The Illawarra could face a housing crisis within five years unless thousands of new homes are built to keep up with population growth.
A new report says the Illawarra will need a minimum 931 new dwellings each year until 2014 to house its forecast population.
Figures for the past year show less than 600 new homes were approved, well below what is required.
The report, titled Australia On The Move, forecasts the population of the Wollongong statistical district (Wollongong, Shellharbour and Kiama LGAs) will grow by 12 per cent to 317,822 by 2027.
Such an increase would place extreme pressure on councils to approve new land releases in an area hemmed in by the escarpment and the ocean.
A failure to provide enough new housing would cause rents and real estate prices to soar further.
According to the report, the Illawarra is an urban area where housing is already unaffordable to purchase, creating a "supply/demand mismatch".
The report, commissioned by the Residential Development Council and compiled by Matusik Property Insights, found the Illawarra property market needed to build 381 houses and 550 attached dwellings (apartments, flats or townhouses) each year until 2014 or the housing needs of newcomers to the area would not be met.
The latest Illawarra Real Estate Report compiled by IRIS Research indicates the region will fall well short of the forecast 931 dwellings required this year, with dwelling approvals at record lows.
IRIS research manager Natalie Viselli said in the year to March 2009, just 590 dwellings were approved across the region.
"However in the five years prior to that the region was averaging 1400 dwelling approvals each year," she said.
"We do have to be mindful these are approval figures and not every building approved is constructed, but perhaps one issue we might be facing in the Illawarra is the type of dwellings that were being approved and built do not necessarily align with the demand."
The lack of affordable housing has also led to a tight rental market, particularly in southern suburbs.
IRIS found in the 12 months to March 2009 the median rent for a house in the Albion Park area soared by 26.9 per cent to $330.
The population forecasts of the Residential Development Council report are in line with the Illawarra Regional Strategy released by the NSW Government in 2007 and designed to guide the development of the region over the next 25 years, although the strategy forecasts a 50-50 mix of detached and medium-to-high density housing.
The West Dapto area was expected to yield 19,350 new dwellings by 2031, but the slow release of West Dapto land and lack of infrastructure has led to a push for early release of the Calderwood area.
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