Australians are ready to opt for housing types outside the traditional "detached home on a large block" stereotype, according to the Grattan Institute, but the housing market is not supplying dwellings to meet their needs.

In a report released yesterday, entitled The housing we'd choose, the Grattan Institute found that once people took into "real-world" realities such as current housing costs and their income level, they would choose from a wider range of housing types than the traditional housing block.

However, cities program director at the Grattan Institute, Jane-Frances Kelly, said that "We're just not building the variety of housing that Australians say they want". She pointed in particular to shortages of semi-detached homes and apartments in the middle and outer areas of both Melbourne and Sydney.

"We should not be afraid to shape our cities: otherwise we risk them shaping us", Jane-Frances said. "But we should shape them in accordance with what Australians say they want, not just what we think they want."

The report argues there are barriers to delivering more of the housing people say they want. These include the cost of materials and labour for buildings over four storeys, land assembly and preparation, and the risk and uncertainty of our planning systems.

The Grattan Institute study examined the housing preferences of over 700 Sydney and Melbourne residents.