Australia’s residential development market is under structural stress, not cyclical pressure. Construction costs, regulatory burdens, and recent tax changes have combined to make development unfeasible for small to medium developers in most locations. The only viable segment right now is high-quality, owner-occupier product in premium suburbs. Without a deliberate policy decision to shift infrastructure costs off the sale price of a home, affordability will continue to deteriorate.
Construction costs have risen by more than 120 per cent since 2004 and are still increasing, with Rider Levett Bucknall forecasting 4 per cent growth in Sydney alone for 2026.
- Over 2,800 construction firms entered insolvency in the 2023–24 financial year, representing 27 per cent of all company failures nationally.
- The investor tax premium dissolves at resale because the next buyer receives none of the original benefits.
- Density policy inflates land values and construction costs, pushing viable projects into affluent suburbs where affordable housing targets cannot be met.
- Affordability requires a deliberate political choice to record infrastructure costs on the public ledger rather than in the sale price of a dwelling.
I have spent over 40 years conducting feasibility studies for residential projects across Australia. Sydney is where the pressure is most acute right now, but the forces at work are national. The work always begins the same way: strip a situation down to its arithmetic before you let anyone tell you a story about it.
Right now, the arithmetic is telling a hard story.
Fifty years ago, a developer targeted a return on cost of 33 to 50 per cent return on cost (ROC). A Development Application was cleared in about three months. Construction started without pre-sales because finance was available on the strength of the project. Today, many developers struggle to reach 16 per cent ROC, burdened by extensive reports, long approval queues, pre-sale conditions, and personal guarantees.
That shift is a diagnosis, not a coincidence.
Is This a Cyclical Dip or Something Structural?
The prevailing view of the current market is that this is a downturn. Rates ease, confidence returns, and activity recovers. I do not think the numbers support that view, in Sydney or anywhere else in Australia.
Construction costs in Sydney have risen by more than 120 per cent since 2004, and the same trend holds across every major Australian city. The post-pandemic assumption that costs would fall has not held up to reality. Rider Levett Bucknall forecasts a further 4.0 per cent increase in Sydney in 2026, well above the historical norm, with comparable pressures forecast across Brisbane, Melbourne, and Perth.
The failures are a direct consequence. ASIC’s annual insolvency data recorded 2,832 construction firm insolvencies in the 2023–24 financial year, more than double the figure for the 2021–22 financial year. Construction now accounts for around 27 per cent of all company failures in Australia.
A cycle corrects over time. What we are seeing compounds with each new layer added to the system.
Key Point: Cost escalation across Australia is structural. Each new regulatory or tax layer adds to it without reducing the cost base.
Why the Investor Tax Premium Is Not a Real Premium
A large part of the sales model for new apartments has rested on investor buyers, with historically about half of a developer’s sales drawn in by tax benefits at the point of purchase.
The benefit must be traced all the way to the exit to determine whether it is real.
Since the property tax changes announced in the 2026 Federal Budget, the brand new developer stock tax advantage applies to the first buyer only. When that investor eventually sells, the property enters the broader resale market, where the next buyer receives none of those benefits. The premium the developer built into the price at the outset dissolves when the property changes hands.
A developer building margin on that assumption is building on a foundation that disappears. The investor incurs a capital loss. The developer’s model looks sound on the feasibility sheet but fails in the open market.
Test every claimed benefit against the person on the other side of the transaction. If it disappears when they sell, it was never a real premium.
Key Point: Developer pricing based on investor tax benefits is unreliable because the premium does not survive resale in the broader market.
How the Market Is Splitting by Capital Depth
The same conditions reward deep capital and remove thin capital from the market. That is why residential development is splitting into two distinct paces nationally.
Small and medium developers, those carrying projects on personal guarantees and with slim buffers, are being squeezed out across Australia. Melbourne has been living this reality longer than Sydney. The period from 2026 to 2029 looks genuinely painful across both cities. The only residential work that remains clearly viable is high-quality, owner-occupier product in premium locations such as Sydney’s Eastern Suburbs and North Shore, or Melbourne’s inner east.
Patient institutional capital is subject to the same conditions as an entry point. According to Knight Frank, a record 6,000 build-to-rent units were on track for completion in 2025, up from 4,660 delivered in 2024. The national pipeline continues to expand, backed by significant global institutional capital, though delivery economics remain a defining constraint.
The result is consolidation. Mum-and-dad investors are repackaged into larger, more liquid vehicles held by institutions.
Key Point: Capital depth now determines who survives. Small and medium developers are being systematically removed from the market, while institutional capital is expanding its position.
Why Density Policy Is Making the Problem Worse
Federal and state governments are trying to solve the supply problem through density. In NSW, Transport Oriented Development, Low and Mid-Rise reforms, and Housing Delivery Authority schemes all push for more dwellings on more sites. Similar initiatives are being rolled out in Victoria and Queensland.
