Australia’s housing squeeze is hitting from every angle

Australia’s housing market is sending increasingly mixed signals.

Building approvals lifted through 2025, buyer confidence is returning, and dwelling values continue to rise. Yet beneath those headline numbers, the pressure points are multiplying.

Renters are spending a record share of their income just to stay housed. Buyers are taking on extraordinary risk in the heat of competition. And even many older Australians who already own their homes are finding that asset wealth does not shield them from rising living costs.

The common thread is supply.

While approvals are improving, the pace and consistency of new housing delivery remain well short of what is needed to meet population growth.

In an undersupplied market, the consequences are being felt across generations.

Approvals are rising, but delivery remains fragile

New ABS data for December 2025 capped a stronger year for residential approvals, with 195,731 dwellings approved across 2025, up 12.8 per cent from 173,457 in 2024. On an annual basis, the trend is moving in the right direction.

The monthly picture, however, tells a more volatile story.

Seasonally adjusted figures show total dwellings approved fell 14.9 per cent in December to 15,542, down from 18,255 in November. Apartment approvals were particularly erratic, with approvals for buildings of nine storeys and above falling 43 per cent month on month, and those for four storeys and above down 37 per cent.

Matthew Kandelaars, Property Council Group Executive Policy and Advocacy, said the December result highlighted just how fragile the pipeline remains.

“November showed what’s possible but December shows how quickly the numbers can swing back,” Mr Kandelaars said.

“The annual picture is improving, but we’re not going to hit national targets on monthly surges; we need a consistent pipeline of feasible projects that can move from approval to site.”

While apartment approvals dipped sharply in December, the broader trend for higher-density housing improved over the year. Approvals for buildings of nine storeys and above rose 24 per cent in 2025 compared with 2024, while approvals for four storeys and above jumped 37 per cent.

“That’s critical because multi-unit housing is where we can add supply at scale in well located areas,” Mr Kandelaars said.

The challenge, he added, is converting approvals into homes on the ground.

“Approvals are only the first step. Too many projects then get stuck in the post-permit maze, things like utilities connections, servicing upgrades, certification, subdivision and titling, and infrastructure sequencing,” he said.

Until feasibility improves and construction bottlenecks ease, the gap between housing demand and supply is likely to persist.

Renters and buyers feel the pressure

That supply gap is already reshaping behaviour across the market.

With vacancy rates tight and rents at record highs, renters are carrying the heaviest burden.

Cotality data released Wednesday (11 February) shows national rents have surged 43.9 per cent over the five years to September 2025, compared with wage growth of just 17.5 per cent. Rental households are now dedicating an average of 33.4 per cent of their pre-tax income to rent, a record high.

“For many households, that means a lot less flexibility in the budget, and far fewer options about where and how they live,” said Cotality research director Tim Lawless.

After a brief easing, rental growth is accelerating again. Over the year to January 2026, rents rose 5.4 per cent, outpacing wages once more.

“The fact that rental growth is reaccelerating, even after such a large cumulative increase since 2020, is a real concern,” Mr Lawless said.

“It suggests demand for rental accommodation still far exceeds available supply.”

At the same time, many renters hoping to buy are stuck in a worsening rent trap, where rising housing costs erode their ability to save. In Sydney alone, renters are paying around $3,770 more per year than they were 12 months ago.

All this comes as other living costs skyrocket.

For those who do step into the buying market, competition is pushing behaviour to risky extremes.

Premium buyers agent Lisa Evans from Vervé Property said she is seeing a growing number of buyers making unconditional offers with little due diligence.

“The most dangerous trend I’m seeing is the rise of the reckless unconditional offer,” Ms Evans said.

“To compete, buyers are waiving building and pest inspections or finance clauses after just a 15-minute walkthrough.”

She said a fear of missing out is driving hasty decisions.

“When a buyer sees 30 people at an open home, they immediately assume the property is worth $50,000 more than it actually is.

“This paranoia leads to hasty, unconditional offers without any forensic homework,” she said.

In a supply-constrained market, even rising prices are not dampening urgency. National dwelling values rose 9.4 per cent over the past year, adding almost $79,000 to the median home.

Even homeowners are not insulated from rising costs

The housing squeeze does not stop at renters and aspiring buyers. New research shows that even Australians who already own their homes are increasingly exposed to cost-of-living pressures.

COTA Australia’s State of the Older Nation 2025 report found that one in four Australians aged over 50 is living in poverty, challenging the assumption that home ownership guarantees financial security in retirement.

Homesafe Wealth Release CEO Dianne Shepherd said the findings reveal a disconnect between housing wealth and everyday resilience.

“Many older Australians own their home, but are struggling to manage rising living costs,” Ms Shepherd said.

“We need to stop equating home ownership with financial comfort. For many retirees, their wealth is locked in their home while cashflow pressures continue to rise.”

Almost half of older Australians surveyed believe conditions are worsening for people their age, driven by rising healthcare costs, general living expenses and housing-related costs.

Downsizing remains attractive in theory, but in practice is often blocked by stamp duty, transaction costs and a lack of suitable housing.

“Older Australians overwhelmingly want to stay in their homes and communities,” Ms Shepherd said.

“But financial barriers to downsizing mean selling the family home is often not a realistic or desirable solution.”

The result is a housing system under strain at every level. Supply constraints push rents higher, fuel risky buyer behaviour, and inflate asset values, while leaving many older Australians asset rich but income poor.

Until housing delivery becomes steadier and more responsive to demand, the pressure is unlikely to ease.

For renters, buyers and homeowners alike, the consequences of undersupply are no longer theoretical. They are already shaping how Australians live, spend and take risks just to secure a place to call home.