You have all got it wrong.
The housing unaffordability started with the government ordering the financial
institutions to lend on two incomes.
When you put twice as much money into any market prices rise to take
up the available money.
Any first year commodities trader could have told them that.
So you borrow on two incomes, surprise surprise, you need two incomes
to pay the mortgage.
No wonder women are having their babies in their 40s !

As far as masses making for the cities, don't worry that won't go on much lomger.
In fact it will start up in the other direction as peak oil starts to
kick in. There is simply not enough energy to produce the necessities
for six plus billion. There is a serious risk that there is not
enough energy to produce food for 6 + billion.

Look into energy transition and see what hopes there are for the
poorest countries to reach the western standard of living.
Our problem will be how far down we will have to go before
stabilisation occurs.

VK3AUU, urban development takes up about 0.2% of Australia, so there's not too much danger of running out of land.
Billie, Australia has the cheapest domestic construction costs in the western world, and in the non-residential and multi-unit sectors it can cost anywhere from two to five times more per square metre to build than domestic residential construction (partly because of IR issues).
The fact that rich people can be successfully accommodated in apartments whereas poor people can't is common to all of the Anglo societies. Also see Bill Randolph's paper on the specific problems of poor kids in flats: http://www.aracy.org.au/AM/Common/pdf/2006_ChildFriendlyCities/2006301006%20Children%20in%20the%20Compact%20City.pdf

VK3AUU, you might be pleased to know that the latest stats on average house size show a slight reduction (after decades of continued growth in the average size of new homes); this repeats the US experience where the 'small home' movement has taken off (to the extent of being given a name).

Sydney is not a single property market and different parts are moving in different directions. House prices in outer-Western Sydney are still dropping (partly due to interest rate rises, but partly also because the boom/slump cycle occurred later there than the inner suburbs), while prices in many inner-ring suburbs are now going up. Rents are increasing, but still only represent 2%-3% gross annual return and would have to double before they represented a decent return on investment. Most investors presume this low return will be offset by capital gains. Unfortunately an oversupply of flats in many areas has lead to falling prices. Changes to superannuation rules mean that many investors are selling investment property, further reducing prices.

The council area I live in has about 10,000 dwellings. Current state government plans slate us for 8,000 extra dwellings by 2030. There is no industrial land to rezone and the area is already the third-worst council in Sydney for park area per capita. Traffic is already at a standstill in peak hour and trains are getting near capacity. I simply cannot comprehend what virtually doubling population will mean to quality of life.

Mind you, having seen the North-East and South-East release areas, I can tell you they are some of the most productive farmlands in the country. Greenhouses, hydroponics and intensive agriculture close to Sydney markets mean they are energy and water efficient. To plough them under for housing seems absolutely criminal to me.

I wish the answer was as simple as "freeing up the land supply". One reason blocks in release areas are so expensive are the developer levies. The levies pay for infrastructure (roads, power, water, public facilities, parks etc) required by the new development. Land releases in the 1950s were cheap, partly because no services were provided. People moved into raw new areas and waited 10 years for a sealed road or 20-30 years for sewage. I suspect that approach wouldn't work now....

Whilever we have high immigration rates Sydney will continue to groan at the seams. Housing affordability will go down, as will quality of life.

Alan Moran of the Institute of Public Affairs, said that “building costs have been stable”. But where does Alan Moran gets his information because it is obviously at odds with industry reports on increased building costs?

We have built properties on a number of occasions over the past 20 years and it only takes a brief look at Rawlinson's Construction Cost guide to see that the cost of materials in particular has risen mush faster than inflation over the period. Likewise the cost of skilled labour has escalated. The estimates for an approved plan for a site rose by more than 20% over months.

Maybe Mr Moran is talking about the cheapest units (future slums) and three bedroom 'starters' in new subdivisions where quality and materials are constantly being trimmed. The tradework is disgraceful, with thousands of complaints to building standards authorities every year.

As a person having buildings built I can attest to the ramping up of local, state and federal taxes that have directly and indirectly accelerated the cost of residential housing. If anyone doubts this, have a quick look at the windfalls to councils from increased development application fees.

There is also the contribution of government taxes to the high costs of owning and maintaining a house.

Property owners are convenient milch cows for extra tax revenue. The very sly method of splitting up some taxes into composites ensures that government can continually ramp up charges without being called to account for it. Splitting rates bills into various water, storm water, sewage, fire levy and other components which can be raised individually is an example.

My final point is that so often the people who moan about about housing costs are the very people who are demanding more and more government services that have to be supported through extra taxes. The link between (say) lobbying for 'traffic calming' concrete islands costing hundreds of thousands of dollars and increased government charges for housing development might not be so evident to some whingers, but it is there.

OC617 are you with the housing industry?

Its too simplistic to say that urban development takes up 0.2% of Australia's land. Not all of Australia's land is suitable for urban human habitation. Do you want to live at Lake Eyre, The Simpson Desert, hell you probably don't want to live inland of the Great Dividing Range.
Unfortunately the most fertile well watered land is under competition for urban development.
The proposed Anvil Hill coal mine has such a large allocation of Hunter River water that market gardens and communities downstream at Maitland and Newcastle are under threat. If the mine accidently releases its noxious wastes back into the Hunter River then about 1 million people will be poisoned.