The mechanical effect works against the stated intention.
Higher permitted density lifts land values because a site that can hold more units is worth more. Taller buildings cost more per unit to construct. Both factors feed directly into the unit rate. The policy lever meant to lower the cost of housing raises the inputs to that cost.
Viable projects therefore migrate to the affluent suburbs that can carry the numbers. The affordable dwellings that do get built land in places where the people they were intended for cannot afford to live.
The contribution regime compounds this. It charges less in viable, affluent areas and more in lower socio-economic areas where housing is needed most. These outer areas require brand new infrastructure which government seeks to recover from developers, which is simply added to the price of each property sold. The system is almost perfectly inverted.
Key Point: Density reform inflates land values and construction costs, pushing viable development into premium suburbs and away from where housing pressure is most acute.
Who Actually Bears the Cost of Every Policy Addition
The current settings shift the entire cost of solving housing onto the price of the dwelling.
Developer-funded infrastructure, buyer tax sweeteners, denser zoning, extensive reports, delay. Every well-intentioned addition arrives as a new input cost, and that cost ends up in the sale price.
The time lag between approval and the start of apartment construction has more than doubled over the past decade. Across Australia, tens of thousands of approved homes remain unstarted, with NSW accounting for a significant share, because viability has become the bottleneck, not approval itself. The NSW Government’s own data shows that of more than 5,250 Development Applications assessed in a recent 12-month period, almost 1,000 contained minor errors detected only after consent. The system has grown too complex for experienced people to use effectively.
Each layer of regulation was added for a reason and a constituency. Individually, they look reasonable. Stacked over five decades, they have made the economics of development close to untenable.
Key Point: Every policy addition, regardless of intent, ultimately becomes a cost within the sale price. The buyer bears it all.
What Would Actually Fix It: The Choice Nobody Wants to Name
Affordability returns when Australian society decides to bear the cost openly, on the public ledger, rather than embedding it in the sale price of a home.
That means shifting infrastructure costs from developers to the broader tax base. It also means reducing regulatory friction to a level a competent professional can navigate without error.
This is an explicit choice between affordability and the other objectives loaded into the price of a home. Every level of government, federal, state, and local, can retain the levers they have added and accept that housing remains expensive. Or they can move those costs onto the public balance sheet and make development viable again.
I would rather name that choice early than watch developers across Australia discover it the hard way, one insolvency at a time. The maths has made its position clear. The question is whether policy is willing to read it.
Key Point: Affordability is a political choice about who bears the cost. Until that choice is made explicitly, the cost remains embedded in the sale price and out of reach for the people who need housing most.
Frequently Asked Questions
Why are construction costs still rising in Australia even after the pandemic-related supply chain issues were resolved?
Labour shortages, infrastructure demand, and contractor capacity constraints have replaced supply chain disruption as the primary drivers. Rider Levett Bucknall identifies domestic labour availability and competition for the project pipeline as the dominant forces pushing costs up in 2026.
What is the return-on-cost threshold that lenders require for residential development finance in Australia?
Most lenders require a minimum of around 16 per cent ROC before providing development debt funding. Developers must also provide personal guarantees. Fifty years ago, the industry standard was 33 to 50 per cent ROC, reflecting far lower regulatory and compliance costs.
Why does the investor tax premium not retain value at resale?
Tax benefits such as negative gearing and capital gains tax concessions apply to the first purchaser. When that investor sells, the property re-enters the broader market. The next buyer receives no tax advantage, so pricing cannot sustain the premium the developer originally charged.
What is build-to-rent, and why is it growing in Australia?
Build-to-rent is a development model in which the entire building is retained by a single owner and leased to tenants rather than sold as individual dwellings. It suits institutional capital because it generates long-term income rather than a one-off margin. Knight Frank data shows 6,000 BTR units completed in Australia in 2025, up from 4,660 in 2024.
How does density zoning reform increase housing costs rather than reduce them?
Higher permitted density increases the number of dwellings a site can accommodate, which raises the site’s land value. Taller buildings also cost more per square metre to construct than lower-rise alternatives. Both effects increase development costs rather than reduce them.
What is the contribution regime, and how does it affect housing affordability?
Developer contributions are fees charged by government to fund infrastructure such as roads, parks, and utilities required by new developments. In Australia, contribution rates are generally lower in affluent areas, where development is most financially viable, and higher in lower socio-economic areas where brand new infrastructure is required, which is where housing is most needed. This structure discourages development in areas of greatest demand.
What would deregulation of the development sector entail?
At a minimum, it would mean reducing the number of reports required for Development Applications, shortening approval timeframes, removing pre-sale requirements for development finance, and shifting infrastructure funding from developer contributions to the broader public tax base. Kerry Packer articulated the underlying principle to a Senate inquiry in the 1990s: repeal one law for every new one passed.
