Housing affordability requires more than supply: Study

Australia's housing affordability crisis is being driven less by a shortage of apartments and more by rising house prices and investor activity, according to new research from the University of New South Wales (UNSW).

Published in Cities, the study challenges a key assumption underpinning many housing policies, that increasing apartment supply will meaningfully improve affordability across the broader housing market.

Researchers analysed almost three decades of housing data across Sydney, Melbourne, Brisbane, Perth and Adelaide and found detached houses remain the dominant force driving price movements throughout Australia's housing system.

"House prices are driving the whole system," UNSW School of Built Environment professor Chyi Lin Lee said.

"When house prices move, they significantly affect units, not the other way around," he said.

The research separates Australia's housing market into two distinct segments, houses and units, and found the relationship between the two is highly uneven. While rising house prices tend to push up apartment values, movements in unit prices have little influence on the detached housing market.

"The assumption that units can substitute for houses at scale doesn't hold in the data," Lee said.

The study also found nearly 80% of housing price spillovers occur between cities rather than within them, suggesting investor activity is playing a significant role in transmitting price pressures nationally.

"Because Australia's capital cities are widely dispersed, cross-city price movements are unlikely to reflect typical housing needs," Lee said.

"Instead, they indicate investors shifting capital between markets in search of higher returns," he said.

While Sydney and Melbourne remain major drivers of housing market movements, Perth has emerged as an increasingly influential source of price spillovers since the pandemic, while Adelaide has largely acted as a recipient of price pressures from larger markets.

The findings suggest policies focused solely on increasing apartment construction may fail to address the structural drivers of housing affordability.

"Focusing on unit supply alone is unlikely to address the systemic drivers of price growth," Lee said.

"Without tackling investor-driven demand, supply-side solutions alone are unlikely to restore affordability," he said.