Sydney Faces Crunch Over 35,000 Unbuilt Homes

More than 35,000 approved homes in western Sydney are sitting idle, threatening both local growth and the federal government's plan to build 1.2 million homes by 2029. While demand is surging, developers are being crushed by rising costs, stalling vital housing projects needed for a region expected to take in half of the state's population growth by 2041.

Western Sydney was earmarked as a major growth zone, with the state’s planning department estimating it needs about 24,000 new homes every year. Yet construction is badly lagging. Only 5,405 homes are being built currently, just over 22 per cent of the required annual pace. Property researchers have identified nearly 35,000 homes that have development approval, yet construction hasn’t started.

Developers say it's not about land hoarding. Instead, steep material costs, high-priced land, growing builder fees and a shortage of skilled workers have made new housing projects unviable. Even if land were given away for free, some projects still wouldn’t break even. While costs are cooling slightly, with construction costs rising just 0.5% in late 2023, they remain far above pre-pandemic norms.

This delay puts Australia’s national housing targets under pressure. Without a significant boost in supply, the country appears to be on track to fall about 400,000 homes short of the federal target, unless conditions change radically. Meanwhile, fees placed on developers and infrastructure bottlenecks are making matters worse, adding to affordability challenges for would-be buyers.

Across the board, industry experts argue that the burden of infrastructure should be spread across a wider tax base instead of being pushed onto developers and first-home buyers. Some state governments appear to be leaning on urban infill rather than building out the infrastructure needed for outer-suburb growth, but this is leaving areas like western Sydney behind.

While incentives such as the $10,000 bonus for residential apprentices show that the federal government is trying to address skilled labour shortages, it highlights a broader issue: not enough workers or developers are available to meet escalating housing demand. Until material costs fall further and structural roadblocks like infrastructure and financing improve, thousands of homes will remain stuck on paper.

Source: Australian Financial Review, ABS, Property Council of Australia.