Australia’s housing industry is warning of a looming squeeze on new supply, with one of the country’s biggest developers predicting commencements will fall sharply within months as Master Builders Australia argues recent tax changes could add further pressure to the delivery of both private and social housing.
Mirvac development chief executive Stuart Penklis has warned new housing supply could drop significantly over the next six to 12 months, as higher costs, tighter finance and weaker buyer demand make projects increasingly difficult to bring to market.
Speaking at the topping-out of Mirvac’s Trielle tower in Melbourne’s Docklands, Mr Penklis told The Australian Financial Review smaller apartment developers reliant on private credit would be particularly exposed.
“Supply is going to fall off a cliff in the next six months,” he said.
“We’re going to see a significant reduction in commencements,” he said. “Smaller developers that are more reliant on private credit – we’re going to see those developers pull back in the amount of new supply they bring into the market.
“If you look at the market, particularly in Sydney and Melbourne at the moment, supply is going to be very, very challenged moving things into the next six to 12 months.”
The warning comes as Master Builders Australia lodges a submission to the Parliamentary Inquiry into Social Housing, arguing recent Federal Budget changes risk making an already difficult housing supply environment worse.
Master Builders Australia CEO Denita Wawn said government programs including the Housing Australia Future Fund had helped set the stage to prioritise social housing delivery, but policies affecting investment and construction risked working against those objectives.
“With building and construction businesses and their investment set to be taxed more heavily, it will have negative consequences for the cost of building new social housing stock and other homes,” she said.
“Housing investors are central to private rental supply. The May 2026 Federal Budget’s restrictions to negative gearing, self-managed superfunds and Capital Gains Tax makes it less attractive and more expensive to be in the market, placing upward pressure on rents according to independent modelling. This makes it likely that a greater number of households are likely to find themselves in need of social housing.”
Master Builders said the challenge extended beyond investor demand, pointing to a 21.5 per cent decline in construction productivity over the past decade, a 51.6 per cent increase in building costs since the pandemic and persistent construction workforce shortages.
“The barriers are well documented. Increased risk in the financial viability of projects, a collapse by 21.5 per cent in productivity over the last decade, 51.6 per cent increases to building costs since the pandemic and construction workforce shortages are all adding to delays and propelling costs upwards,” Ms Wawn said.
“We are running short of every type of home, a turbo charging of social housing requires a construction policy environment that expands industry capacity, lifts productivity and ensures every dollar of public and private investment delivers the greatest possible increase in housing supply.”
The warnings come despite some measures of current construction activity remaining relatively strong.
According to figures reported by the Financial Review from the latest HIA Housing 100, dwelling commencements among Australia’s 100 largest builders increased 9 per cent in the year to June, rising from 64,481 to 70,553.
The group’s share of the overall market, however, slipped from 36 per cent to 35 per cent.
Sumitomo Forestry Australia, which owns builders including Metricon, Henley, Scott Park Group and Wisdom, topped the Housing 100 with a combined 8,038 starts, up from 7,311 a year earlier.
Perth-based ABN Group ranked second with 3,764 starts, followed by Newcastle-based NEX Building Group with 3,585.
Another measure of current activity, Rider Levett Bucknall’s latest crane index, showed the number of tower cranes working on residential projects increased from 473 six months earlier to 516 in the third quarter, the highest level in two-and-a-half years.
However, RLB chief economist for Oceania Trent Wiltshire told the Financial Review the number would probably decline over the next year, particularly in Brisbane and Melbourne.
“Some of these projects were planned and approved a year or so ago when conditions were much stronger and prices had risen dramatically and the cost pressures weren’t quite there,” Mr Wiltshire said.
The more immediate concern for builders is what is happening further forward in the sales pipeline.
HIA data showed new-home sales fell 10 per cent nationally in August, marking a fourth consecutive monthly decline and taking sales to their lowest level in more than a year.
Master Builders argues pressure on private housing also has implications for social housing, with weaker rental investment potentially increasing demand for subsidised housing while higher construction costs make new stock more expensive to deliver.
The organisation is calling for governments to widen access to low-cost financing for social housing providers and reverse the May 2026 Federal Budget measures affecting negative gearing, capital gains tax, higher taxation of trusts and borrowing by self-managed super funds for housing.
It also wants governments to address the cost of building new homes by expanding the size and capability of the construction workforce, reducing the regulatory burden, strengthening industry supply chains and using government procurement to improve competitive settings.
Master Builders said public-sector housing construction had declined sharply over the past four decades, despite some improvement in recent years.
It noted that official public-sector construction figures do not capture all forms of social housing because new homes constructed for community housing providers are classified as private-sector housing.
The figures point to a lag between current construction activity and the weakening forward pipeline, with projects already under way supporting commencements while developers and builders report softer inquiries and sales.
For an industry already under pressure to increase housing supply, attention is increasingly turning to what will replace the current wave of projects once they are completed.