The myth that we can build our way out of the housing crisis keeps us stuck in it

Supply is the answer to the housing crisis.

Everyone knows it.

As Anthony Albanese put it in 2023, ‘Every Premier and Chief Minister as well as the Commonwealth gets it… We all know that housing supply is the key.’

You can find similar quotes from pretty much every politician from the past twenty-five years. Yet between 2010-2024 period, Australia built far more homes than most countries – 69 new homes per every 1000 extra people, more than double the rate of the USA, Germany and UK. So why has affordability gotten so much worse?

Part of the issue here is that ‘housing supply’ is commonly defined as new construction. But only around a quarter of home sales are new builds, and because the flow of new houses relative to the existing stock is small, even large increases in annual building rates have slow effects on the total number of homes available for sale.

This might sound like total nonsense – surely only new homes can actually increase supply? But that’s not how the housing system works. At the last census, there were around 311,000 households that wanted at least one extra bedroom, and a little under 1.2 million households with three or more spare bedrooms. Meanwhile, between 1996 to 2021, the number of people moving house each year declined from 18 per cent to 15 per cent.

Reforms which increase the efficient use of existing homes, – stamp duty, land tax and downsizing incentives – need to be front and centre of the supply debate, not just construction.

Do we have a problem with building homes? No … but also yes

Housing Minister Clare O’Neil said in 2025 that the ‘fundamental problem’ of building more homes was because ‘builders face a ridiculous thicket of red tape’. The Grattan Institute also believes that we haven’t built enough homes to keep up with population growth. So let’s take this issue seriously.

Commentators frequently refer to things like traffic assessments as being hand break on productivity[vi] But construction work is among the most dangerous occupations. Through the development of health and safety practices like traffic assessments, the construction sector death rate has fallen from fifteen per 100,000 workers in the 1980s, to just two or three today. This saves billions in disability pensions and medical costs, but such social and financial benefits rarely make it into discussions of red tape or productivity.

When it comes to having “enough” houses, is it as simple as comparing population figures with the number of homes built, as the Liberals and One Nation argue? Many supply enthusiasts will lead their argument with data from the OECD showing that Australia has a lower rate of dwellings than many other countries – around 420 per 1000 people, compared with over 500 in many European countries. This, they argue, shows just how poorly Australia has done at keeping up with the housing needs of the growing population, and why we desperately need to remove restrictions on new construction – or reduce immigration.

But this argument falls over when you look a little deeper. For one thing, this is far from an apples-with-apples comparison – countries with high per capita dwelling numbers tend to be those where living in apartments is common. In Spain, Germany and Italy, for instance, between 55 and 65 per cent of the population live in apartments, compared to just 15 per cent here. If anything, Australia is an outlier for having as many homes per 1000 people as it does.

This issue is getting more important as society ages and households shrink. Italy, Spain and Portugal have the same 2.5 people per dwelling as we do. However, their new homes average 80-90 square metres. The average new dwelling size in Australia is 194 square metres.

This trade-off that is not sufficiently acknowledged in the housing debate. Big houses take up more space, require more labour and eat up more materials. So, while we don’t have a problem with producing homes, we do have an issue with supplying smaller homes that are more suited to our ageing society and smaller families. This is a cultural preference issue, not a problem of too much red tape.

Number go up: How the red-tape and supply myths lead to terrible decision-making

One very problematic outcome of the red tape and supply myths is that regulators and politicians make insane decisions just to get the number of new homes up.

The insurance industry has been calling for an end to building in flood-prone areas for decades. Despite these warnings, many developments still go ahead. The approval for 2750 homes on a floodplain in Robina, on the Gold Coast, for example, seems to have the Insurance Council of Australia pulling their hair out. ‘The Insurance Council has long called for councils to stop approving homes on floodplains,’ said their spokesperson. ‘the days of developing on floodplains need to end.’ The Queensland Housing Minister, Meaghan Scanlon, responded by saying, ‘Remove the barriers, speed up approvals and you’ll fuel housing construction – that’s what industry told us, so that’s what we did.’

Supply of what for whom?

Supply is a critical component of the housing system. But focussing simply increasing numbers without regard to other key issues is often a policy own goal. Oxford University Professor Danny Dorling points out that in the early 20^th century the number of homes built in the UK increased significantly. But, “Simply building new housing in isolation did not alleviate the housing crisis of the 1920s and 1930s; more and more people had to come to be able to afford to buy that housing. More had to see their wages rise, and to think that they would continue to rise in the future…” it wasn’t until tax and wage policies compressed the gap between rich and poor that these extra houses actually led to a rise in home ownership.

The Australian construction industry pumps out houses, and particularly floorspace, at a remarkable rate, adding new homes at a rate of about 1.6 per cent of the total housing stock per year. In comparison the United States adds 1.2 per cent, and the EU less than one per cent. The period since the 1980s has seen house prices grow faster than at any point in history. Simultaneously, the ratio of homes per 100 households increased from 110 to 120.

This is why I argue that it is changes in demographics, wealth distribution, financial deregulation, and the decline in public housing construction that explains why housing got so expensive. Increasing the number of good-quality housing in the right places, and for the right price, will make our cities more efficient and enable people to live where they want. Right-sizing new homes will help shift the housing stock towards being fit for the changing population. The supply of non-market homes needs to be dramatically increased.

But ending the Great Supply Shemozzle is a necessary first step in getting to a true diagnosis of why housing is so unaffordable, and from there to finding lasting solutions.

This is an edited extract of Our Place: How to Solve the Housing Crisis and Rebuild the Australian Dream by Matt Lloyd-Cape and published by La Trobe University Press on 29 September 2026.

Matt Lloyd-Cape is a housing policy specialist. He is a research fellow at Per Capita, and principal fellow at the Centre for Equitable Housing.