REA Group

Apartments have traditionally provided a more affordable entry point into the housing market. By accommodating multiple households on a single parcel of land, apartment developments can spread land costs across more homes, making better use of limited space. But as construction costs continue to rise, new apartments are increasingly losing the affordability advantage that once made them an accessible housing option.

The shift is already evident in the market. According to REA Group, 56% of new apartments listed for sale in the first quarter of 2026 were priced at $1.5 million or more. Rising construction costs are pushing developers toward higher-priced apartments to make projects financially viable, leaving fewer affordable options for those seeking entry-level housing.

The economics of apartment construction help explain why. Unlike detached houses, multi-storey developments require complex structural engineering, lifts, fire safety systems, and shared infrastructure. These requirements serve important purposes, but they also contribute to higher building costs. Research by the Centre for International Economics found that the total development cost of a mid-rise apartment in Sydney rose 14% between 2023 and 2025. The study also found that apartment development was financially viable in only a limited number of Sydney's higher-value areas.

For developers, the challenge is no longer simply finding land or securing permission to build. It is delivering apartments at prices buyers can afford while keeping projects financially viable. This creates a growing contradiction: higher-density housing can make more efficient use of land, yet rising construction costs can erase much of the affordability advantage. As new apartments become increasingly difficult to deliver at entry-level prices, the industry must find more affordable ways to build.

Rod Salmon, a property developer in Port Stephens, New South Wales, and managing director of Coho Property, has seen that squeeze firsthand. By his account, the cost of building his apartments has risen from about $2,500 to $3,000 per square meter around a decade ago to more than $8,000 today. "That makes a standard two-bedroom apartment difficult to price for the buyers it was designed for," Salmon says.

Rather than wait for conditions to improve, Salmon began exploring a different approach: compact, factory-built homes that could be produced more efficiently and installed on existing residential properties. His business is now developing one- and two-bedroom mini homes, ranging from approximately 45 to 60 square meters, designed to provide a more affordable alternative to conventional construction.

The concept draws on Salmon's background in automotive engineering at General Motors. By applying principles of standardization, production-line manufacturing, and reduced customization, he aims to lower costs and minimize construction delays. Prefabricated bathrooms arrive as finished pods and are fitted into each home early in the process, much like an engine meeting a car on a production line. "It's the same idea as a car factory," Salmon says. "When each part arrives ready to fit, you remove a lot of the cost and delay."

Factory production also reduces exposure to weather-related disruptions, which can prove costly on conventional building sites. Salmon estimates that construction delays can cost his business approximately $5,000 a day in interest alone. Producing homes in a controlled factory environment could help reduce those delays and provide greater certainty around construction schedules.

In New South Wales, eligible secondary dwellings can be approved through a faster complying development pathway, rather than a full development application, provided they meet relevant planning requirements. Salmon estimates that suitable projects could be completed in approximately four weeks, depending on approvals, site conditions, and production capacity. His business is currently expanding its factory manufacturing capabilities, with early interest already strong. A small advertising campaign generated more than 100 enquiries within days.

Salmon believes financing needs to change alongside construction. Conventional apartment developments require substantial upfront investment, with financing costs continuing to accumulate throughout construction. Factory-based production offers the potential for shorter construction periods, more predictable costs, and reduced financing exposure. For homeowners, secondary dwellings also provide a way to create additional housing without purchasing another block of land, whether for adult children, aging parents, or tenants. By reducing the cost and complexity of adding housing, Salmon believes more property owners could participate in increasing supply.

Factory-built housing is not without challenges. Transport restrictions, site access, and planning requirements can all affect where and how these homes are delivered. Salmon is exploring alternative delivery methods to reduce installation costs, alongside larger designs that connect multiple modules. His longer-term vision extends to entire communities of compact homes on smaller lots, potentially offering working families a more affordable alternative to conventional house-and-land packages.

For Salmon, the need for alternatives is more than a question of construction economics. He recently met a worker living in a tent with his wife and two children, while others he knows have been forced to make caravans their permanent homes. These encounters have brought the consequences of Australia's housing shortage into sharp focus. The country urgently needs more homes, but simply building more of the same may not be enough. Creating more accessible housing options will also require rethinking how homes are designed, manufactured, and financed.