitlists for public housing remain near record highs at 169,000 households, with the number of “greatest needs” households reaching a new peak. The number of clients accessing specialist homelessness services rose to 280,000, with persistent homelessness rising by 46% since 2019-20.

The report notes a critical long-term failure: social housing as a share of total dwellings has fallen from around 6% in 1991 to just 4% in 2021. While the absolute stock has increased slightly, driven by community housing, it has not kept pace with population growth.

In a positive development, government assistance is expanding. The Home Guarantee Scheme supported one-third of all first home buyers, and CRA supported over 1.3 million recipients. However, the Council notes that demand-side assistance, while crucial for relief, risks inflating prices if supply does not become more responsive.

The Outlook: Shortfall and Stabilization

The Council’s forecasting model projects a continued imbalance. New underlying demand, driven by population growth (which remains above pre-pandemic averages at 1.8%), is expected to be 205,000 in 2024-25 before stabilizing around 175,000 annually. However, net new supply will lag.

The report outlines a baseline where the vacancy rate remains below 2.5% (indicating a tight market), CPI rent growth slows but stays above 4% until 2027, and the dwelling price-to-income ratio remains historically high at 7.7. This outlook implies that while the rate of deterioration may slow, the level of unaffordability will remain entrenched.

Sensitivity analysis shows the outlook is highly susceptible to economic shocks. A 50-basis-point increase in interest rates would crush supply further, while a 20% unexpected rise in construction costs would reduce gross supply to 887,000. Conversely, a significant boost in productivity or a drop in costs could lift supply to over 1 million, but still short of the 1.2 million target.

First Nations Housing: A Crisis Within a Crisis

A dedicated chapter reveals the profound housing system disadvantage faced by Aboriginal and Torres Strait Islander peoples. At the 2021 Census, First Nations people were 8.8 times more likely to experience homelessness than non-Indigenous Australians. Severe overcrowding the most common form of homelessness for this cohort is rampant, particularly in remote areas where 5.6% of households live in severely crowded dwellings.

The home ownership rate for First Nations people stands at just 42%, compared to 68% for non-Indigenous Australians. Stakeholder consultations highlighted that current social and affordable housing programs are not well-tailored to First Nations needs, and funding models often fail to account for the higher costs and complexity of building in remote communities. The Council calls for First Nations-led solutions, better data custodianship by Indigenous organizations, and a long-term investment strategy to close the gap.

Policy Recommendations: A Roadmap to a Better System

The final chapter, Towards a better housing system, outlines 15 recommendations across five priority areas. The Council emphasizes that tinkering around the edges will not suffice; significant systemic reform is required.

1. Social and Affordable Housing Investment
The Council makes a landmark recommendation: governments should commit to restoring social housing to 6% of the housing stock in the medium term, with a long-term target as high as 10% . To achieve this, it recommends a low, uniform inclusionary zoning target across jurisdictions and dedicated financial support for First Nations housing organisations.

2. Construction Sector Capacity
To fix productivity, the Council urges governments to investigate modern methods of construction (MMC), such as prefabrication and modular building, and to underwrite investment in these technologies. To solve labour shortages, it calls for boosted skills training, targeted skilled migration, and industry-led efforts to diversify the workforce.

3. Planning and Land
The report calls for the consistent application of best-practice planning principles: separating policy-setting from development assessment, digitising systems, and enforcing transparent decision-making timeframes. It also urges state and local governments to promote greater housing density in well-located areas and boost government capacity for land assembly and remediation.

4. Supporting Renters
Recognising that renting is the only option for a growing share of the population, the Council calls for governments to fully implement the Better Deal for Renters agreement to improve tenure security. It also strongly supports boosting institutional investment in build-to-rent housing to diversify supply and professionalise property management.

5. Tax Reform
Perhaps the most politically challenging area, the Council recommends a review of all tax interactions with housing. Specifically, it advocates for a long-term transition from stamp duty to a broad-based land tax. The report argues stamp duty is an inefficient tax that traps people in unsuitable homes and reduces labour mobility, whereas a land tax would improve the efficient use of the existing housing stock.

Conclusion: A Generational Challenge

The State of the Housing System 2025 is not merely a collection of statistics; it is a warning. The report concludes that decades of insufficient attention have created a system that is failing to provide the most fundamental of needs shelter, at a reasonable cost. While some cyclical pressures are easing, the structural barriers of poor productivity, fragmented planning, inadequate social housing, and distorting taxes remain.

The Council’s vision is clear: housing system that is affordable, fit-for-purpose, and secure for all. Achieving this requires a step change in reform effort and investment, moving beyond current policies to a coordinated, long-term national strategy. Without it, the divide between housing haves and have-nots will continue to define and damage Australian society.

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