APRA Wants to Unlock Housing Supply. But is Capital Really the Problem?

Posted by Gavin Chau

One of the biggest challenges facing Australia’s housing market is supply. Governments know it, developers know it and anyone who has tried to buy or rent a home over the past few years certainly knows it. This week APRA proposed making it easier for banks to finance residential developments by reducing the qualifying presales requirement from 100% of total debt to 50%. At first glance, the logic seems compelling. If developers need fewer presales to secure construction finance, more projects should receive funding, more homes should be built and housing supply should gradually improve.

I think the proposal is a positive step. The question is whether it addresses the bottleneck that is preventing enough housing from being delivered. Like most housing policies, the interesting part isn’t the announcement itself. It’s understanding where that announcement sits within the much larger housing system.

Understanding The Role of Presales

Before a bank commits hundreds of millions of dollars to a residential development, it wants confidence that the completed apartments will sell. That’s the purpose of presales. They reduce uncertainty by demonstrating that buyers have already committed to purchasing a significant proportion of the project before construction even begins. From a lender’s perspective, presales reduce risk, improve visibility over future cash flows and provide evidence that the project is commercially viable.

Under APRA’s proposal, qualifying presales for residential developments would fall from 100% of total debt to 50%. That means a larger number of projects should qualify for the lower capital treatment, allowing banks to hold less regulatory capital against those loans and increasing their capacity to fund residential developments. APRA’s stated objective is to improve lending efficiency while supporting additional housing supply, all without compromising the strength of Australia’s banking system.

Mechanically, the proposal makes sense. If development finance becomes easier to obtain, more projects should become capable of moving from the drawing board into construction. The more interesting question, however, is whether development finance is still the primary bottleneck preventing homes from being built.

Is Finance Actually the Constraint?

One sentence buried within APRA’s consultation paper immediately caught my attention. The regulator notes that capital does not currently appear to constrain lending and that credit remains readily available.

That creates an interesting contradiction. If banks already have sufficient capital and lending capacity isn’t materially constrained, then reducing capital requirements may improve efficiency without necessarily unlocking a large volume of previously impossible developments. In other words, the proposal may make the system work better, but that doesn’t automatically mean it addresses the problem that is currently limiting housing supply.

There’s an important distinction between making credit more available and making development more viable. APRA’s proposal addresses the first problem. It doesn’t necessarily solve the second. If construction costs, labour shortages and planning delays continue preventing projects from stacking up financially, easier access to development finance alone is unlikely to produce the surge in housing supply many are hoping for.

Australia’s housing shortage is no longer being driven by a single constraint. It’s a composite effect of several constraints interacting simultaneously. Development finance is one of them, but it sits alongside elevated construction costs, labour shortages, lengthy planning approvals, infrastructure constraints and the simple reality that many projects no longer stack up financially under today’s build costs.

A developer still needs to acquire a site, obtain planning approval, complete the design work, secure a builder, manage escalating construction costs and deliver the project profitably. If construction costs have increased to the point where the project no longer produces an acceptable return, reducing the presale requirement alone doesn’t suddenly restore feasibility. It simply removes one obstacle from a much longer chain of obstacles.

Housing Supply Is a Systems Problem

This is where I think much of the public discussion becomes overly simplistic. Housing shortages are often treated as though they have a single cause and therefore require a single solution. In reality, they behave much more like complex systems, where multiple bottlenecks combine to determine the outcome.

Imagine pouring more water into a hose that is kinked in five different places with a marble jammed in the end. Straightening one kink certainly improves the flow, but it doesn’t restore the hose to full capacity.

Housing supply behaves in much the same way. Every bottleneck removed improves the flow through the system and increases the probability that additional projects proceed. Some developments sitting just below today’s funding threshold may now become commercially viable, and that’s undoubtedly positive. The mistake is assuming that removing one bottleneck automatically causes the entire system to accelerate. Ultimately, the system still moves at the speed of its remaining constraints.

Timing also matters. Even if these changes are finalised this year, implementation isn’t proposed until April 2027. From there, developers still need to secure sites, complete feasibility work, achieve the revised presale targets, obtain construction finance, build the project and settle completed dwellings.

Even under an optimistic scenario, much of the additional housing enabled by these reforms is unlikely to reach the market until much closer to the end of the decade. This does nothing to help households struggling to find affordable housing today.

The Bigger Picture

None of this should be interpreted as criticism of APRA’s proposal. It’s a sensible reform. Reducing unnecessary friction within development finance should improve lending efficiency and allow some projects that previously struggled to obtain finance to move forward. That’s a worthwhile outcome.

The broader lesson, however, is that Australia’s housing shortage wasn’t created by one problem and it won’t be solved by one reform. Whether we’re discussing planning systems, infrastructure, taxation, construction costs, labour availability or development finance, each policy addresses only one part of a much larger machine.

One of the themes that has emerged repeatedly throughout this year’s housing reforms is that governments are attempting to remove friction from different parts of the system. That’s encouraging. But friction isn’t the same thing as the constraint. Until finance, planning, construction productivity, labour availability and infrastructure all begin improving together, Australia’s housing shortage is likely to ease gradually rather than disappear suddenly.

Posted by Gavin Chau, on 30th Jun 2026