Research from the Productivity Commission has revealed that decades of declining productivity in the housing construction sector have significantly restricted the supply of new homes, contributing to the ongoing affordability crisis.
Over the past 30 years, physical productivity in the sector has fallen by 53%, while labor productivity has dropped by 12%. In comparison, labor productivity in the broader economy has risen by 49% over the same period. This decline in productivity comes alongside a 40% increase in construction costs in the last five years, and residential build times have surged by 80% in the past 15 years.
Danielle Wood, the chair of the Productivity Commission, emphasized that while governments have been focused on changing planning regulations to increase housing supply, the speed and cost of construction are equally important. “Improving the productivity of home building will result in more homes, regardless of workforce, interest rates, or costs,” she said.
The report identifies several factors that have hindered productivity, including complex and slow approval processes, a lack of innovation, a fragmented industry dominated by small firms (with the average residential building company employing fewer than two people), and challenges in attracting and retaining workers.
The report makes a distinction between “physical productivity,” which measures how many homes are built per hour worked (without considering size or quality), and “labor productivity,” which takes into account the value, size, and quality of homes built. While fewer homes may be constructed per hour worked, those homes are generally larger and of better quality than those built 30 years ago.
Denita Wawn, Chief Executive of the Master Builders’ Association, said the report confirmed what the industry has long been advocating for: improving productivity is crucial to addressing the housing crisis. “Productivity is more than just a buzzword. If we don’t address the challenges in the sector, the housing crisis will only worsen,” she said. “There is no quick fix for low productivity; it requires a coordinated approach from all levels of government.”
The report highlights four key challenges to the sector: slow and complicated approvals, lack of innovation, limited scale, and workforce issues. It also outlines seven reform suggestions for governments to make the homebuilding process more efficient.
The report also sheds light on how government policies have impacted housing construction productivity, pointing out issues such as slow regulatory processes, inconsistency between different jurisdictions, and policies that have stifled innovation.
Mike Zorbas, Chief Executive of the Property Council, praised the report as the first comprehensive effort by the Productivity Commission to address the productivity challenges in housing construction. “This report is a call to action for better housing supply,” he said. “To overcome the housing crisis, we must ramp up new construction, and every possible action to speed up housing development is essential.”
The report advocates for reforms, including the establishment of coordination bodies to expedite the development and construction processes and the independent review of building regulations. Zorbas urged all levels of government and political parties to support these changes, asserting that embracing the Productivity Commission’s recommendations could eliminate Australia’s housing shortage.