Australia’s Housing Super Cycle

For decades, our housing market has been driven by much deeper forces: a persistent undersupply of homes, major demographic shifts, and fundamental changes in how and where Australians want to live. This isn’t just another housing cycle – it’s a super cycle that has been building for years, and it’s now accelerating.

Unlike regular housing cycles driven by interest rates or market sentiment, a super cycle stems from deep structural changes that create lasting imbalances between supply and demand. In Australia’s case, this transformation is being driven by shifting demographics, evolving living preferences, and persistent supply constraints.

Supply can’t keep up with these changing needs. Last year, Australia completed 209,000 homes against a requirement for 220,000. A further problem is that the number of houses required every year is compounding as we continue to under deliver.

The construction industry also faces mounting challenges: rising business failures, declining productivity, and construction costs that are outpacing house price growth. The industry as it stands can’t deliver the number of homes required consistently. We need more people but we also need changes to construction techniques to make it more efficient. This can include the use of modular construction, less customisation of homes, and alternative building materials

A critical factor is that foreign investment in residential property has hit a decade-low. This matters significantly because the last time Australia came close to delivering 1.2 million homes over five years (the current government target) was during a period of record foreign investment. The fundamental question remains: where will the money come from to fund such ambitious housing delivery targets?

Not only do we need more homes for more people, we are also spreading out more, and most of our homes have been built for big families, containing three or more bedrooms. The household type that is set to see the strongest growth is ‘single person’ and households are getting smaller. At the same time, the house type with the strongest growth currently has four bedrooms. This is leading to a lot of spare capacity in homes. Remarkably, 75.4 per cent of couples without children live in homes with two or more spare bedrooms. This disconnect between household size and housing stock points to a deeper structural issue in the market.

Australian cities face unique challenges in adapting to these changes. Compared to international cities like London and Singapore, where over 90 per cent of dwellings are units, Australian cities remain predominantly low-density. Melbourne and Sydney have just 34.6 per cent and 46.2 per cent units respectively, making it harder to meet changing housing needs efficiently.

This super cycle is creating significant challenges but also opportunities for the future of housing in Australia. New housing types and improved construction processes will be essential to meet changing needs. The trend toward less centralised population growth, such as what we are seeing in northern New South Wales and south east Queensland, offers chances to explore and develop regional areas.

Although very slow, consumer preferences are gradually shifting from low to high density living. Without offshore investment, new funding models are emerging, including institutional investment and private credit. Demographics are driving opportunities in single-person dwellings and multi-generational housing. Even the adaptive re-use of commercial buildings presents an innovative solution to our housing challenges.

While there is so much focus on monthly and yearly trends in house prices, looking beyond traditional cycles is now more important. While we’ll continue to see market fluctuations, the underlying trends point to a persistent imbalance that will shape the market for years to come. The fact that the largest price drop in the last 20 years has been just five per cent underscores the market’s structural resilience.

This isn’t just another property boom – it’s a fundamental reshaping of Australia’s housing landscape. Success in this environment requires understanding and adapting to these deeper structural changes, rather than simply waiting for the next market cycle.