Rising population is driving demand for more houses.
This has been driven by two main sources namely: rising immigration and more people choosing to live alone. Construction has also fallen this year, despite high levels of demand.
We now need a million new homes to be built over the next five years to cope with Australia's booming population, new figures out from the Housing Association show.
New home building figures showing slumping building approvals have sparked fears of a price and rent explosion that will price even more prospective buyers out of the market.
The ANZ said that Australia faced a critical and potentially chronic shortage of housing. A growing housing shortage is setting the scene for the mother of all housing booms. Meanwhile, rising interest rates continue to stymie any building recovery.
The number of houses currently being built falls well short of this, and according to the HIA, there will be a shortfall of at least 175,000 houses if current building rates continue.
The outlook is even bleaker if household sizes keep shrinking - ie more people choose to live alone - this could blow-out to a 240,000 shortfall.
"Supply must increase rapidly to meet expected demand," said the Housing Industry Association's chief executive of policy, Chris Lamont.
"Without a substantial increase in production there will almost certainly be a growth in the number of homeless and further affordability woes."
Australia's population grew by 332,000, or 1.6 per cent last year.
A shortage of housing is one of the key drivers in record-low housing affordability.
The Housing Industry Association (HIA)/Commonwealth Bank First Home Buyer Affordability Index fell 3.5 per cent in the quarter, and was down 10 per cent on the same time last year.
Mortgage repayments now account for 29.1 per cent of an average first home buyer's income - the highest percentage on record.
Construction tailing off
Despite rising demand, the supply of new houses is dwindling as high rates put the squeeze on the property market. Official interest rates are sitting at a 12-year high of 7.25 per cent.
Data out earlier this month showed that number of new residential homes being built in March quarter fell 3.3 per cent. Construction of new private houses fell 6.3 per cent in the quarter, while other types of property - such as apartment - fared better with a 3 per cent rise.
More states suffered falls in new housing starts than rises in the quarter. Tasmania had a 13.3 per cent decline, Queensland 9 per cent, Western Australia 7.3 per cent, Victoria 4.8 per cent and the ACT 16.9 per cent. On the upside, South Australia rose 24.7 per cent, NSW was up 9.3 per cent and the Northern Territory rose 14.9 per cent.