Sarah Hunter, who is also an assistant governor at the nation's central bank, said lethargic home building at a time when fewer people are living together and the population is growing faster, was keeping upward pressure on rents and home prices.
There were early indications that imbalances in the market were righting themselves, with the central bank's liaison program picking up reports of developers responding to strong demand by building more homes.
Reserve Bank of Australia Chief Economist and Assistant Governor (Economic) Sarah Hunter. (Bianca De Marchi/AAP PHOTOS)
Yet Dr Hunter said new supply would still take time to materialise "given the current level of new dwelling approvals and the information from liaison that many projects are still not viable".
"It will not be a quick fix," she told the audience at the Real Estate Institute of Australia 100 Centennial Congress event in Hobart.
The challenges facing the housing market remain a hot-button political issue and is an expected topic to be covered by Opposition Leader Peter Dutton when he gives his federal budget reply speech on Thursday night.
Shadow treasurer Angus Taylor told reporters on Thursday that population growth was not aligned with housing supply, and that was putting pressure on renters and those trying to buy a home.
In her speech, Dr Hunter said the reopening of borders after the pandemic had driven a rebound in net overseas migration and strong population growth.
"A growing population clearly implies that underlying demand for housing is rising over time - all of these extra people need a place to live," she said.
Yet the number of people living in each dwelling was also trending lower, which Dr Hunter said was making "no small difference" to demand for housing.
While the average number of people living in each household shifted from around 2.8 in the mid-1980s to around 2.5 of late - a seemingly small change - a return to the trends of the eighties, for whatever reason, would mean 1.2 million fewer homes would be needed, the RBA official explained.
Demographic shifts like an ageing population and adult children living at home for longer were tugging this trend in either direction, but the shift to working from home since the pandemic suggests "recent falls in the average number of people per home will be at least partially permanent".
Prime Minister Anthony Albanese said the federal and state governments were taking steps to address pressures in the housing market.
But he said it was taking time to turn the situation around after "10 years of neglect from Commonwealth governments".
"The truth is it won't happen overnight, because you can't build a house or a block of units overnight," he told ABC radio in Melbourne.
Meanwhile, Australia will get an update on the state of the labour market on Thursday when April jobs numbers are released by the Australian Bureau of Statistics.
