Australia needs to build more homes, but a new report from Urbis and the Committee for Economic Development of Australia (CEDA) has warned that increasing housing supply alone will not solve the country's worsening affordability crisis.

The report, Fit for Purpose: Aligning Affordable Housing with Need, argues that Australia's social and affordable housing system is increasingly failing the households it was designed to support, with rising rents, insufficient construction and poorly targeted affordable housing schemes leaving more Australians unable to secure suitable accommodation.

Among its key findings is that social housing has fallen from 5.2 per cent of Australia's total dwelling stock in 1997 to just 3.9 per cent in 2025, despite the number of social housing dwellings increasing over that period.

At the same time, the national social housing waitlist has grown from 155,000 households in 2014 to around 190,000 in 2025, with the proportion of applicants classified as having the greatest need rising from 28 per cent to 41 per cent.

The report estimates Australia would need to deliver an additional 21,000 social housing dwellings every year to accommodate all households on the current waitlist by 2035.

That would require a substantial increase in construction activity, alongside ongoing government investment to fund the operation and maintenance of those homes.

The report also identifies a significant disconnect between the housing considered affordable and the households actually able to access it.

Nationally, just 19 per cent of private rental properties affordable to social-housing-eligible households are occupied by those households. In Sydney and Melbourne, the figure is 18 per cent.

Only 36 per cent of social-housing-eligible households nationally are living in private rental accommodation that they can afford.

The situation has been compounded by advertised rents increasing 48 per cent over the decade to 2025, outpacing wage growth and leaving lower-income households competing with higher earners for a limited pool of lower-priced properties.

Why new apartment developments matter

For Australia's apartment development sector, one of the report's central findings is the importance of maintaining a viable pipeline of new housing, including market-rate apartments.

The report argues that new homes delivered at higher price points can gradually free up existing, lower-priced properties as households move through the market, helping moderate rental costs across the broader housing system.

It also recognises the role private developers play in delivering affordable housing through planning incentives, particularly schemes that allow additional building height or floor space in exchange for incorporating affordable apartments into new developments.

In New South Wales, the Infill Affordable Housing provisions offer developers a 20 to 30 per cent increase in floor space ratio and building height where at least 10 to 15 per cent of a project's gross floor area is allocated to affordable housing, subject to the relevant requirements.

The additional development capacity allows more market-rate apartments to be constructed on the same site, helping offset the cost of providing discounted rental accommodation.

However, Urbis and CEDA warn that the financial benefit generated by these incentives is not always sufficient to deliver housing affordable to those on the lowest incomes.

The report notes that affordable housing rents are frequently calculated as a discount to prevailing market rents, rather than being determined by what an individual household can reasonably afford.

In more expensive apartment markets, even a substantial rental discount can leave a property beyond the reach of lower-income households.

One example cited is a three-bedroom apartment in St Leonards, on Sydney's Lower North Shore, advertised as affordable housing at $1,046 a week, equivalent to more than $54,000 annually.

The income eligibility cap for a couple applying for the apartment was $129,600, meaning even a household earning the maximum permitted income would be spending more than 40 per cent of its gross income on rent.

The report argues this highlights a fundamental problem with the current system: affordable housing is being delivered, but not necessarily at rents that meet the needs of households experiencing the greatest financial pressure.

Developers could pay into social housing instead

One of the more significant recommendations for the apartment development industry is the introduction of greater flexibility in how developers meet affordable housing obligations.

Rather than requiring every development receiving a density bonus to incorporate and manage affordable apartments, Urbis and CEDA propose allowing developers to make a financial contribution towards dedicated social housing projects.

The report identifies the ongoing management of affordable apartments as an additional challenge for private developers, particularly those whose business models are focused on constructing and selling new homes rather than retaining rental accommodation.

Even where additional development capacity makes the construction of affordable apartments financially viable, the requirement to manage those properties or engage a community housing provider introduces further costs, compliance obligations and long-term risk.

Under the proposed alternative, developers could receive additional density in exchange for a cash contribution, which would be directed towards community housing providers delivering social housing.

The report points to Victoria's Development Facilitation Program, where developers can make a contribution equivalent to three per cent of development costs to the Social Housing Growth Fund.

Urbis and CEDA argue that this approach could allow private developers to deliver more market-rate housing while directing funding towards dedicated social housing developments that can better accommodate households on very low incomes.

The report also calls for faster and more predictable planning approvals, noting that delays increase landholding expenses, construction costs and financing risks.

It highlights Victoria's fast-track planning pathway for major residential developments incorporating affordable housing, which provides a four-month assessment timeframe and greater flexibility around certain planning controls.

For developers considering new apartment projects, the report's broader message is that affordable housing contributions need to be structured in a way that supports, rather than undermines, the financial viability of new construction.

A functioning private market remains essential

While the report calls for substantially greater government investment in social housing, it also cautions against treating the private development sector and publicly supported housing as separate issues.

New apartment developments, including those sold off the plan, contribute to the overall supply of housing, whether purchased by owner-occupiers or investors who subsequently make the apartments available for rent.

Although the report does not specifically examine off-the-plan apartment sales, its findings support the importance of maintaining a functioning new-housing market alongside targeted affordable housing programs.

The authors argue that when housing construction becomes financially unviable, the capacity for developers to cross-subsidise affordable housing through additional market-rate dwellings also diminishes.

That creates a problem for governments relying on density bonuses, affordable housing contributions and other planning mechanisms to increase the supply of subsidised homes.

The report also calls for more consistent government funding, higher Commonwealth Rent Assistance payments linked more closely to rental costs, and better reporting on who occupies affordable housing.

It notes that Australia does not have a consistent national measure of affordable housing stock or the incomes of households living in those properties, making it difficult to determine whether existing policies are delivering the intended outcomes.

The Federal Government's Housing Australia Future Fund, established with an initial $10 billion investment and targeting 40,000 additional social and affordable homes, is recognised as an important step, but insufficient to address the scale of the existing shortage.

Ultimately, Urbis and CEDA conclude that Australia's housing affordability challenge requires both a stronger private housing market capable of delivering new supply and a more targeted system of government support for households unable to afford market rents.

For the apartment development sector, the findings reinforce the role of new construction in easing broader housing pressures, while questioning whether existing affordable housing incentives are directing enough support towards those who need it most.

The full report, Fit for Purpose: Aligning Affordable Housing with Need, was prepared by CEDA in partnership with Urbis.