This article is from the Australian Property Journal archive
The number of homes completed per hour worked is less than half of what it was 30 years ago, according to a new report from the Productivity Commission, as the construction industry suffers from chronic issues with planning red tape, a lack of innovation and workforce constraints which have fuelled the national housing crisis.
The new report, Housing construction productivity: Can we fix it?, also shows the gross value added per hour worked – a measure that controls for quality improvements and increases in the size of housing – has declined by 12%. In contrast, labour productivity in the broader economy has increased by 49% over the same period.
“To put this ‘productivity gap’ in perspective, had labour productivity in the broader economy moved in line with the housing construction sector, average incomes in Australia would be about 41% lower than they are now,” the report said.
Australia is facing a severe undersupply of housing, which has crunched the rental market and put a rocket under rents and house prices, and the affordability and attainability issues have put housing at centre stage of the national political debate leading into the federal election.
The Albanese government’s flagship housing policy, the National Housing Accord is aiming to deliver 1.2 million “well-located” homes over five years in a bid to pump supply into the market. However, Australia fell nearly 70,000 homes short of its yearly target in calendar 2024, official data shows, with all states and territories needing to play an intensive game of catch-up.
The Productivity Commission report showed productivity performance varies by housing type. Labour productivity in house construction has fallen by 25% since 2001-02, while labour productivity in higher-density housing construction – townhouses, units, and apartments – increased by 5% over the period.
The average time taken to complete new housing has increased significantly. In 2023-24, the average time to complete a single detached house was about 10.4 months, up from about 6.4 months a decade earlier. The average time taken to complete new townhouses rose from about 9.4 months to 12.9 months, and for new apartments, from about 18.5 months to 27.8 months.
Four key issues
The report focused on four key issues of poor performance: complex, slow approvals; lack of innovation; lack of scale; and workforce issues.
“Even after approvals are granted, delays can continue as projects seek construction certificates and wait for essential infrastructure connections. Because construction is highly sequential, delays and disruptions can create ‘cascading failures’, which push up costs,” the report said of planning red tape.
Only 35% of all construction firms are “innovation-active”, according to the report, and the sector has been slow to take advantage of digital technologies and new processes like prefabrication.
“Low levels of innovation arise because of fragmentation, industry culture, lack of direct benefits to firms from innovation and the ‘chilling effect’ of frequent regulatory changes.”
The report decried a lack of scale in the sector, noting that the combined market share of the largest four firms was just 12% in 2017, the lowest of any sector.
“To some degree this appears to be a function of the development and building process and in particular the tendency to manage projects via subcontracting arrangements. But jurisdictional differences, in the way building standards are implemented, and planning is undertaken and regulated, may also reduce the capacity and appetite for successful firms to scale up.”
Meanwhile, workforce issues have meant the sector struggles to attract and retain some skilled workers, the report said.
“Reasons for this include stagnating apprenticeship commencements and completions, restrictive and inflexible training pathways for trades, and competition for labour from public infrastructure projects in recent years (at least for the higher-density housing sector).
“Shortages directly impact housing supply but can also impact productivity through not having the right skill mix. A range of regulatory settings contribute to low labour mobility, including inconsistent occupational licensing accreditation requirements across jurisdictions and limited pathways for migrants to join the construction workforce.”
Recommendations included governments making the planning and approvals process for housing quicker and easier to navigate; changes to the National Construction Code which has imposed unnecessarily high costs and on building construction; governments proactively tackling barriers to innovation in the construction sector; and improving labour market flexibility.
Reform directions identified specified were coordinating housing development and construction approvals; effectiveness of building regulations; improving building quality; extension services for housing construction; R&D funding for housing construction; modern methods of construction; and improving workforce flexibility.
“Just like the housing crisis, there is no silver bullet to solving woeful productivity in the industry, and it requires a coordinated and comprehensive approach by all levels of government,” said Master Builders Australia CEO Denita Wawn.
Col Dutton, national president, UDIA, said, “The Productivity Commission’s recommendations to improve housing productivity and supply, align with UDIA’s evidence-based research and advocacy, which has consistently called for all levels of governments to reduce the regulatory burden, streamline and speed up approval processes, support innovation and improve workforce flexibility.”
