How the housing landscape is changing - John McGrath

Australia’s housing landscape is changing as we try to keep up with population growth and help young buyers get into the market. Not enough dwellings are being built, with smaller housing lots and higher apartment towers among the solutions to address both lacking supply and the affordability crunch.

As discussed in the McGrath Report 2025, a freestanding house on a quarter acre block, or 1,012sqm, used to be the norm for family living in Australia. But this scenario is rapidly moving into the rear view mirror.

Governments are increasingly wary of the high costs of delivering new infrastructure and services to support large land releases for development on the city fringes, and more buyers are looking for low-maintenance and lifestyle-rich accommodation in existing urban areas.

This has increasingly required our cities to build more on less land.

In 2023, soft consumer demand and industry capacity constraints led to a 33% reduction in the number of urban fringe housing lots being released to the market, compared to the annual average across the previous decade. In addition, the average size of these lots dropped from 481sqm in 2014 to 414sqm in 2023.

This trend towards more efficient housing will only continue, with the NSW Government announcing plans to allow townhouses, terraces, duplexes and small apartment buildings across more residential zones, and the Victorian Government promoting fast-tracked and ready-made approvals for apartment buildings up to three storeys near train stations and key centres.

In line with the same trend, Australia’s suburbs are increasingly reaching for the skies, with more apartment towers being built to accommodate population growth and provide affordable options for home ownership.

Census data shows that in 2021, apartments comprised 21.6% of homes in Brisbane, Melbourne and Sydney. This compares to an 18.9% apartment share of all homes in 2011. Between 2011 and 2021, Brisbane experienced the greatest growth in new apartment dwellings (56.1%), followed by Sydney (43.4%) then Melbourne (26.7%).

This apartment surge has led to a dramatic change to the skylines of our East Coast capital cities, with an average apartment tower height of 13.6 storeys for all high-rise buildings built between FY15 and FY24.

In coming years, middle ring suburbs in these cities will challenge the traditional supremacy of inner ring suburbs when it comes to the skyscraper stakes. The average height of all proposed middle ring suburb towers is 17.7 storeys, compared to just 16.2 storeys in inner ring suburbs.

This is a reversal of the situation across the last decade from FY15 to FY24, when towers to an average of 14.7 storeys were built in inner ring suburbs, compared to just 12.7 storeys in middle ring suburbs.

Middle ring suburbs with the highest average proposed towers will be Sydney’s Parramatta (35.4 storeys), Melbourne’s Box Hill (23.2 storeys) and Brisbane’s Indooroopilly (12.5 storeys), according to McGrath Research.

A key issue, however, is that the supply of apartments has also not kept pace with demand, due to planning delays, high building costs and shrinking developer finance. The number of new apartments built in East Coast capital cities in 2023 was 60% below the annual average of 37,380 apartments built between 2013 and 2022, although there are signs that construction has been picking up momentum since this time.

As a result, in FY24, established apartment price growth outperformed house price growth in Brisbane, Melbourne and Hobart and recorded a national increase of 6.5%, according to CoreLogic data.

This scarcity of newly built apartments in recent years will likely continue to place upward pressure on apartment prices, as more buyers turn to this housing option.

This is despite the fact that building cost escalation eased in the first half of 2024, resulting in more homes coming on to the market in line with the National Housing Accord target to build 1.2 million homes by mid-2029.

Under the Accord, long overdue reform is finally injecting more flexibility into state and local planning laws around the country. It will take time for all these changes and their benefits to play out in the market. But hopefully we will see a meaningful increase in the supply of new homes within the next few years, which should go some way to tempering annual price growth to more sustainable levels over the long term.