Residents who don’t want further development within their communities are driving up house prices and rents for others.

Grattan Institute economic policy director Brendan Coates says the opposition to high-density development means many younger Australians are shut out of the market.

Coates says federal and state governments need to make tough decisions on housing policy to improve affordability.

“Either people accept greater density in their suburb or their children will not be able to buy a home, and seniors will not be able to downsize in the suburb where they live,” he says.

“This is a problem we can fix, but only if we make the right choices.”

Coates says an increase in medium or high-density development will meet demand for more affordable housing.

“It is a myth that all new first-home buyers want a quarter-acre block,” he says. “Many would prefer a townhouse, semi-detached dwelling or apartment in an inner or middle suburb, rather than a house on the city fringe.”