Housing productivity decline impacting affordability

In its new ‘Housing Construction Productivity: Can We Fix It?’ report, the Productivity Commission has discovered that decades of declining productivity in housing construction have significantly contributed to Australia’s housing affordability challenges.

The report highlights that productivity in housing construction has dropped far behind the broader economy. It reveals that the sector is now completing half as many homes per hour worked as it did in 1995.

The broader measure of labour productivity, which accounts for quality improvements and larger housing sizes, has dropped by 12% over the same period, according to the Productivity Commission. In contrast, labour productivity in the wider economy has grown by 49%.

“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% lower than they are now.

“Too many Australians, particularly younger Australians, are struggling to afford a home in which to live.”

Danielle Wood, Chair, Productivity Commission

The Productivity Commission report identifies several factors contributing to the productivity decline, including complex and slow approval processes, lack of innovation, the fragmented nature of the industry – dominated by small firms averaging fewer than two employees – and challenges in attracting and retaining workers.

“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.”

Julie Abramson, Commissioner, Productivity Commission

The Productivity Commission outlined seven key reform directions aimed at boosting productivity in housing construction:

• Establishing coordination bodies to streamline development and construction processes.
• Conducting an independent review of building regulations to identify inefficiencies.
• Removing barriers to adopting innovative building techniques, such as modular housing.
• Implementing a national approach to occupational licensing to enhance 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.”

Danielle Wood, Chair, Productivity Commission

The report highlights that boosting productivity in housing construction could help meet demand for new homes, reducing costs for both builders and renters, while improving the speed of delivery.

It also underscores the urgent need for Governments to focus on modernising the industry and removing barriers to growth.