Australia keeps talking about housing targets as if the problem can be solved by one number: build more homes.
But housing is not created by announcements. It is created when land, planning, finance, construction, infrastructure and buyer affordability all line up. Right now, they do not.
I have worked in real estate for almost four decades, and the problem we are seeing today did not appear overnight. It has been building for years. Population has grown, land has become harder to unlock, construction costs have surged, borrowing capacity has moved with interest rates, and the gap between household income and property prices has stretched to a point that many buyers can no longer bridge.
The uncomfortable truth is this: Australia does not simply have a shortage of homes. It has a shortage of homes that can be built, financed, afforded and lived in.
That is the housing crisis hidden behind the building targets.
Population Has Grown, But Land Has Not
Since 1985, Australia’s population has grown by roughly 75%, from about 15.8 million to 27.6 million. Sydney’s population has grown by about 58%, from around 3.4 million to 5.4 million.
But the eastern suburbs have not grown at anything like the same pace. Waverley, Randwick and Woollahra have grown far more slowly, roughly between 5% and 41%, depending on the area. That is not because people stopped wanting to live here. It is because there is very little undeveloped land left.
This is the first major problem in the housing debate. You can change zoning, lift height limits and announce new housing targets, but you cannot create new land in established suburbs like Bondi Junction, Rose Bay, Double Bay, Woollahra or Randwick.
Most of the infrastructure in these areas was designed around older housing patterns: detached homes, smaller apartment blocks, local shopping strips and lower population density. Roads, schools, drainage, hospitals, parking and public transport were not built on the assumption that thousands of extra residents would be pushed into the same streets within a short period of time.
That does not mean Sydney should not build more housing. It means the conversation has to be honest. Density without infrastructure is not planning. It is pressure.
Prices Have Risen Far Faster Than Incomes
Over the same period, Sydney’s median house price has risen from roughly $87,000 in the mid-1980s to around $1.5 million today. That is about 17 times higher.
In many eastern-suburbs locations, the increase has been even more dramatic. Some premium pockets have risen by around 25 to 35 times over that period.
That has changed the structure of the market. For many younger buyers, the suburb they grew up in is no longer realistic without family help, very high incomes or major compromise. For downsizers, the issue is different. Many have valuable homes, but when they look for a quality apartment with proper space, parking, storage and a good building, the options are limited and expensive.
This is where the housing debate often becomes too simplistic. More supply matters, but supply alone does not automatically restore affordability when land values, construction costs, finance costs and household incomes are moving in different directions.
The market is not short of political promises. It is short of realistic delivery.
Construction Costs Are Now Blocking Supply
Construction costs have become one of the biggest barriers to housing delivery.
Since 2010, building costs have roughly doubled. Since pre-COVID alone, they have risen by about 30%, with the 2020–2022 period being one of the fastest periods of building-cost inflation since the 1970s.
That matters because every new apartment has to be financially feasible before it becomes a real home. A developer has to buy the land, fund the planning process, pay consultants, carry approval risk, pay finance costs, manage delays, meet compliance requirements and then build at today’s prices.
If the numbers do not work, the project does not proceed.
This is why a rezoning announcement is not the same as a completed home. A planning approval is not the same as a completed home. A government target is not the same as a completed home.
Homes only get built when the numbers stack up.
In the eastern suburbs, that problem is even more difficult because the land is already expensive. A boutique apartment in Bondi Junction, Rose Bay, Double Bay or Woollahra cannot be delivered cheaply when the land underneath it is expensive and construction costs have doubled since 2010.
This is why so much new apartment stock in premium suburbs is aimed at downsizers, professionals and wealthier buyers. It is not always because developers simply want to build luxury apartments. Often, the cost base forces the end product into a higher price bracket.
The government talks about supply. The market has to deal with cost.
Affordability Has Collapsed
The affordability data tells the story clearly.
In 2021, around 43% of median-income households could afford the median-priced home. By 2025, that had fallen to around 14% nationally and about 10% in Sydney. PropTrack’s 2025 Housing Affordability Report also found that a typical median-income Australian household could afford only 15% of homes sold nationally, showing how severely borrowing capacity and prices have moved against ordinary buyers.
