Why Rising Build Costs Are Driving Australia’s Next Property Boom

“How Exploding Build Costs Are Cutting New Supply.”

Australia is in the grip of a housing crisis. Population growth is surging, rental vacancies are at record lows, affordability is stretched, and yet — despite overwhelming demand — we simply aren’t building enough new homes.

The reason? The economics don’t stack up for developers.

Over the last three years, the cost of building has exploded. According to industry data, construction costs have risen by around 60% since 2021, while the cost of land and government levies has also jumped sharply. Developers today are facing feasibility studies that are still around 20% in the red, meaning many projects just aren’t viable so won’t go ahead.

As a result, projects are being delayed or cancelled altogether — and that’s only going to worsen Australia’s already severe housing shortage whilst being inflationary.

Why New Dwellings Aren’t Being Built

Traditionally, developers could rely on steady cost increases of 3–4% a year. But since COVID, supply chain shortages, labour gaps, and government stimulus policies like HomeBuilder pushed demand through the roof. Builders couldn’t keep up, costs soared, and now, even though demand for housing is stronger than ever, construction margins have collapsed.

Here’s the reality:

Developers need presales of 70–75% to secure funding – if the banks will lend to them whilst buyers are reluctant to commit off the plan.
Land prices continue to climb, with Brisbane now overtaking Melbourne in average block costs.
Red tape and government levies add further expense and slow down approvals – government talking through this now.
Even where approvals exist, many projects are on ice because they simply can’t turn a profit.

That means fewer homes are coming onto the market — even though Australia’s population is growing faster than ever. Housing Crisis and Crisis in Housing.

Warning :

30 September 2025

Flashing Red Light : Industry bodies sound alarm over falling building approvals – the number of dwellings approved fell 6% in August to only 14,744 across the entire country, according to an ABS Media Release, this is all whilst Australia’s population is planned to soar by 225,000 to 260,000 mew immigrants – well that is the ‘official’ spin, we know this excludes people on Study Visas, where at least 80% come to Australia to ‘study’ on the hope of staying in Australia permanently. Where will anyone live?

By the way, only 2,654 new houses were approved in Victoria, who actually require around xxx, 2,065 in QLD, 1,752 in NSW, 1,481 in WA and 768 in SA. Totaling a massive UNDERsupply. These numbers come from the ABS for August 2025.

Thus a further 2,000 000 new migrants will have been added to Australia’s population by the end of Labors second term according to ABS and budget papers. That is massive and is taking its toll on houses, rentals, roads, schools, ambulance services, hospitals and more.

Apartment approvals had the highest drop in approvals, dropping by a massive 34% and eye opening, of the 2704 apartments approved nationally, 527 were in NSW alone.

What this means for Property Prices and Rents

“Prices and Rents Will Surge.”

The housing shortage is not going away anytime soon. And when supply is restricted in the face of high demand, there are only two possible outcomes:

Property prices rise – Established homes will continue to appreciate in value because they’re in short supply. Developers won’t build until new homes can sell at higher prices that cover today’s inflated costs.
Rents climb higher – With fewer new dwellings being added to the market, renters face stiff competition for available properties. This drives rents up — and yields for landlords along with them.

For investors, this represents a rare dual upside: capital growth from rising property values, and income growth from higher rental returns.

Why Waiting to buy could Cost You More

Many would-be buyers sit on the sidelines, hoping property prices will fall. But the reality is very different. With construction costs up nearly 7% plus per year and land values increasing across the capitals, waiting only means buying later at a higher price.

History shows that when supply is this tight, markets don’t cool — they surge. Australia’s property market is already showing renewed strength, and as demand from both first-home buyers and migrants continues to increase, established properties are set to climb even higher.

Dual Upside : Capital Growth & Rental Returns for Investors

Investors: The timing is Now to position yourself before the next wave of capital growth and rising rental yields.
Homebuyers: If you’re waiting for prices to drop, you may be disappointed. Buying now secures your future in a market where supply is tightening every month.

The bottom line? The gap between what it costs to build and what people can currently pay is widening, not shrinking. The only way to fix the shortage is if prices rise enough to make new developments viable — and that process is already underway. Major ‘catch 22’ that will be inflationary !

Final Thoughts

Australia’s housing market is at a tipping point. With build costs at historic highs, land scarce, and approvals stalling, supply simply cannot keep pace with demand. That means property prices and rents are set to climb further in the years ahead.

For those ready to act, today’s market represents a unique opportunity. Secure the right property now, and you’ll not only benefit from immediate rental demand but also ride the wave of long-term capital growth as Australia’s housing shortage deepens.