A major rethink of how Australian cities allow new housing is entering the national debate today, with the Productivity Commission calling for governments to consider allowing development of up to three storeys across most residential land.
The Productivity Commission has today released its interim report into housing supply regulation, identifying restrictive land-use rules as one of the biggest opportunities for reform. Rather than relying mainly on individual rezonings and selected higher-density precincts, the Commission says governments should consider broad-based upzoning across Australian cities.
That could include allowing three-storey development on most residential land, reducing minimum lot sizes, allowing more residential and commercial uses to mix, and permitting substantially more mid-rise and high-rise housing in well-serviced locations where demand is greatest.
The proposal does not create a new national three-storey planning rule and the Commission is not making final recommendations at this stage. The interim report is intended to identify potential reform directions and gather further evidence before a final report is delivered to the Australian Government in March 2027.
Even at this early stage, however, the idea represents a potentially significant change in Australian planning. Instead of governments deciding that additional density should be permitted within relatively small designated areas, modest increases in density could become an ordinary development option across much larger parts of Australian cities.
The Productivity Commission Wants A Broader Housing Response
The Productivity Commission’s central finding is that Australia is not building enough homes in the places where people most want to live. It argues that while regulation remains necessary to protect safety, building quality, liveability and legitimate environmental interests, poorly designed regulation can also prevent otherwise suitable housing from being constructed.
Land-use regulation is receiving particular attention because planning controls determine where housing can be built, how many homes can occupy a site and what form those homes can take.
Across Australian cities, these controls can include zoning, height restrictions, minimum lot sizes, setbacks, floor-space limits, heritage and character provisions, parking requirements and restrictions on particular types of residential development.
The Commission’s interim report argues that relaxing some of these controls is likely to have a greater effect on housing supply and affordability than many smaller regulatory changes.
Its proposed direction goes considerably further than simply adding more apartments around railway stations. Governments are being asked to consider whether modest-density housing should be possible throughout most residential areas, while much greater density continues to be concentrated in locations that can support it.
Why Three Storeys Is At The Centre Of The Proposal
Three-storey housing occupies an important middle ground between detached houses and larger apartment buildings.
A three-storey development can take the form of townhouses, terraces, row houses or small apartment buildings. It can provide substantially more homes on the same amount of land while remaining considerably smaller than the apartment towers commonly associated with higher-density development.
This form of housing can also work on a much wider range of suburban sites. Depending on the design and local requirements, low-rise projects may avoid some of the expensive construction systems associated with larger buildings while still using residential land much more intensively than a single detached house.
The Grattan Institute is already advocating a similar national approach. Its 2025 More Homes, Better Cities report proposes a Low-Rise Housing Standard under which three-storey townhouses and apartments would be allowed across residential-zoned land in Australian capital cities.
Grattan proposes combining this with a Mid-Rise Housing Standard allowing developments of at least six storeys around major transport hubs and important commercial centres, with still greater density in other high-demand locations.
The Productivity Commission is not adopting Grattan’s proposal as policy today, but the similarities are important. Both approaches question whether Australian cities are creating enough development opportunities by concentrating increased density in selected locations.
Piecemeal Upzoning Is Coming Under Greater Scrutiny
Australian cities already upzone land regularly. Planning schemes are amended, neighbourhood plans change and selected precincts receive greater development rights as populations grow.
The concern is that this piecemeal approach may create a large amount of theoretical housing capacity without necessarily creating enough realistic development opportunities.
Zoning does not build a home. It gives a property owner the legal opportunity to pursue a particular type or scale of development, subject to the remaining planning and building requirements.
A council can therefore identify enough theoretical capacity for thousands of additional dwellings without those homes necessarily being delivered. Some sites will not be for sale. Some contain houses that are too valuable to demolish. Others have difficult dimensions, ownership arrangements, infrastructure limitations or development costs that make redevelopment uneconomic.
If additional density is confined to a relatively small number of locations, developers can still face a limited supply of sites that are both available and commercially viable.
Broad upzoning changes that equation. Instead of attempting to predict which individual properties will be suitable for redevelopment years in advance, governments can make a much larger pool of residential sites potentially available.
Only a fraction of those properties need to be redeveloped in any particular year for substantial additional housing to emerge over time.
Broad Upzoning Does Not Require Every Site To Be Redeveloped
This distinction is important because a proposal to permit three storeys across most residential land can sound considerably more dramatic than its likely physical effect.
Allowing three storeys does not require an owner to build three storeys. It does not require a detached house to be demolished, and it does not mean every affected site immediately becomes financially attractive to a developer.
