Highlights

  • Australia aims to build 1.2 million homes over five years, requiring around 240,000 new homes annually.
  • Approximately 173,000 homes were completed during 2025, remaining below the annual target.
  • Residential construction commencements increased during the December quarter.
  • Housing Industry Association (HIA) expects dwelling commencements to continue improving but believes completions may remain below the required pace.
  • Construction cost pressures linked to recent geopolitical events appear to have been more limited than initially anticipated.
  • Investors and economists will also monitor comments from the Reserve Bank of Australia's chief economist for further insights into the interest rate outlook.

Australia's efforts to address its housing shortage continue to attract attention as new construction data is expected to indicate that home building remains below the level required to meet the national housing target. While construction activity has shown signs of improvement over recent quarters, industry estimates suggest that the current pace is still insufficient to deliver the government's goal of building 1.2 million new homes over five years.

The latest figures from the Australian Bureau of Statistics (ABS), due for release this week, are expected to provide further insight into how Australia's residential construction sector is progressing and whether housing supply is beginning to close the gap with growing demand.

Housing Supply Continues to Trail National Target

Australia's National Housing Accord aims to deliver 1.2 million well-located homes over five years, which translates into an average of approximately 240,000 new homes each year.

Although residential construction activity has been improving, current completion levels remain below that benchmark. Around 173,000 homes were completed during 2025, leaving a sizeable difference between actual supply and the pace required to achieve the government's objective.

Fresh ABS construction data scheduled for release on Wednesday is expected to provide updated figures on dwelling commencements and completions for the March quarter, offering another measure of how the housing sector is performing.

Construction Activity Shows Gradual Improvement

Recent data has pointed to improving construction activity across Australia.

More than 53,000 homes commenced construction during the December quarter, representing an 8% increase compared with the previous quarter and a 26% rise compared with the same period a year earlier.

According to Housing Industry Association (HIA) Senior Economist Tom Devitt, dwelling commencements are expected to continue increasing during the March quarter. However, higher commencements today do not immediately translate into completed homes, as residential construction projects typically require considerable time before completion.

As a result, the increase in building activity may gradually support future housing supply, but the pace of completions is expected to remain below the level needed to meet the National Housing Accord target.

Industry Estimates Suggest Larger Long-Term Housing Need

Beyond the government's housing target, the Housing Industry Association has suggested that Australia's long-term housing requirement may be even greater.

According to HIA estimates, approximately 250,000 new homes may be required annually on a sustained basis. This estimate considers not only population growth but also changing household sizes and the need to gradually reduce the existing housing shortage.

These estimates highlight the ongoing challenge of balancing housing demand with construction capacity, land availability and supporting infrastructure.

Construction Cost Concerns Appear More Limited

The construction sector has also been monitoring the potential impact of higher fuel prices following tensions in the Middle East and temporary disruptions affecting shipping through the Strait of Hormuz.

Earlier forecasts suggested construction costs could rise by as much as 10%. However, industry observations indicate that the actual impact has been considerably lower.

According to HIA, recent cost increases linked to fuel prices and isolated supply chain constraints have been closer to around 1%, adding several thousand dollars to some construction projects rather than causing widespread cost escalation.

While these additional expenses remain relevant for builders and developers, they have not materially changed the broader outlook for residential construction activity.

Policy and Interest Rates Remain Important Factors

Housing activity continues to be influenced by several economic and policy considerations. Interest rates remain an important factor affecting borrowing costs and construction activity. Industry participants are also monitoring policy discussions relating to housing and taxation, alongside the availability of land and supporting infrastructure needed for new development.

Attention Turns to the Reserve Bank

Alongside the construction data, financial markets will also focus on comments from Reserve Bank of Australia (RBA) Chief Economist Sarah Hunter, who is scheduled to speak at the Australian Conference of Economists in Canberra.

Her remarks may provide additional context regarding economic conditions and the outlook for monetary policy following recent interest rate increases.

While no policy decisions are expected from the speech itself, economists and market participants often monitor such appearances for insights into the RBA's assessment of inflation, economic growth and housing conditions.

Share Market Snapshot

Australian equity markets ended the previous week on a positive note.

The benchmark S&P/ASX 200 index gained 119.9 points, or 1.37%, to close at 8,844.4, while the broader All Ordinaries Index rose 117.4 points, or 1.31%, to finish at 9,048.3.

Meanwhile, Australian share futures indicated a modestly higher opening for the new trading week. Overseas, US markets remained closed on Friday for the Independence Day holiday after investors had rotated between technology-related shares and more defensive sectors earlier in the week.

Conclusion

Australia's residential construction sector continues to show gradual improvement, with dwelling commencements increasing over recent quarters. However, current completion levels remain below the annual pace required to achieve the National Housing Accord target of 1.2 million homes over five years.

Industry estimates also suggest that Australia's long-term housing requirements may exceed the government's current target, reflecting broader demographic and structural factors. As new ABS construction figures are released and policymakers continue to assess economic conditions, housing supply is likely to remain an important area of focus for governments, builders and the broader community.

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