Decades of poor performance in the housing construction sector have restricted the supply of new homes and contributed to increasingly unaffordable housing, research from the Productivity Commission (PC) has revealed.
A new report, ‘Housing construction productivity: Can we fix it?’, details how productivity in the sector has fallen well behind the broader economy, and provides suggestions for governments to help make homebuilding more efficient.
The Commission’s new estimates of physical productivity in housing construction show that we are completing half as many homes per hour worked as we did in 1995.
A more comprehensive measure that notes quality improvements and increases in the size of housing has declined by 12 per cent.
In contrast, labour productivity in the broader economy has increased by 49 per cent 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 then average incomes in Australia would be about 41 per cent lower than they are now.
‘Too many Australians, particularly younger Australians, are struggling to afford a home in which to live,’ explains PC Chair Danielle Wood.
‘Governments are rightly focused on changing planning rules to boost the supply of new homes, but the speed and cost of new builds also matters”, Wood says, adding that ‘lifting the productivity of homebuilding will deliver more homes, regardless of what is happening with the workforce, interest rates or costs’.
A complicated and slow approval process, lack of innovation, a fragmented industry dominated by small players (the average residential building firm employs less than two people), and difficulties in attracting and retaining workers are all issues that have dragged on productivity, the report found.
According to PC Commissioner Julie Abramson, there is no single thing to blame for this poor productivity performance.
“But there are steps that governments could take to remove or ease regulatory bottlenecks and encourage innovation in an industry where the way we build homes has barely changed”, Abramson adds.
The report outlines seven reform directions, focused on four main areas.
- Governments should consider establishing coordination bodies to speed up the development and construction process and address delays.
- There should be an independent review of building regulations.
- Barriers to the development and uptake of new building techniques (such as modular housing) should be addressed.
- And finally, we need a national approach to occupational licensing to boost workforce mobility.
‘The sheer volume of regulation has a deadening effect on productivity”, Wood suggests.
“If governments are serious about getting more homes built, then they need to think harder about how their decisions unnecessarily restrict housing development and slow down the rate of new home building”, she concludes.