Australia’s housing market is under increasing pressure from population growth, planning reforms, and the need for more diverse dwelling types. While demand is clear, the financing market has not kept pace creating what is often called the “missing middle.”
What is the missing middle?
The missing middle refers to small-to-mid-sized property developments that sit between the individual investor and the large-scale institutional project. Examples include:
- Duplexes and townhouses
- Childcare and community facilities
- Light industrial units and small commercial projects
These developments are essential for creating housing choice and supporting Australia’s growing cities. However, they are often underserved by traditional banks, which focus on either very large institutional projects or avoid real estate development finance altogether due to regulatory capital constraints.
Why the gap exists
Bank retreat: Post-GFC regulation has made smaller development loans less attractive for banks to underwrite.
Scale mismatch: Large institutions prefer bigger projects that can absorb transaction costs and deliver scale.
Complexity perception: Despite being lower in absolute risk, smaller projects are often perceived as less efficient to finance.
Why it matters
The funding gap creates an opportunity for specialist lenders who can focus on:
Simplicity: Smaller projects tend to be less complex, shorter in duration, and easier to manage.
Diversification: Financing multiple mid-sized projects spreads risk across sectors and locations.
Social impact: Many missing middle projects deliver affordable housing or community assets aligned with urban planning goals.
The broader picture
For global investors, Australia represents a relatively nascent but attractive non-bank lending market. Compared with more mature markets such as the US or Europe, Australian real estate credit offers:
- Strong creditor rights
- Transparent legal frameworks
- Market inefficiencies that can support superior risk-adjusted outcomes
As Australia continues to grow and urbanise, bridging the missing middle will be essential to delivering the homes and infrastructure communities need.