Why are small and medium-sized developers more exposed than large developers in the current market?
Large developers have the balance sheet strength, in-house research capability, and institutional relationships to carry projects through extended approval periods and market downturns. Small and medium developers typically carry projects on personal guarantees and with thinner capital buffers, leaving them vulnerable when feasibility margins compress below lender thresholds.
Want to Go Deeper on Development Feasibility?
This article covers the market conditions. The next question most developers and investors ask is a practical one: given all of this, how do you actually stress-test a feasibility study against what is happening right now?
I write regularly on development strategy, feasibility fundamentals, and the policy decisions that shape where and whether projects can proceed across Australia. If the thinking in this article is useful, there is more of it, covering risk matrices, return-on-cost benchmarks, what lenders are actually looking for, and how to read a market before committing capital.
Follow along on LinkedIn or visit LEFTA Group to read more. If you have a specific project or feasibility question, I am also available for a direct conversation.
The earlier you ask the hard questions, the more room you have to answer them effectively.
Key Takeaways
- Construction costs across Australia are structural, not cyclical. They have risen by more than 120 per cent since 2004 and are still climbing in 2026.
- Over 2,800 construction firms failed in 2023–24, and the sector accounted for 27 per cent of all Australian company insolvencies.
- The investor tax premium at the point of purchase dissolves upon resale, making it an unreliable basis for developer pricing.
- Density policy lifts land values and unit construction costs at the same time, concentrating viable development in premium suburbs.
- The contribution regime charges more in lower socio-economic areas where housing is most needed, and less in affluent areas where development is most viable.
- Small and medium developers are being driven out of the market by compounding cost and regulatory pressures. Institutional capital is filling the gap through build-to-rent structures.
- Affordability is a political choice. It requires shifting infrastructure costs from the sale price of a home to the public balance sheet. Until that choice is made, the crisis continues.
About the Author
Steve Chandler is a third-generation property developer with over 40 years of practical experience in residential, commercial, industrial, medical, infrastructure, and public building projects throughout Australia.
As CEO of LEFTA Group of Companies, Steve specialises in property development advisory, consultancy, strategy, and training, with particular expertise in residential projects ranging from 30 to 80 apartments.
Professional Experience
Steve’s career started in 1980, giving him four decades of hands-on involvement in all aspects of property development. His experience covers:
- Project feasibility study and risk evaluation
- Development strategy and implementation
- Contract negotiation and project recovery
- Regulatory compliance and approval from authorities
- Budget management and cost control
Throughout his career, Steve has developed a systematic method for identifying structural weaknesses in project setup stages, helping prevent cost blowouts before they occur.
Teaching and Knowledge Sharing
Steve has shared his expertise as a lecturer at the University of NSW, teaching property development principles to aspiring developers. He authored “From Building Worrier to Building Warrior: Taking The Worry Out Of Building” (available on Amazon), which documents research into renovation loan patterns and budget management strategies.
His teaching philosophy focuses on turning theoretical knowledge into practical, actionable strategies that avoid common development failures.
Specialisation and Methodology
Steve’s approach to property development highlights:
- Conduct thorough research upfront before acquiring property.
- Comprehensive feasibility assessments covering 15-20 cost categories
- Choose risk relocation instead of risk avoidance
- Complete project documentation to prevent scope creep.
- Strategic contract structuring with protective special conditions
His methodology relies on pattern recognition from decades of observing what distinguishes successful projects (22% that stay on budget) from failed ones (78% that experience cost overruns).
Industry Acknowledgement
Steve’s expertise is highly valued by property developers tackling complex, high-stakes projects where standard methods fall short. His work concentrates on:
- Preventing budget blowouts through intervention during the setup phase
- Revitalising struggling projects through strategic restructuring
- Guiding developers in conducting professional-grade feasibility analyses
- Engineering project conditions where success is guaranteed
Geographic Focus
Based in Australia, Steve’s expertise is rooted in the Australian property development scene, including NSW regulatory rules, standard building contracts (NSW Fair Trading, Master Builders Association, Housing Industry Association), and Australian tax considerations for property development.
Contact Details and Additional Information
Steve Chandler works with property developers through LEFTA Group of Companies, offering strategic advice, project consultation, and professional mentorship for those dedicated to approaching property development as a profession rather than speculation.
His insights are shaped by hands-on involvement in hundreds of projects across residential, commercial, and mixed-use developments, along with research into industry-wide trends of success and failure.
Conflict-of-Interest & Commercial Disclosure: LEFTA Corporation Pty Ltd advises clients across Australia and may seek future joint-venture opportunities at some of the sites discussed. Views expressed are personal and do not represent any current client mandate.