That is not a minor affordability issue. That is a structural affordability breakdown.
It means the problem is no longer just whether enough homes are being approved. The bigger question is whether the homes being created can actually be purchased by the people who need them.
If a new apartment is too expensive for a first-home buyer, too small for a downsizer, too risky for an investor and too costly for a developer to deliver, then the housing target may look good on paper but fail in reality.
Low Interest Rates Lifted Prices — And Debt
Interest rates have played a major role in shaping this market.
Since 1990, the Reserve Bank has made roughly 80 cash-rate changes, including 34 increases and 46 decreases. During COVID, the cash rate fell to a record low of 0.10%. In May 2026, the RBA lifted the cash rate to 4.35%, with the official effective date recorded as 6 May 2026.
Low interest rates do not just make repayments cheaper. They change what buyers can afford to pay.
When rates fall, borrowing capacity rises. A buyer on the same income can borrow more, bid harder and justify a higher purchase price. In a competitive market, that extra borrowing power flows directly into property values.
That is what happened during the ultra-low-rate period. Cheap money made property feel more affordable month to month, but it also helped push prices higher because buyers were able to take on larger loans.
This is the part often left out of the conversation. Low rates lifted property values, but they also encouraged many people to buy at elevated prices with elevated debt.
When rates later increased, the property did not change, but the cost of holding it did.
A buyer who stretched to purchase when rates were near historic lows may have felt comfortable at the time. But when the cash rate moved from 0.10% to 4.35%, the repayment equation became very different. The debt remained. The monthly cost changed.
That is why the post-COVID market is not the same as the boom years. Cheap money made many sales campaigns look strong. Higher rates have exposed the difference between genuine demand and debt-fuelled demand.
Buyers are now more selective. Banks are more cautious. Investors are more focused on cash flow. Developers face higher holding costs. Vendors need more precise advice because the market is no longer being carried by cheap credit.
Low rates can lift prices, but they can also hide risk. When the cycle turns, the real test is not what someone paid for a property. It is whether they can afford to hold it.
Credit Rules Have Also Shaped the Market
Housing is not driven by planning alone. It is also driven by credit.
APRA’s lending controls have been one of the main brakes on speculative excess since the post-GFC period. The key interventions include the 2014 investor lending cap, the 2017 interest-only lending cap, the 2021 serviceability buffer and the newer debt-to-income restrictions.
From February 2026, APRA moved to limit higher-risk lending by requiring lenders to keep loans with debt-to-income ratios of six times income or more within a 20% limit. APRA described the rule as a guardrail against excessive household debt, particularly relevant to investor borrowing.
This matters because housing targets can only go so far if the finance system is pulling in the other direction.
A developer may receive approval for a project, but if buyers cannot borrow enough, pre-sales become harder. If investors cannot make the numbers work, demand weakens. If banks become more cautious, the market slows.
Planning policy, lending policy and tax policy all shape what gets built and who can buy it.
Interest-Only Lending Shows How Quickly the Market Can Turn
Interest-only lending is a good example of how credit settings can move the market.
In 2015, interest-only lending peaked at around 40% of outstanding mortgages. APRA’s 2017 intervention changed the market sharply, driving interest-only lending to historic lows and contributing to the 2018–2019 Sydney price correction.
That period showed how quickly property values can respond when borrowing conditions change.
It also proved that housing is not driven by supply alone. It is driven by the relationship between supply, credit, confidence, tax settings, interest rates, population growth and household income.
When credit is easy, buyers can pay more. When credit tightens, the market becomes more disciplined.
That is why serious property advice today has to go beyond comparable sales. You have to understand what is happening with lending, buyer capacity and market psychology.
Negative Gearing Is Changing the Investment Equation
Tax policy is also changing the direction of investment.
Negative gearing was briefly restricted between 1985 and 1987, then restored. Under the 2026 federal budget changes, negative gearing on existing residential investment properties purchased after the relevant budget cut-off will be restricted from 1 July 2027, while new builds remain treated more favourably. The official budget material states that losses related to existing residential investment properties purchased from 7:30pm AEST on 12 May 2026 will only be deductible against residential property income, including capital gains, from 1 July 2027.
