Australia’s efforts to lift housing supply faced fresh challenges during the March quarter as higher rates and construction costs weighed on building activity.
New seasonally adjusted Australian Bureau of Statistics Building Activity data, which tracks dwelling commencements, completions and homes under construction across January, February and March, showed a broad slowdown in new housing activity.
New home commencements fell 11.2% to 48,012 in the March 2026 quarter. Picture: Getty
Total new home starts fell 11.2% over the quarter to 48,012 dwellings.
Detached house starts dropped 3.5% to 27,658 homes, while higher-density construction, including apartments and townhouses, recorded the steepest decline, falling 20.7% to 19,116 dwellings.
Meanwhile, total dwelling completions slipped 0.4% compared to the December 2025 quarter to 43,816 homes, while the number of homes under construction stood at 243,864.
Despite the quarterly decline, completions remained 0.8% higher than the same period a year earlier.
The latest figures come as federal and state governments attempt to accelerate housing supply under the National Housing Accord target of delivering 1.2 million new homes over five years.
To meet that target, Australia needs to complete around 240,000 homes annually, or roughly 60,000 homes each quarter.
Industry groups have repeatedly warned that higher construction costs, labour shortages, planning delays and infrastructure bottlenecks are making that goal increasingly difficult to achieve.
The impact of higher cash rates and construction costs
The first three months of the year were marked by a range of economic pressures that affected building conditions, from interest rate rises to escalating global conflict.
The March quarter coincided with two cash rate increases as the Reserve Bank of Australia responded to high inflation and a resilient labour market.
Higher interest rates can weigh on home building activity in several ways, including reducing buyer demand, limiting borrowing capacity and increasing the cost of development finance.
The Housing Industry Association (HIA) has repeatedly pointed to the sensitivity of the construction sector to interest rate movements, after lower rates through parts of 2025 helped support improved building momentum.
“Home building had good momentum heading into 2026, picking up on the back of declining interest rates, low unemployment and existing shortages of housing across the country," HIA senior economist, Tom Devitt said.
In the first three months of 2026, developers and builders were not only facing climbing interest rates, but also elevated material, labour and financing costs.
The March quarter also unfolded during escalating conflict in the Middle East, which contributed to higher fuel and freight costs globally and added further pressure to the construction sector.
Federal modelling from the National Housing and Affordability Council has previously warned that sustained cost pressures and weaker building activity could further challenge Australia’s ability to meet long-term housing supply targets.
Those rising costs have flowed through to parts of the building industry, placing additional strain on builders already grappling with tight margins and ongoing labour shortages, according to Urban Taskforce of Australia CEO Tom Forrest.
"Reports from the development sector since the start of the year have been of spikes in construction costs of between 10 and 15% since the start of the year, along with the more recent collapse in sales and auction clearance rates. Much of this bad news is yet to flow through to this data," Mr Forrest said.
"Feasibility was already a problem, and Urban Taskforce members have been noting increasing difficulty in getting the numbers to stack up in the face of rising fuel and material costs, logistical challenges, union EBA rates and the ever-present taxes, fees, and charges being demanded by all levels of government."
Looking ahead, and with Australia now entering its third year of the Housing Accord, attention is turning to the potential impact of the federal budget, which was handed down in May 2026 after the March quarter reporting period.
The budget included changes to capital gains tax settings, negative gearing and infrastructure investment designed to encourage more investment into newly built housing.
REA Group analyst Luc Redman said the changes were likely to shift more investor demand toward new homes over established properties.
“The budget aims to ‘max out’ the investment into new builds whilst subsequently reducing the aggregate investment into the sector,” Mr Redman said.
“The relative incentives to investors will mean that new builds will have a slightly better tax treatment than established dwellings.”
However, Mr Redman said the policy changes alone were unlikely to solve Australia’s long-term housing shortage without broader planning and zoning reforms at the state level.
“Without state reforms to upzoning, stamp duty or planning then the new supply will be unlikely to fix Australia’s long term housing supply shortfall,” he said.
Since then, several states have introduced further initiatives to stimulate supply and boost approvals, including pre-sale guarantees for apartment developments and investment in modern methods of construction.
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