Most properties are not sold in any particular year. Among those that are sold, many will remain more valuable as detached homes than as redevelopment sites. Others will be bought by households intending to renovate, extend or rebuild another house.
Redevelopment is more likely to occur where an existing dwelling has relatively low value compared with the potential value of several new homes on the same site.
Older houses on appropriately sized blocks may therefore attract development interest earlier. Larger sites, corner properties, wide frontages and locations close to shops, transport and employment can also offer advantages.
The physical transformation of a suburb can consequently occur over decades rather than months. A street dominated by detached houses might gradually gain terraces, townhouses and small apartment developments as individual sites become available.
Auckland Shows Why Widespread Upzoning Is Different
Auckland has become one of the most important case studies in the Australian debate because it has already undertaken the type of widespread rezoning now attracting attention here.
The Auckland Unitary Plan became operative in 2016 and substantially increased allowable residential density across approximately three-quarters of the city’s residential land.
Instead of limiting greater development rights to a relatively small number of precincts, Auckland made medium and higher-density housing possible across a very large part of the metropolitan area.
The subsequent construction response has attracted international attention. Research comparing Auckland with a modelled scenario in which the reform did not occur finds a substantial increase in housing construction following the zoning changes.
The increase is particularly relevant to Australia because much of Auckland’s new development consists of attached housing such as townhouses and row houses rather than high-rise apartment towers.
This illustrates one of the main arguments behind broad low-rise upzoning. Increasing suburban density does not necessarily mean replacing detached houses with very tall buildings. A large increase in housing supply can also come from repeatedly replacing one dwelling with several relatively modest homes across many different sites.
New Auckland Research Strengthens The Affordability Argument
Research published earlier this month adds another dimension to Auckland’s experience by examining what widespread upzoning appears to have done to rents.
University of Auckland researchers Ryan Greenaway-McGrevy and Yun So compare Auckland with a synthetic counterfactual designed to estimate what rental prices might have been without the zoning reform.
Their preferred model estimates that rents are approximately 23 per cent lower eight years after the reform than they would otherwise have been.
That figure does not mean Auckland rents have simply fallen by 23 per cent since the zoning change. It measures the estimated difference between actual rents and a modelled alternative in which the widespread upzoning did not occur.
The research also finds that housing construction per person more than doubled relative to its modelled counterfactual, supporting the argument that the rental effect operates through a substantial increase in supply.
Auckland therefore provides an increasingly important example of broad upzoning producing something that smaller reforms have often struggled to achieve: enough additional development opportunities to generate a large construction response.
Brisbane Research Provides An Important Counterpoint
Australian evidence also demonstrates why simply adding more theoretical zoning capacity is not enough.
Researchers Cameron Murray and Mark Limb examined repeatedly upzoned areas in Brisbane over approximately two decades. Their research covered more than 25,000 sites and found that only a small proportion of available development capacity was actually used during any five-year period.
Most sites that already possessed development capacity at the beginning of the study remained undeveloped.
The finding highlights a weakness in treating zoned dwelling capacity as though it were the same thing as housing supply. A planning scheme can allow considerably more dwellings than developers can realistically build.
The Brisbane and Auckland studies are not examining identical reforms, however. Brisbane’s additional capacity has been concentrated in selected locations and accumulated through planning changes over time. Auckland applied a far broader increase in development rights across most residential land.
That difference goes directly to the question being raised by the Productivity Commission today. A planning system containing substantial capacity in a relatively limited number of places may behave differently from one that gives developers thousands of alternative sites across an entire city.
More Development Rights Can Create More Competition Between Sites
The availability of alternative development sites can also affect land prices.
If only a small number of properties in an area allow townhouses or apartments, owners of those sites hold a relatively scarce development right. Developers seeking to build in the area have limited alternatives and may have to compete heavily for suitable land.
If similar development rights apply across thousands of properties, developers have more choice. One owner choosing not to sell does not prevent a project from proceeding because other sites may provide similar opportunities.
This is an important but sometimes overlooked part of broad upzoning. Giving an individual property additional development potential can make that property more useful, but giving the same opportunity to many neighbouring properties can reduce the scarcity of the planning right itself.
For housing supply, that can be beneficial. Developers are able to search for sites where the purchase price, existing building, lot configuration and market conditions combine to make redevelopment viable.
Upzoning Would Not Make Every Property A Development Site
For homeowners, the introduction of additional development rights would not automatically produce a large increase in property value.
A developer still needs to determine whether the completed project can generate enough value to cover the land purchase, demolition, construction, finance, consultants, taxes, infrastructure charges, marketing and an acceptable development margin.
If those numbers do not work, the extra planning capacity may have little immediate commercial value.
