A Grattan Institute proposal would allow three-storey townhouses and apartments nationwide in capital cities, aiming to add roughly 67,000 homes annually and reduce median home costs by about $100,000 within a decade, while also pushing rents lower.

The report argues that easing zoning to permit three-storey developments on all residential land could shave more than $100,000 off the median home price over ten years and cut rents by about 12%.

Commentators say higher-density, well-located housing can benefit essential workers and address affordability, citing reforms in Victoria and ongoing debates in New South Wales.

Historical trends show young and mid-age residents moving away from inner areas due to affordability, with notable net outflows of people aged 30–40 in Sydney between 2016 and 2021.

In Melbourne, the reforms could yield around 431,000 new homes within 15 kilometres of the city centre, while Sydney could add up to a million homes with planning-rule changes, including six-storey blocks near major transit hubs.

Other factors include the government’s expanded 5% deposit scheme for first-time buyers with mixed effects and rising insurance costs in disaster-prone areas, affecting overall housing cost and feasibility.

Heritage listings and a complex legal system, including the Victorian Civil and Administrative Tribunal overturning many council refusals, are delaying supply and driving up costs.

The report projects Australia-wide housing construction could rise to up to 67,000 dwellings per year, up from current levels, to help address affordability and density.

Grattan recommends upzoning near transport hubs to at least six storeys, revisiting heritage protections, and simplifying planning approvals so up to three-storey developments meeting standards can proceed without full permits.

Australia’s cities currently have relatively low urban density, contributing to affordability issues; increasing inner-city density to levels seen in other global cities could yield meaningful gains.

Zoning limits are a core constraint: in Sydney and Melbourne, most land within 30 kilometres of the city centre is zoned for three storeys or fewer, with Brisbane, Perth and Adelaide largely capped at two storeys, driving up costs.

Grattan estimates current annual construction at under 200,000 homes and says reform could lift GDP by about $25 billion per year and cut greenhouse gas emissions by enabling more living near transport, schools, and jobs.

The plan would shift default permission for larger developments around transit centres and major commercial areas, reducing the need for specialist planning permits and altering state and local planning laws.