Developer margins have collapsed, and this explains the supply problem

A developer is the person or company that builds homes to sell.

They spend money first. They buy the land. They pay for the design, the approvals, the materials, and the workers. All of that comes out of their pocket before a single home is sold.

Then they sell the finished homes. What is left over after all the costs is their profit.

That leftover is the buffer. It is what makes the whole thing worth doing. And right now that buffer has gotten very thin.

When the numbers do not add up, they stop

Building is expensive, it takes years, and things go wrong along the way. Costs rise mid-project. Work gets delayed. If there is not enough profit built in to absorb that, the developer can end up building at a loss.

So when the numbers look too tight, they do not start. They walk away, even when they own the land and already have approval to build.

And this is not a small effect. It is happening right across the country.

The proof is in the homes that never got built

Almost 70 per cent of the apartments approved in Australia since 2020 have still not started construction. That figure is from consultancy Urbis, shared with Reuters this month.

It is worse in some places than others. On the Gold Coast, 83 per cent of approved apartments have not broken ground. In Sydney it is 64 per cent. In Melbourne, 62 per cent.

Approved means the hard part with the council is already done. The permission is there. The homes could be built. But they are not, because once the developer runs the numbers, too many of these projects do not make enough to be worth the risk.

That tells you the problem is not mainly about red tape or approvals, as often as those get blamed. The bigger problem is that building simply does not pay well enough right now.

Building is slowing down, not speeding up

You can see it in the numbers. New home starts fell 11.2 per cent in the first three months of 2026 compared with the quarter before. Apartments were the biggest drag, down more than 20 per cent.

And building takes far longer than it used to. Finishing a new apartment now takes around 33 months, according to Master Builders Australia. Ten years ago it took about 21 months. A house now takes about 11.5 months, up from around 8.5 months. The longer a project drags on, the more it costs to hold, and the thinner that profit buffer gets.

Why the buffer got so thin

A few things are squeezing it at once.

Building costs are still rising. The cost of a new home is up about 5.6 per cent over the past year.

Borrowing money costs more. The cash rate is 4.35 per cent, after three rises this year. Developers borrow to build, so higher rates eat straight into the profit.

And there are not enough workers. There is so much other construction going on that builders are competing hard for labour. In Brisbane, one builder told Reuters he has had to pour concrete overnight because he could not get workers during the day, which then creates its own quality problems.

Put all of that together and the profit gets squeezed from every side.

We are falling behind what we need

The government has a target of 1.2 million new homes over five years. To hit it, the country needs to be approving roughly 20,000 homes a month.

In May 2026, approvals came in at about 17,000. That is around 15 per cent short, before you even count the gap between what gets approved and what actually gets built.

Why this matters even if you are not buying a new build

You might be reading this thinking it is a developer problem, not yours. But it reaches everyone.

Fewer homes built today means fewer homes to go around in a few years. That keeps prices firm and it keeps rents high.

It matters for renters especially. Most apartments are owned by investors and rented out. So an apartment that does not get built today is a rental that does not exist a few years from now. Fewer rentals, same demand, and rents keep climbing.

This is why the housing shortage is not fixing itself. 

What this means if you are buying

Good, well located existing homes are likely to stay in short supply, because not much new stock is coming to take the pressure off. That tends to support the value of what is already there.

And if you are thinking about buying off the plan, be careful about who you buy from. When the profit is this tight, that is when you see more delays, more corners cut, and in the worst cases, builders going under before they finish. So the strength and track record of the developer matters more than usual right now.

What I would focus on

If I were speaking with a buyer today, I would keep it simple. The shortage is real, and it is not going away soon because homes aren’t being built.

So I would focus on owning a good quality home in an area people want to live in, where demand is strong and supply is tight. That is the position you want to be in when not much new is being built.

The questions are the same ones as always:

• Is this a good property in an area with real, lasting demand 
• Would it still make sense on its own, without hoping for a rescue from somewhere else 
• Can you hold it comfortably over time

Final word

We are not building enough homes. Not because we do not want to, but because the money no longer works for the people who build them.

The buffer has gotten too thin. Costs are up, workers are scarce, and building takes longer than ever.

Until that changes, the shortage stays. And the people who own good homes in good areas are sitting on something that stays in short supply.

So the lesson is an old one. Do not wait for new building to fix the market. Focus on owning something good.