The National Housing Supply and Affordability Council’s 2026 State of the Housing System report shows genuine progress on supply. It also shows affordability at record lows, and a new threat that builders need to understand.

The National Housing Accord set an ambitious target: 1.2 million new homes built across Australia between 2024 and 2029. When it launched, plenty of people in the industry were sceptical. The numbers were big. The problems were well known. Planning delays. Labour shortages. Rising costs. A sector still recovering from the boom-and-bust cycle of COVID.

So when the National Housing Supply and Affordability Council released its third annual State of the Housing System report last week, there was some genuinely encouraging news buried in the data.

Before recent global disruptions, Australia was tracking toward 980,000 homes in the Accord period. That is 42,000 more than the Council forecast in last year’s report. The 1.2 million target was, on current trajectory, expected to be met by September 2030. Just over a year late. But moving in the right direction.

Then the Middle East conflict changed the equation.

What the Numbers Actually Show

The report draws on data finalised to 9 April 2026, and the picture it paints is one of a sector making real progress while facing a new and difficult headwind.

On the supply side: building approvals and commencements both improved in 2025 compared to the pre-Accord period. Construction timeframes declined. Planning and rezoning reforms are rolling out across multiple states. These are legitimate improvements, even if they fall well short of what is needed.

On costs: detached housing construction costs rose by 2.3 per cent across 2025. Elevated, but below the peaks of the recent inflationary cycle. High-density construction costs rose faster, up 3.6 per cent, driven primarily by labour constraints. The report notes that WA and Queensland are experiencing the sharpest trade availability pressures, largely due to competition from infrastructure and mining projects pulling workers out of residential construction.

The industry’s insolvency rate remains elevated, and the report acknowledges this directly. Elevated insolvency rates combined with ongoing skilled labour shortages have increased operational uncertainty across the sector, particularly for larger and more complex projects. Builders are responding by pricing higher risk premiums into tenders. That makes commercial sense. It also makes projects more expensive and harder to get off the ground.

Affordability Is Getting Worse, Not Better

Here is the part of the report that should sit uncomfortably with anyone who works in or around housing.

While supply indicators improved in some areas, affordability continued to deteriorate. The Council’s data makes clear that for most Australians, getting into housing is harder now than it was a year ago.

The share of median household income required to service the median rent under a new lease reached an all-time high of 33.1 per cent in 2025. The number of years needed to save for a home deposit rose from 9.0 years in 2015 to 11.2 years in 2025. The share of median household income needed to service a new mortgage remained elevated at 45.9 per cent, despite three interest rate cuts during the year.

These are not abstract statistics. They describe the real financial position of the people builders build for. Clients with stretched deposits. Buyers who waited years to get finance confirmed, only to find themselves priced out of the market anyway.

The share of renter households in rental stress rose from 24.9 per cent in 2014 to a record 29.5 per cent in 2024. Rental stress here is defined as households in the lowest two income quintiles spending more than 30 per cent of their income on rent. That is nearly one in three lower-income renting households. The number is going the wrong way.

For younger Australians, the picture is particularly stark. Homeownership among households aged 25 to 34 fell from 61 per cent in 1981 to 43 per cent in 2021. That is a generational shift in who gets to own a home, and it has consequences for the industry. Fewer first-home buyers in the market means a narrower base of clients for residential builders over time.

The Middle East Variable

The most significant new element in this year’s report is the introduction of Middle East conflict scenarios into the supply outlook.

The Council is clear about the uncertainty involved. Higher fuel and petrochemical prices are already flowing through to transport and material costs for construction. The pressure on product availability and the operation of small businesses is real and already being felt.

The report models two scenarios. In a shorter-term scenario, the sector faces a 6 per cent peak increase in construction costs. The estimated impact is 10,000 fewer dwelling completions to mid-2029. In a more prolonged scenario, a 10 per cent peak cost increase produces an estimated shortfall of 33,000 completions over the same period.

The Council is explicit that these estimates carry significant uncertainty and that broader downside risks exist beyond what these scenarios show.

For builders, the practical read is straightforward. Fuel and materials prices are already moving. Transport costs in particular are a known pressure point, especially in regional areas and smaller states where the report already identifies higher base costs due to logistics. Tasmania and the Northern Territory are flagged specifically as markets already experiencing elevated transport and logistics cost pressures, including concrete sand shortages in south-east Tasmania driving reliance on transported materials.

The disruption is not theoretical. It is in tenders and quotes right now for many operators across the country.

What the Council Is Recommending

The report sets out six priority areas for reform. From a builder’s perspective, several are worth understanding directly.

On construction sector capacity and productivity: the Council recommends governments prioritise improvements here as a structural response, not just a post-crisis fix. This includes better access to developable and serviced land. The planning system improvements already underway need to continue and accelerate. The report is clear that more responsive planning is critical for both near-term and long-term supply outcomes.

On tax system reform: the Council supports reviewing tax settings that distort the housing market, including those that affect the decision to buy, sell or rent. This is a pointed reference to property investment tax arrangements, though the Council stops short of naming specific policies. It reflects a position that has been building across multiple reports.

On social and affordable housing: the Council acknowledges the Commonwealth’s $10 billion Housing Australia Future Fund and calls for a longer-term, sustainable investment approach beyond current programs. Social housing as a share of total dwelling stock is sitting at around 4 per cent and has been declining. Without meaningful structural investment, the non-market housing sector will not absorb any of the pressure currently falling on the private rental market.

The Council also introduces a new Housing Outcomes Framework in this report, a comprehensive set of indicators across eight key outcomes designed to track the health of the housing system over time. The intent is to create accountability mechanisms that persist across election cycles and government changes. Whether that translates into durable policy reform remains to be seen.

What This Means for Builders

The honest summary is this: the conditions for housing construction improved in 2025, and the Accord is producing some real movement. At the same time, the sector is operating with elevated costs, persistent trade shortages, and an affordability crisis that is shrinking the addressable market for new homes at the lower end of the income scale.

The Middle East conflict adds a layer of cost and supply chain uncertainty that the Council takes seriously. Builders should too. Not in a way that triggers rash decisions, but in a way that informs contract structuring, material purchasing timelines, and pricing assumptions for projects that run into late 2026 and beyond.

The approvals pipeline is improving. That is real. But approvals do not pay wages or absorb cost blowouts. The gap between what is being approved and what is actually getting built remains significant, and the report does not pretend otherwise.

For the industry, the most useful takeaway from this year’s report is probably the Middle East cost scenarios. They are modelled estimates, not certainties. But they give builders a working framework for thinking about how disruption at the global commodity level flows through to construction costs on the ground in Australia. Understanding that link, and building it into planning conversations now, is worth more than waiting for the numbers to arrive in supplier invoices.

The Bigger Picture

Australia’s housing system has structural problems that predate this government, the Accord, and the current conflict. The Council is restrained and measured in saying so, but the message is consistent across three years of reports.

More homes need to be built. The people who need them most are being priced further out of reach each year. The sector doing the building is under cost and labour pressure that is not easing quickly. And external shocks can wipe out years of incremental progress in a matter of months.

That is not alarmism. It is the picture the data paints.

The builders and businesses that will navigate this period well are the ones taking a clear-eyed look at conditions now, not waiting for a more convenient time to plan.

The full State of the Housing System 2026 report is available at nhsac.gov.au.

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Author: TGB Editorial