A modest older house on a suitable block may become attractive for redevelopment relatively quickly. A recently constructed premium home on an otherwise similar site may remain substantially more valuable in its existing form.
Site dimensions also matter. Frontage, depth, access, slope, easements, stormwater arrangements, services, parking requirements and neighbouring development can substantially alter what is practical.
Zoning is therefore only one part of development potential. Broad upzoning creates an opportunity for more sites to participate in future housing growth, rather than guaranteeing that every affected property will be redeveloped.
Planning Controls Would Still Apply
The Productivity Commission is not proposing that residential development should proceed without controls.
Its interim report recognises the role of regulation in protecting safety, building quality, liveability and other important community interests. The issue is whether restrictions are proportionate to the problems they are intended to address.
Environmental constraints, flooding, bushfire exposure, coastal hazards and heritage can continue to affect what is appropriate on individual properties. Design requirements can also regulate matters such as setbacks, privacy, site coverage, access, landscaping and building separation.
The concept being examined is therefore closer to establishing a more permissive development baseline. Three-storey housing could become generally possible while particular locations remain subject to additional restrictions where there is a justified reason.
That is quite different from allowing every residential block to be developed to three storeys without assessment or design controls.
Queensland Is Already Examining Greater Density
The national discussion arrives while Queensland is already reassessing how much housing should be permitted in well-located parts of South East Queensland.
The Queensland Productivity Commission’s construction productivity inquiry has examined the relationship between planning restrictions, development feasibility and the availability of housing.
Its analysis finds that 69 per cent of residential land within one kilometre of Brisbane’s high-capacity rail network is effectively low density through zoning or character controls.
That is significant because land close to established rail infrastructure is generally among the locations where additional housing can provide strong access to employment, services and transport.
The Queensland Productivity Commission supports investigating greater development rights around train and busway stations in Brisbane and around appropriate transport hubs and activity centres elsewhere in South East Queensland.
Queensland’s direction remains more targeted than the broad three-storey model raised by the national Productivity Commission today. It nevertheless reflects the same growing pressure on governments to examine whether well-located residential land is accommodating enough housing.
Brisbane Is Also Progressing Its Own Density Changes
Brisbane City Council is already progressing its More Homes, Sooner changes to parts of the city’s low-medium density residential planning framework.
The proposed amendment combines existing low-medium density precincts into a new three or four-storey mix precinct. Three-storey development would become the general building height within that precinct, while qualifying multiple-dwelling sites near frequent public transport or centres could accommodate up to four storeys.
The proposal also makes changes to lot sizes and development requirements intended to support more housing in well-located areas.
Community consultation ran from 20 February to 20 March this year, and Council is now working through the remaining review and approval process.
The Brisbane changes are much narrower than the national concept released today. The low-medium density residential zone represents only a portion of Brisbane’s residential land, whereas the Productivity Commission is asking whether three-storey development should be considered across most residential land in cities.
The contrast illustrates the central policy choice. Governments can continue identifying particular pockets for additional housing, or they can establish a modest level of density as a much more common residential entitlement.
Infrastructure Is Just As Important As Zoning
The Productivity Commission is also making clear today that planning reform cannot be separated from infrastructure.
Land may be capable of accommodating more homes on paper while water, sewerage, roads, electricity or other infrastructure prevents those homes from being delivered economically.
Established suburbs can offer an advantage because much of the infrastructure already exists, but established networks do not have unlimited capacity. Additional residents can eventually require upgrades to sewerage systems, water networks, intersections, public transport, schools and community facilities.
Greenfield areas face a different version of the same problem. Land can be rezoned for housing years before the infrastructure necessary to develop it is ready.
The Commission says governments need better coordination between housing plans and infrastructure programs, including clearer decisions about sequencing, funding and responsibility.
This becomes particularly important if broad upzoning is adopted. Instead of one large development producing a clearly defined infrastructure requirement, growth can emerge gradually through hundreds of individual projects scattered across established neighbourhoods.
Approvals Are Also Part Of The Problem
Allowing additional density does not necessarily produce faster housing if projects still face lengthy and uncertain approval processes.
The Productivity Commission is therefore also examining greater use of fast-track pathways for straightforward development, clearer state-significant assessment processes, better coordination between agencies and improved reporting on approval performance.
It argues that complicated approval systems can add cost and delay even when a proposed development is consistent with broader housing objectives.
For low-rise development, the larger question is whether a project that complies with clearly defined standards should require the same degree of discretionary planning assessment as a project seeking substantial departures from those standards.
Grattan takes this concept further by arguing that qualifying developments of up to three storeys should be capable of proceeding through a complying pathway rather than requiring an ordinary planning permit.
