Decades of falling productivity in housing construction have restricted the supply of new homes and contributed to increasingly unaffordable housing, research from the Productivity Commission (PC) reveals.
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 seven reform directions for governments to help make homebuilding more efficient.
The PC’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 controls for quality improvements and increases in the size of housing (gross value added per hour worked, or labour productivity) 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,’ said 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. Lifting the productivity of homebuilding will deliver more homes, regardless of what is happening with the workforce, interest rates or costs,’ said Ms Wood.
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 finds.
‘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,’ said PC Commissioner Julie Abramson.
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. 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,’ said Ms Wood.
Property Council Chief Executive Mike Zorbas said this is the first time the Productivity Commission has taken the time to fully address the productivity of creating Australian cities.
“The report reads like a love letter to better housing supply,” Mr Zorbas said.
“The recommended boosts to coordination and governance of new projects, including commercial property and other city assets, are urgently needed.
“Development coordination bodies, better skills recognition, improved innovation pathways and an arm’s length review of building regulation are all worthy recommendations.
“Australia has a good national construction code. Can it be better? You bet. Better resourcing for the Australian Building Codes Board to do its work and end patchwork adoption by states must be top of the review priorities.
“States are starting to improve project timelines but much more needs to be done to coordinate more efficient planning outcomes for residential and commercial projects that benefit our cities.
“We must build our way out of the housing crisis, and every lever we can pull to boost the construction of new housing is essential.
“All sides of politics and all levels of government need to get on board for these reforms.
“The sooner we embrace the Productivity Commission’s solutions the sooner we can eliminate Australia’s housing deficit,” he said.