Australia may be building 150,000 on average each year, including 180,000 over the next year, but these figures are not coming close to bridging the housing shortage, according to a new report.

The Australian Residential Development Outlook, from RP Data and the Residential Development Council, report shows a strong forecast over the 2014/2015 financial year with 180,000 dwellings expected – 30,000 up on previous forecasts.

Residential Development Council executive director Nick Proud said that 150,000 each year on average is not enough to even meet current demand, let alone reduce the shortage.

“These increased construction rates are expected to continue for the next 12 to 18 months – but the challenge is to keep up this level of activity to meet undersupply,” said Proud.

Meanwhile, RP Data national research director Tim Lawless said that residential development activity has been the “litmus test” for the economy. He said that strong dwelling starts and sales indicators are positive signs.

“Beyond current dwelling activity, we do see some of the inputs that include continued house price growth, demand for housing credit and lending finance that will feed into activity over the next 18 months,” he said.

“Factors such as rising unemployment rates and falling terms of trade could lead to a drop off in the number of new starts from 2016 and this would not only worsen housing affordability, but put greater pressure on state budgets around the country,” said Lawless.

Proud suggested removing policy roadblocks, such as planning system delays and stamp duty costs, would help maintain higher construction rates and improve affordability.

He said that state governments should be driving these policy changes.