The housing shortage in Victoria has been a persistent issue for years, with many looking to the government for meaningful interventions. The recent measures introduced by the Victorian Labor Government, however, are unlikely to address the core of the problem in any meaningful way. While the push for additional height approvals and density in metropolitan areas might seem like a solution on the surface, it does little to tackle the structural challenges that are holding back development in the state.
The Illusion of Height Approvals
If increasing building heights was the silver bullet for resolving the housing crisis, why hasn’t there been a single non-build-to-rent (BTR) residential tower constructed in Melbourne over the past three years? The answer isn’t just about planning restrictions or height limits—it’s about fundamental market conditions. Developers simply aren’t moving forward with new projects, and the issue runs deeper than zoning regulations.
At its core, the problem is twofold: the rising cost of construction and a dire shortage of skilled workers. Even with higher density approvals, the economics of building in the current market make it nearly impossible for developers to take on new projects. Construction costs have skyrocketed, and labor shortages exacerbate the problem. We simply don’t have enough construction workers to bring down the cost of building, making new developments unaffordable for developers to pursue and, more importantly, for banks to support. Low returns in residential development mean that financial institutions are reluctant to fund these projects, especially when compared to the more lucrative commercial sector.
A Lack of Labor and Financial Support
Former Victorian Premier Jeff Kennett has been vocal about the ongoing crisis, emphasizing that without a significant increase in the construction workforce, Victoria’s building pipeline will remain stagnant. Kennett’s perspective rings true—it’s not enough to provide developers with planning approvals if the financial and labor resources aren’t there to support construction. Developers need to see feasible margins to justify the risks, and right now, that simply isn’t happening.
The 2017 Policy Mistake
It’s also worth remembering the impact of policy missteps in the not-so-distant past. In 2017, the same government removed key incentives for off-the-plan buyers, significantly dampening the demand for residential apartments in Melbourne. At the same time, they introduced a foreign buyer stamp duty surcharge that crippled momentum and trust built up with South East Asian investors. For a decade, these investors played a crucial role in bolstering Melbourne’s apartment market, adding to the city’s housing stock and supporting construction activity. With one swift policy change, that momentum was gone.
This is a key factor in today’s housing shortage. The foreign investment that once underpinned Melbourne’s apartment boom has yet to return in any meaningful way. Until those trust barriers are rebuilt and the policy environment becomes more favorable, we will continue to see a lack of activity in the residential apartment sector.
The Real Solution: Approvals for Englobo Land Near Transport
Rather than focusing on lifting height limits in areas that are tightly held and land-constrained, such as Brighton, the government should shift its attention to facilitating quicker approvals for englobo land closer to transport hubs. Melbourne’s outer suburbs and regional areas have ample land available for development, but the approval processes are bogged down by red tape and bureaucracy. Fast-tracking approvals for large land parcels in well-connected areas would enable developers to build more affordable housing and increase supply where it’s truly needed.
Height approvals in inner-city locations won’t solve the housing crisis if there is no land to build on and no workforce to bring projects to life. By streamlining approvals in growth corridors and areas with better transport infrastructure, the government could make a more immediate impact on the housing supply without the need for risky and speculative high-rise developments that aren’t getting off the ground.
A Call for Policy Reforms That Make Sense
In the end, the housing shortage in Victoria is a multifaceted issue that requires a comprehensive approach. The current measures being touted by the Victorian Labor Government fail to address the fundamental issues of labor shortages, prohibitive construction costs, and the lack of developer confidence. Instead of focusing on high-density inner-city developments, which have proven ineffective, policymakers should look to solutions that support broader, more sustainable growth across the state.
Streamlined land approvals near transport hubs and a reevaluation of the policies that turned away foreign investors could go a long way in reigniting Victoria’s housing market. Until these underlying issues are addressed, the measures currently being proposed will continue to miss the mark.
Until next time, Mark Wizel