At last week’s AFR Business Summit, Property Council Chief Executive Mike Zorbas emphasised the need for bipartisan support to enhance productivity on Australia’s commercial and residential construction sites.
Alongside the panel of Danielle Wood, Chair, Productivity Commission, Jacqueline Chow, Non-Executive Director, Charter Hall, Michael Vacy-Lyle, Group Executive, Business Banking, Commonwealth Bank of Australia and moderator Jessica Gardner Deputy Editor – News at the AFR, he emphasised reform of planning systems and taxation and found agreement with the head of the productivity commission on tax reform priorities.
“What state governments want, and what I think we as communities want, is greater density in our cities,” he said.
“And we want to have more infill. What we need to do that is to build far more apartments around transport.
“We used to do well in excess of 100,000 at our peak in 2017, 2018. We’re now managing around about 50,000 a year. And that is just not enough.”
Mr Zorbas said difficult industrial relation environments are dragging on productivity in the construction sector for commercial and residential projects.
“In places like Queensland, you are paying for five days work a week, and you are getting three. That is an extraordinary handbrake on the productivity of the production of new homes,” he said.
“The difficult conversation we need to have as a nation is we’ve got to find a way to reform what is a critical element in the delivery of higher density, and that is our relationship with unions.
“Dealing with that quite challenging public conversation is something that I would like to see bipartisan support on.
“Whoever wins the next election, there’s actually got to be something in the middle that says this has gone too far – enough.
“We’re going to have a genuine bipartisan attempt to make sure that we have safe, inclusive work sites across the country, just as we demand in white collar workforces everywhere.”
Mr Zorbas also highlighted the complexity of coordination among the three levels of government and service agencies, such as water and sewerage, as a hindrance to productivity.
“If you think about a master plan community on the edges of our city, there’s probably 20 gateways that the developer has to go through,” he said.
“Of course, that is often very necessary regulation around design and quality control and so forth.
“But there is no question when taking end to end, that those processes have become hideously complicated and lead directly to lessening supply and lack of affordability in a lot of cases.
“Quite often there are breakdowns in those 20 odd gateways where there is no clock on the regulatory or the third-party input to those processes.”
Danielle Wood, Chair of the Productivity Commission also said that increasingly regulatory complexity is slowing down productivity in the sector.
“Construction is the only sector of the economy where productivity has gone backwards over an extended period of time,” she said.
“What we found is that it’s a combination of factors.
“It is the increasing regulatory complexity. It has just become more complex and more slow to build than it used to be.
“When you layer that with lack of innovation in the sector. There are some promising developments, things like prefab, but again, regulation has been a barrier to uptake of some of those new methods.
“Third, the kind of workforce issues which goes to IR but it also goes to the broader challenge the industry faces in attracting and retaining skilled trades.”
Mr Zorbas said that discussions on housing affordability should also account for costs beyond just construction, such as federal and state taxes.
“When we have this debate as a country, we talk about the end cost to the customer. We have got to keep in mind 3 in every 10 dollars is going to government, it is not actually an embedded cost.”
In answer to a question from the floor, Mr Zorbas said that changes to negative gearing would not create more housing supply which we need to reach out 1.2 million new homes target.
“When we modelled this we couldn’t see an increase to housing supply. And that is the criteria for us,” he said.
“How is this going to add to getting to the 1.2 million homes by 2029 which is an admirable target which we completely support. And it would be a shame, by the way, if that target fell by the wayside.
“Right now, at a time of high input costs and rising construction costs I’m just not convinced in any way shape or form we should be tampering with those settings.”
Ms Wood said those tax changes which are on the demand side don’t have much of an impact on affordability overall.
“When we modelled this previously in my work at Grattan [The Grattan Institute], we found that the impact on price overall was about one to two per cent so pretty small in the scheme of things,” she said.
“My view is, if we’re going to look at tax reform, we should be doing that as part of a kind of broader packages on the income tax side.
“I wouldn’t be kind of pulling it as a silver bullet on housing affordability, because I don’t think it is that.”
You can watch the full panel session from the Financial Review’s Business Summit here.