Australian house prices again rose to record highs in 2025, maintaining our status as a global leader in housing unaffordability. Sydney has the second least affordable housing in the world after Hong Kong, with Adelaide, Melbourne, Brisbane and Perth all ranking among the 15 least affordable housing markets in the world.

Both house prices and population are forecast to grow in the coming years, further putting pressure on Australia’s already strained housing market. Home ownership is becoming increasingly out of reach for many, with rising rents also a major cause of financial stress among those who do not own a home.

Housing density is significantly lower in Australian cities than in other major global cities. Sydney ranks 104th out of 986 cities on population size; despite having the highest population density of Australia’s major cities, it ranks just 803^rd on this front.

Figure 1 | Australian cities are high in population and low in density by global standards (Cities with population greater than 500,000) 

Source: Demographia 

Australian cities and major centres have traditionally grown through urban sprawl, commonly comprised of single-home lots. There has been less focus on increasing density in established suburban areas.

As a result, debate about increasing housing supply in Australia has generally focused on the binary options of greenfield developments – new communities built in sprawling outer suburban or regional areas – or high-rise apartments in inner cities.

In recent years, however, there has been a growing understanding that we cannot keep sprawling outwards, and high-rise apartments are not suitable or feasible everywhere. Alternative ways of increasing supply, in particular medium-density housing in well-located areas, are gaining prominence.

Medium or “gentle” density involves fitting more dwellings into a given area of land through low-rise developments such as dual occupancy homes, terrace housing, townhouses or low-rise apartments. Gentle density can overcome many of the concerns often raised by community groups about higher density developments, but its impact depends on how planning systems enable it to be delivered. It can help to maintain the character of our communities while also boosting supply.

No single measure can solve Australia’s housing crisis, which is multi-faceted and has been decades in the making, but increasing density in already well-serviced, well-located areas is an important piece of the puzzle. The Federal Government’s National Housing Accord, which sets an aspirational target to build 1.2 million new well‑located homes over the five years from mid‑2024, highlights the importance of ensuring that new builds are well-located.

Delivering these housing types at scale depends on how planning systems are designed.

How to make gentle density work

Research shows that restrictive zoning limits housing supply and places upwards pressure on house prices.

To increase housing density in well-located areas, planning and zoning regulations should be assessed to ensure they facilitate development. Governments at all levels should encourage and reward measures that lead to greater housing density.

To be successful, zoning reform should meet the following three criteria:

Be large scale
Auckland’s zoning reforms covered a broad area – three-quarters of the city was upzoned. Ensuring that large areas are zoned to allow for greater density ensures that no single local government area does all the heavy lifting.

Be feasible
Planning reform must also ensure that housing is feasible to build and that regulation is fit-for-purpose. Zoning reform can coincide with additional regulation that hinders development, such as requirements covering setbacks, open space and detailed design control. Feasible reforms allow a broad range of housing to be built, catering to varied housing needs, without adding overly stringent regulation that makes it too costly to deliver.

Enable “by-right” development
This approach allows housing to be built without requiring individual – or discretionary – approvals, as long as it complies with local planning rules. Auckland replaced its approval system with a “by-right” system that allowed certain types and sizes of homes to be built based on land size.

Evidence from Australia and comparable jurisdictions shows that when these approaches are applied, housing supply responds.

Increasing density can improve affordability

Small changes could have big payoffs. Dual occupancies are a common and the most modest form of gentle density – an instant doubling of the dwellings on a single block. In Australia, approximately 70 per cent of all homes are standalone dwellings. If one-in-four lots with standalone houses were developed into dual occupancies in our five largest cities, housing supply could increase by nine per cent, or nearly one million new homes. Sydney could add more than 12 per cent more homes, Melbourne 15 per cent, Brisbane and Adelaide 16 per cent and Perth more than 17 per cent. Many sites could support greater numbers of additional homes including triplexes, fourplexes and low-rise apartments.

Auckland leading the way

We know increasing density can work. One of the most successful examples of increasing density gently or “upzoning”, which involves changing zoning laws to allow higher density building, occurred in Auckland.

In 2016, the Auckland Unitary Plan was introduced to address chronic housing shortages by unlocking housing supply and improving affordability. The plan introduced reforms that abolished “single-family zoning” and allowed medium and some higher density housing across approximately three-quarters of the city.

Compared with what would have occurred without the reforms, there was an estimated 50 per cent increase in building consents, seeing house prices reduced by 15 to 27 per cent and rents by 28 per cent.

Since the reforms, Auckland has improved from 7th in 2018 to 16th in 2025 on Demographia’s international ranking of housing unaffordability.

The upzoning in Auckland succeeded because it removed process, opposition rights, allowed feasible development and was applied broadly across the city.

New South Wales and Victoria are already taking steps to add gentle density to their policy mix to increase housing supply in well-located and well-serviced areas. Both states have implemented planning reforms permitting a greater diversity of housing types and transport-oriented development (TOD) zones. However, more can be done to ensure local governments aren’t opting out of greater density. Other states and territories should adopt similar approaches, tailoring them to their own circumstances.

Australia must pull all levers at its disposal to fix its housing crisis. Gentle density – the missing middle between high-rise towers and suburban sprawl – is one of our most powerful tools, yet it has so far been underused.

The answer isn’t always up or out. Sometimes, it’s right in the middle.

Danika Adams is a Senior Economist at the Committee for Economic Development of Australia (CEDA). Prior to joining CEDA, she was an Associate Director at Deloitte Access Economics. Danika has worked across public policy and economics throughout her career, holding public policy and economist roles at RAC (WA) and the Chamber of Commerce and Industry (WA).

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