That is a major shift.
There are roughly 1.5 million existing negatively geared properties in Australia. Existing owners may be protected by grandfathering, but future investors are being pushed more strongly toward new housing if they want the full benefit of negative gearing.
On paper, that may support new construction. In practice, it depends on whether new apartments can be delivered at prices investors are prepared to pay.
If new stock is too expensive, strata levies are high, land tax is higher, borrowing costs remain elevated and rental yields do not stack up, investors may not simply shift into new builds in the numbers government expects.
Policy can redirect demand, but it cannot ignore feasibility.
More Apartments Does Not Always Mean Better Housing
Sydney does need more housing, but the question is not just how many dwellings are approved.
The question is what kind of homes are being delivered.
A city does not solve its housing crisis by building apartments that are too small, poorly designed, badly located or unsupported by infrastructure. It does not help downsizers if the apartments lack storage, parking and proper internal space. It does not help first-home buyers if the price point is beyond their borrowing capacity. It does not help owners if defects and future special levies become part of the ownership story.
Good housing is not just a number. It has to be liveable.
That means natural light, functional layouts, storage, parking where appropriate, quality construction, proper ventilation, access to transport and buildings that can stand the test of time.
A housing target is not a housing solution if the product is wrong.
Infrastructure Cannot Be an Afterthought
This is one of the biggest issues facing established Sydney suburbs.
The NSW Government’s low and mid-rise housing reforms, transport-oriented development policies and faster approval pathways are all designed to increase supply. The goal may be understandable, but density has to be matched with infrastructure.
If thousands of additional residents are added to an area, roads, footpaths, bus services, schools, hospitals, parks, drainage and community facilities need to be part of the plan.
Otherwise, density becomes a burden rather than a benefit.
Many residents are not against more housing. They are against poor planning. They are against being told their suburb must absorb more density while infrastructure remains years behind.
That is where trust breaks down.
The Planning System Has Been Fighting Itself for Years
Part of the problem is the long-running disconnect between local councils, state government and infrastructure planning.
For years, councils controlled much of the local planning environment. Now the state government is pushing harder to increase supply because the housing shortage has become too severe to ignore.
But the tension between local control and state targets has created uncertainty.
Developers need certainty before they commit capital. Communities need confidence that growth will be managed properly. Buyers need trust in the quality and location of what is being delivered.
Instead, the system often produces delay, confusion and political conflict.
That is why simply announcing a target is not enough. Housing supply requires alignment between planning, infrastructure, construction, finance, taxation and market demand.
Without that alignment, the target becomes a headline rather than a solution.
What This Means for Property Owners
For property owners in the eastern suburbs, these changes matter.
Rezoning, low and mid-rise reforms, construction costs, tax changes, lending policy and buyer affordability will all influence values over time.
Some properties may gain development potential. Some apartments may face more competition from new supply. Some older apartments may become more attractive because they offer larger rooms, better layouts, parking and established locations. Some newer buildings may struggle if buyers become cautious about defects, strata costs, poor design or over-supply in certain pockets.
This is why property advice today needs to be broader than a simple price estimate.
The question is not only, “What is my property worth today?”
The better question is, “How will my property be viewed in the market that is coming next?”
That requires understanding planning, buyer behaviour, lending conditions, building quality, replacement cost and the type of housing people actually want.
The Crisis No One Wants to Admit
The housing crisis hidden behind the building targets is this: Australia does not just have a shortage of homes.
It has a shortage of well-planned, well-located, financially viable, properly built and genuinely liveable homes.
That is a harder problem to solve because it cannot be fixed by announcements alone. It cannot be fixed by blaming councils alone. It cannot be fixed by forcing density into suburbs without infrastructure. It cannot be fixed by pretending construction costs, land prices, finance costs, lending rules and tax policy do not matter.
And it certainly cannot be fixed by counting approvals as if they are completed homes.
More homes are needed, but the numbers only matter if those homes can actually be delivered, afforded and lived in.
That is the real challenge.
Until we admit that, building targets will remain only one part of a much bigger housing crisis.
