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Housing affordability 📉

A central justification for Victoria’s planning reforms is that increasing housing supply will improve affordability. The Victorian Government argues that the reforms will help more Victorians, particularly young people and families, access housing close to jobs, transport, family networks and the communities in which they grew up.

The underlying assumption is that faster approvals, higher densities and more development will naturally lead to lower prices and more accessible housing. However, housing economists, developers, planners and a parliamentary inquiry have raised questions about whether planning reform alone can deliver these outcomes.

These concerns arise from a range of economic and market factors that influence housing delivery and affordability.

More supply, but not necessarily more affordability

While the reforms are expected to increase the number of new dwellings, there is little evidence that this will translate into genuinely affordable homes for young people, families, or key workers.

Instead, several structural issues limit the affordability impact:

  • New developments are typically concentrated in higher-end apartment products
  • Construction costs, labour, and materials have risen significantly
  • Taxes, levies, and financing costs continue to increase
  • Developers respond to market conditions, not affordability targets

As a result, new supply does not automatically equate to lower prices.

Questions about affordability outcomes have also been raised by industry experts and have been reflected in parliamentary scrutiny of the reforms. A Victorian Parliamentary Inquiry found that little convincing evidence had been presented that the planning changes would guarantee additional housing supply, and no substantive evidence had been advanced that they would provide additional affordable housing (Read Inquiry Report). Concerns have also been raised about the limited public availability of modelling demonstrating how the reforms are expected to affect housing supply and affordability outcomes.

At the same time, there is ongoing debate about the extent to which planning reform can improve affordability. Some advocates point to examples such as Auckland, New Zealand, as evidence that increasing housing capacity can improve housing outcomes. However, experts remain divided on the extent to which these outcomes can be attributed to planning reform alone, rather than broader economic and market conditions.

Limited and uncertain affordable housing outcomes

Some fast-track and state-led pathways include modest affordable housing contributions, often around 10% — and in some cases, lower effective contributions may be accepted.

However:

  • These contributions are small relative to the uplift in land value created by rezoning
  • They are not always consistently secured or locked in
  • There is limited transparency on long-term delivery and compliance

In some pathways, developers may be able to make a financial contribution in lieu of providing affordable housing dwellings directly. In certain circumstances, this option may remain available after a project has received approval. Critics argue that the contribution may be less costly than delivering affordable housing on-site, raising questions about how much affordable housing will ultimately be provided and whether the housing outcomes achieved will match public expectations.

This raises concerns that the affordable housing component may be symbolic rather than transformative.

A market dominated by higher-end development

Evidence from recent apartment pipelines suggests that much of the new housing being delivered is targeted at:

  • Investors
  • Downsizers
  • Higher-income buyers

Meanwhile, entry-level home ownership and genuinely affordable rental options remain limited. Some developers have reported a gap between the cost of delivering new apartments and the prices many buyers are willing or able to pay, making it difficult to deliver housing at lower price points. Industry participants have also suggested it may be many years before newly built apartments in established suburbs become affordable to a broader range of buyers.

This risks increasing overall supply without addressing the segments of the market most in need of relief.

Land value uplift vs. housing outcomes

Rezoning land for higher density significantly increases its development potential and market value.

In many cases:

  • Windfall gains accrue to landowners and developers
  • A small portion is captured for affordable housing
  • The majority of value uplift is not reinvested into broader housing affordability measures

This structural imbalance weakens the link between rezoning and public benefit.

Speculation, timing, and delayed delivery

Even where planning permits are granted for large developments, construction does not always follow immediately.

Common factors include:

  • Land banking and speculation
  • Market timing decisions by developers
  • Financial feasibility constraints
  • Construction cost pressures
  • Staged or delayed project delivery

This means that approvals alone do not guarantee timely housing supply, let alone affordability.

Evidence from across Melbourne shows that many approved residential developments have not proceeded to construction. In some cases, sites are sold with planning permits attached, while in others projects are delayed due to financing constraints, market conditions, construction costs or other commercial considerations.

Why this matters

Housing affordability is not only about how many homes are built — it is about who those homes are built for, and at what price point.

If new supply is predominantly:

  • High-cost apartments
  • Investor-focused stock
  • Or delayed in delivery

Then the underlying affordability challenge remains unresolved.

What this means for Melbourne

The current reforms are built on the expectation that increased supply will naturally improve affordability.

However, without stronger and enforceable affordability mechanisms, clearer delivery requirements, and a broader mix of housing types, there is a significant risk that:

  • Prices will remain high
  • Affordability will not improve meaningfully
  • And the benefits of rezoning will be unevenly distributed

In short, more development alone is not the same as more affordable housing.