Housing construction productivity is in decline: what will it take to fix it?
A new research paper released by the Australian Productivity Commission has found that productivity in Australia’s housing construction sector has declined, in contrast to strong productivity growth in the broader economy. With housing supply in the spotlight and construction rates falling behind the National Housing Accord targets, this is not welcome news. While poor construction productivity is an issue experienced among advanced economies globally, Australia’s construction productivity lags behind the broader economy. Over the last 30 years the number of dwellings completed per hour worked has declined by 53%, labour productivity (gross value added per hour worked) has declined by 12%, while productivity in the broader economy has grown by 49%.
Source: Australian Productivity Commission, Housing Construction Productivity Research Paper
The paper found that there are several key factors contributing to poor productivity:
Regulatory Burden: Complex, slow approval processes and inconsistent building regulations across jurisdictions.
Fragmentation of the Industry: A high number of small firms and subcontracting practices limit efficiency and economies of scale.
Low Levels of Innovation: Limited adoption of digital technologies, prefabrication, and modern construction methods.
Workforce Issues: Labour shortages, skills mismatches, and restrictive occupational licensing reduce workforce flexibility.
In response to these findings, the paper also outlines potential policy reforms to improve efficiency and affordability in housing construction:
Improve Regulatory Systems: Streamline and coordinate planning and construction approval processes, and ensure regulatory bodies are well-resourced to prevent delays.
Enhance Innovation and Technology Adoption: Remove barriers to modern construction techniques (e.g., prefabrication, modular housing), and support funding for R&D to drive innovation in construction.
Improve Workforce Flexibility: Standardise occupational licensing across states, and address migration barriers to attract skilled workers.
Conduct an Independent Review of Building Regulations: Evaluate the National Construction Code (NCC) for cost-effectiveness and consistency across states, and ensure regulatory updates do not disproportionately increase construction costs.
Boosting Housing Supply: Policy focus should shift from just planning reforms to improving construction speed and cost-efficiency, so that affordability and supply can be prioritised.
While there is no quick fix solution to the housing crisis facing Australia, housing construction productivity is crucial for addressing the imbalance between supply and demand. A combination of regulatory reform, industry innovation, and workforce improvements are necessary to enhance efficiency, reduce costs, and increase housing supply.
You can access the paper here: https://www.pc.gov.au/research/completed/housing-construction