Whether governments ultimately adopt that approach remains uncertain, but zoning reform becomes considerably more meaningful when the approval system makes the additional development rights practical to use.
Construction Economics Still Determine What Actually Gets Built
Australia can increase zoning capacity substantially without all of that capacity turning into completed homes.
Construction costs, interest rates, development finance, labour availability and buyer demand remain fundamental to project feasibility. A planning scheme can permit a townhouse development while the numbers still make it uneconomic to build.
This is particularly important in the current construction environment, where increases in building costs can substantially change the feasibility of projects that previously appeared viable.
Low-rise density has some advantages because it can provide additional dwellings without requiring the full construction complexity of larger apartment buildings. It is nevertheless still subject to the same basic development equation.
Planning reform is therefore better understood as removing one constraint rather than solving every constraint. A larger supply of development opportunities allows builders and developers to choose the sites where projects work best.
The Potential Housing Numbers Are Significant
Grattan’s modelling gives some indication of why widespread planning reform is receiving increasing attention.
Its broader package of reforms is estimated to have the potential to support more than 67,000 additional homes a year on average over the following decade if Australia achieves a supply response comparable with the New Zealand experience used in its modelling.
Grattan estimates that the resulting increase in housing supply could leave house prices and rents approximately 7 per cent lower than otherwise after five years and around 12 per cent lower after a decade.
For a median-priced home, it estimates the difference could eventually exceed $100,000 compared with the alternative scenario.
Those figures are not forecasts of what happens simply by permitting three storeys. They apply to a much broader package that includes widespread low-rise density, substantially greater development around transport and commercial centres, changes to planning approvals and other reforms.
They nevertheless demonstrate why seemingly technical planning rules can have substantial economic consequences when applied across millions of properties over many years.
The Bigger Change Is To The Planning Default
The most important idea in today’s Productivity Commission report may ultimately be broader than a three-storey height limit.
Many Australian planning systems effectively begin with relatively restricted residential development and then identify particular locations where more housing can be permitted.
Broad-based upzoning moves towards a different starting point. Modest density becomes generally available, while stronger restrictions remain where environmental, infrastructure, heritage or other considerations justify them.
That can substantially increase the ability of the housing market to respond when demand changes.
If more people want to live in an established suburb, additional housing does not necessarily need to wait for governments to undertake another targeted rezoning exercise. Some properties would already possess the development rights needed to provide more homes when their owners choose to redevelop.
Different suburbs would still evolve at very different rates. Stronger markets would attract redevelopment earlier, while many lower-demand areas could remain largely unchanged despite having the same theoretical development rights.
The planning system would create the capacity, while individual property decisions and market conditions determine where that capacity is actually used.
A Three-Storey Rule Would Change The Property Conversation
If states eventually adopt something resembling the model now being considered, understanding residential property could increasingly involve looking beyond the existing house and considering the underlying development potential of the land.
For buyers, lot dimensions, frontage, access, planning constraints and surrounding development may become increasingly relevant even when purchasing an ordinary suburban home.
For sellers, additional development rights could introduce new groups of potential buyers where a property is suitable for redevelopment.
For neighbourhoods, the change could mean a gradual increase in housing variety rather than an immediate shift to high-rise living. Detached houses could increasingly sit alongside duplexes, terraces, townhouses and smaller apartment buildings.
For governments, the challenge would be ensuring that the planning system creates enough housing opportunities while infrastructure and design standards keep pace with the additional population those opportunities eventually accommodate.
The Proposal Is At The Beginning Of The Process
The Productivity Commission’s interim report released today does not settle the question of whether three-storey development should be allowed across most Australian residential land.
Instead, it places that question squarely into the national housing policy debate.
The Commission is seeking further evidence before preparing its final recommendations, with submissions on the interim report open until 30 September 2026 and the final report due to the Australian Government in March 2027.
Any major implementation would ultimately depend on state and territory governments and the planning systems operating within each jurisdiction. Local conditions also mean the eventual approach could differ substantially between Sydney, Melbourne, Brisbane, Perth, Adelaide and other cities.
What changes today is the scale of the discussion. The question is no longer limited to how many selected precincts should be rezoned for apartments or how much additional housing should surround individual railway stations.
Australia is now considering whether modest density should become a normal part of residential development across its cities, giving many more properties the capacity to accommodate additional homes when and where redevelopment becomes practical.
If that principle is eventually adopted, three storeys may matter less as a particular height than as the point at which Australian planning begins shifting from piecemeal upzoning towards a much broader supply of places where new housing is already allowed.
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