Australia is facing a significant housing shortage, with supply falling critically short of demand.
This doesn’t just impact affordability—it ripples through the economy, affecting families, businesses, and entire communities. From first-home buyers locked out of the market to renters grappling with soaring prices, the housing shortage has become a defining economic challenge of our time.
The National Housing Finance and Investment Corporation (NHFIC) predicts there will be a shortage of 106,000 homes by 2027. This staggering figure highlights the urgent need for solutions that address both the root causes and the growing demand for housing.
Adding to the strain, traditional banks are scaling back on lending to property developers and construction projects owing to heightened prudential regulations, reduced risk appetite for certain asset types, and tightening capital requirements. By offering flexible, tailored financial solutions, private credit is bridging the funding gap and connecting builders and developers with the financial resources needed to bring property development projects to life.
As we consider the future of the residential development market, it is increasingly evident that private credit will play an instrumental role in addressing the nation’s critical undersupply. For investors, this can result in attractive opportunities with compelling risk-adjusted returns and reliable monthly income. For borrowers, it means an alternative funding source to initiate projects which will have a positive impact.
The drivers behind Australia’s housing shortage
The housing shortage in Australia isn’t caused by a single issue but is the result of a range of factors. This includes:
So, what is the answer?
Solving Australia’s housing shortage requires collaboration between government, industry, and private investors. By addressing regulatory roadblocks and incentivising housing development, the government can encourage greater investment from the private sector into the market.
There is no doubt housing is in sharp focus, with current government initiatives signalling the urgency of the situation and commitment to building more homes. However, a major challenge for building at scale is access to funding. Today, the cost of building has increased by approximately 30%, while time to completion has extended by up to 12 months.
The government can help unlock these challenges and ensure sufficient investment and development into the future through:
Policy reforms:
Streamlining the approval process and revising zoning laws to allow for higher-density housing developments, particularly near transport hubs, is a way to significantly boost supply. Programs like the Transport Oriented Development initiative in New South Wales aims to align housing development with infrastructure projects, reducing urban sprawl while meeting growing demand.
Developer incentives
Developer incentives: Tax benefits, subsidies, or grants for developers focused on affordable housing construction can encourage new projects, ensure viability, and deliver housing to those who need it most.
Public-Private Partnerships (PPPs):
Collaboration between government agencies and private enterprises can facilitate large-scale, cost-effective developments to address affordability issues.
For developers and builders, navigating the complex planning process remains a very real challenge. Achieving outcomes that align with policies while meeting reasonable projected returns and feasibility requires astute decision-making. Central to this challenge is the selection of the right delivery team, with financiers playing a pivotal role in the realisation of development objectives. In today’s uncertain environment, accessing bespoke funding solutions and specialist advice can be the secret to success.
Private credit helping to shore up supply for Australia's housing shortage
Private credit offers a way to unlock more supply and shore up the housing pipeline by stepping into the funding vacuum left by traditional banks. For experienced lenders, there is an unprecedented opportunity to select projects with favourable risk dynamics and attractive returns, underpinned by high-grade assets, and solid counterparties. Deals that would have traditionally gone to the major banks.
There is also greater opportunity to participate in innovative deals that deliver a more sustainable built environment.
For example, Zagga partnered with award-winning, celebrity landscape designer, Jamie Durie, to build Australia’s most sustainable luxury home in Avalon Beach. The deal showcased our unparalleled ability to provide agility, commerciality, and flexibility in funding and deliver a housing solution that is better for our people and planet.
Zagga partnered with celebrity landscape designer, Jamie Durie, on sustainable luxury home
You can see more examples of how Zagga’s funding solutions are transforming the real estate landscape by visiting our funding showcase.
Conclusion
Australia’s housing shortage is a multifaceted challenge driven by population growth, supply-side constraints, and economic pressures. Addressing the crisis requires bold action, innovative solutions, and strong collaboration between the public and private sectors.
The housing shortage in Australia has created a unique opportunity for borrowers and investors. With a focus on flexibility and commercial agility, private lenders, like Zagga, provide borrowers with access to capital through tailored solutions that empower them to bring projects to life. For investors, current market dynamics present a risk-mitigated opportunity to not only capture attractive risk-adjusted returns but solve one of the greatest social challenges of our time.
Explore how an allocation to real estate private credit can help diversify your portfolio and learn the Zagga difference today.
