Home building falls short of government targets amid economic volatility
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Photo by D Goug
Australia’s home building sector has fallen significantly short of government targets, with new data revealing a shortfall of almost 30 per cent in the construction of new homes. The Australian Bureau of Statistics (ABS) released its Building Activity data for the March quarter of 2026, providing a detailed look into the state of the nation’s construction industry.
According to the data, 197,340 new homes commenced construction in the 12 months leading up to March 2026. This figure falls well below the annual target of 240,000 new homes, necessary to meet the government’s ambitious goal of 1.2 million new homes over five years. HIA Senior Economist Tom Devitt highlighted the shortfall, stating, “Australia needed to deliver an annual rate of 240,000 new homes to reach the 1.2 million new homes target, but in the 12 months to March, just 197,340 new homes commenced construction.”
Despite the shortfall, there was a silver lining in the data. Housing commencements were 12.0 per cent higher than the 176,230 recorded a year earlier. Mr Devitt noted this improvement but cautioned against over-optimism, adding, “Despite still falling short of target, housing commencements were 12.0 per cent greater than the 176,230 recorded a year earlier.”
The March quarter of 2026 saw 48,010 new dwellings commence construction, marking an 11.2 per cent decline from the previous quarter. This drop in new home starts occurred before the impact of recent rate increases and global economic uncertainties, suggesting that the decline might be attributed to quarterly volatility. “The decline in the commencement of new home starts in the March quarter of 2026 preceded the impact of rate increases, global uncertainty or the Federal Budget and likely reflects quarterly volatility,” said Mr Devitt.
The home building sector had gained momentum at the start of 2026, driven by declining interest rates, low unemployment, and existing housing shortages across the nation. Jurisdictions such as Western Australia, Queensland, South Australia, and the Northern Territory have been at the forefront of this improvement, bolstered by a significant pipeline of new sales ready to commence. “Jurisdictions like Western Australia, Queensland, South Australia and the Northern Territory have been leading the national improvement in home building volumes and have a significant pipeline of new sales ready to commence,” Mr Devitt explained.
However, the southeastern states and territories have experienced delayed recoveries and remain more vulnerable to economic disruptions. Nevertheless, Mr Devitt remains optimistic about their prospects, provided recent disruptions are short-lived. “The southeastern state and territory recoveries have been delayed and are more vulnerable but as long as recent disruptions are short-lived, strong population growth and tight labour market fundamentals should support activity here too,” he stated.
Despite these regional improvements, the trajectory of home building is insufficient to meet the government’s Housing Accord Target. Mr Devitt emphasised the broader housing needs of the country, noting that Australia requires 250,000 home builds annually to meet demands driven by population growth, shrinking household sizes, and increasing dependence on overseas migrants. “This trajectory will not be sufficient to meet the Housing Accord Target, and Australia’s housing needs are even greater than this,” he said.
To address these challenges, Mr Devitt called for government action to reduce the cost of delivering new homes to market, particularly by lowering taxes on housing. “Achieving this depends on governments reducing the cost of delivering new homes to market. This includes reducing taxes on housing, not increasing them. Housing is one of the most heavily taxed items in our economy along with the ‘sin taxes’ of alcohol and tobacco,” he concluded.
As Australia grapples with the complexities of its housing market, the latest data underscores the urgent need for strategic interventions to align home building activity with the nation’s growing demands.