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Australia's housing crisis is set to worsen in the coming years, as the government's target to build 1.2 million new homes by 2029 is too ambitious, a report by the National Housing Supply and Affordability Council has warned.

The council chair, Susan Lloyd-Hurwitz, described Australia's housing market as not healthy, while adding the government's housing project will encounter a "significant shortfall in supply," ABC News reported.

"So currently we are looking at a shortfall of new demand versus new supply, a shortfall of 40,000 over that period ... Of course that does not go to address the undersupply that's already in the system," Lloyd-Hurwitz said.

In its report, the council said the Labor government will be able to build just about 943,000 homes in that time, The Guardian reported.

A National Housing Accord with federal, state and territory governments had set an initial target of one million new, well‑located homes over five years from mid‑2024. In August 2023, the National Cabinet had agreed to update this target to 1.2 million homes.

The council's State of the Housing Market Report attributes factors like lagging construction times, unaffordable mortgages and rents, and a rising population and demand as contributing to a "shortfall in supply."

According to Lloyd-Hurwitz, Australia is staring at "a longstanding crisis, fundamentally driven by the failure to deliver enough housing of all types – from social housing through to market home ownership."

The report, however, was hopeful of the recent planning reforms by the states aimed at removing the supply impediments, which would ease the situation.

While Housing Minister Julie Collins stated the government was aware of the problem and would use the opportunity to alter the housing system, Treasurer Jim Chalmer said the Labor government has already committed more than AU$25bn in new housing initiatives over the next decade, ABC News reported.

The government set up the AU$10 billion Housing Australia Future Fund in November 2023 to provide a sustainable funding source to increase the supply of social and affordable housing.