Australia’s Productivity Commission has warned that housing regulation has become a “handbrake on new housing supply”, arguing governments need to make it easier to build more homes in the places people want to live.
For agents, their message is clear: affordability, listing supply, and future market growth are increasingly shaped not just by interest rates and demand, but also by how quickly governments can rezone land, coordinate infrastructure, and process approvals.
Affordability pressure deepens
In its Interim Report on Housing Supply Regulation, the Commission says Australia’s housing affordability problem is worsening as regulatory barriers slow the delivery of new homes.
“Australia’s housing affordability problem is putting housing out of reach for too many people.
“It now takes the average household around 11 years to save a 20% deposit on a typical home, up from 8 years in 2005,” Productivity Commission Chair Danielle Wood said.
“When people can’t live near work or family the economy and the community suffers.
“We cannot solve our housing affordability problem unless we build more homes where people want to live,” Ms Wood said.
While the interim report does not yet make formal recommendations, it identifies the main reform areas the Commission wants tested before its final report is handed to the Federal Government in March 2027.
What it means for agents
For real estate professionals, the report goes to the heart of a problem many are already dealing with on the ground: too few homes, limited housing diversity, and planning systems that struggle to respond quickly enough in high-demand areas.
If the reforms eventually lead to faster approvals, more small-lot housing, more infill development and better infrastructure sequencing, that could gradually improve the flow of new stock into growth corridors, middle-ring suburbs and established suburbs close to jobs and transport.
The flip side is that any broad push for density – particularly proposals such as allowing three-storey development on most residential land – is also likely to intensify local debate around neighbourhood character, infrastructure strain and community resistance, all of which agents will need to navigate in conversations with buyers and sellers.
Four reform principles
The Commission says a better housing regulatory system should be built around four principles: adopt a build mindset, regulate only where necessary, coordinate housing with infrastructure, and keep the process simple.
“Regulation is important, but too much or poorly designed regulation can stop new homes being built, make projects slower and more expensive, and reduce the types of housing available to us,” Ms Wood said.
“The rules should allow us to build enough housing in the right places, while still protecting the things Australians value.”
Zoning reform in focus
Land-use controls are identified as the biggest opportunity for reform, with the report arguing that relaxing those rules is one of the most effective ways governments can boost supply.
Among the options raised are broad-based upzoning in cities, allowing three-storey development on most residential land, reducing minimum lot sizes, enabling more mixed residential and commercial areas, and allowing more mid-rise and high-rise apartments in high-demand, well-serviced locations.
For agents, those settings matter because they influence not only how much stock can come to market over time, but also what kind of stock gets built — from granny flats and townhouses to six-packs, apartments and mixed-use housing close to activity centres.
“Regulation is essential – particularly where it ensures buildings are safe and built to a high standard. But too often, other rules are making it illegal or unviable to build the kinds of homes people need in the places they want to live,” Commissioner Alison Roberts said.
“The kind of rules that stop you adding a granny flat in your garden or replacing a single home with townhouses are at the core of our housing challenge,” Dr Roberts said.
Infrastructure and approvals still key
The report also says supply is being delayed because housing and infrastructure are too often planned separately, particularly in greenfield markets where roads, utilities and sewerage are needed before homes can be delivered.
“You cannot build homes without the infrastructure that supports them,” Dr Roberts said.
“Housing plans and infrastructure plans need to work together. When they do not, land that has been rezoned for housing can sit unused for years,” she said.
That disconnect is especially relevant for agents working in outer-growth areas, where large volumes of future housing may be planned on paper but delayed in practice because key infrastructure is not ready.
The Commission also takes aim at slow, complex approvals, saying that overlapping decision-makers and poor coordination can add months or years to projects.
“We heard examples of developers trying to navigate overlapping approvals and agencies that were not talking to each other,” Ms Wood said.
“One developer told us that preparing reports and waiting for approvals had added more than 3 years to the timeline of a 1,600 lot development in Melbourne’s growth corridor,” she said.
PIA backs strategy, not blanket rules
The Planning Institute of Australia has welcomed the report’s focus on strategic planning and infrastructure coordination, saying reform needs to happen well before a development application reaches council.
PIA chief executive Matt Collins said the Commission had correctly recognised that housing growth must be planned upfront and supported by infrastructure, planning capability and investment.
“The Productivity Commission’s interim report recognises that the work needed to support housing growth must happen upfront through strategic planning, not be left until individual development applications arrive,” Mr Collins said.
He said one of the report’s most important messages was that zoning land for housing does not guarantee homes will actually be built.
“For homes to be delivered, land needs to be more than simply zoned. It must also be serviced, infrastructure-ready and commercially feasible,” Mr Collins said.
“Hundreds of thousands of homes across Australia have planning approval but remain unbuilt. Governments must act across the entire housing delivery system and tackle the barriers actually preventing those homes from being constructed.”
On the proposal to allow three-storey development across most residential areas, Mr Collins backed more lower-rise density but cautioned against a one-size-fits-all approach.
“Broadening opportunities for lower-rise density like townhouses and six-packs has an important role to play in addressing Australia’s housing shortage, but the key is making those decisions through robust strategic planning rather than treating every neighbourhood the same,” he said.
Next step
The Commission is now seeking further feedback before finalising its recommendations to the government in March 2027.
For agents, the report is another signal that the housing debate is shifting beyond interest rates and affordability alone to the planning rules, infrastructure delivery and approval systems that determine how much stock can actually reach the market.