The Australian housing construction sector is only building half as many homes relative to the number of hours worked compared with 30 years ago, according to a new Productivity Commission report that calls for faster planning approvals and fewer regulations.
The report, released on Monday, finds “decades of poor performance” and falling productivity in dwelling construction has contributed to the housing affordability crisis and the sector has fallen “well behind the broader economy”.
The commission estimates that, using a simple measure (the number of new homes built compared with the number of hours worked in the sector), housing productivity has dropped 53% since 1995. In simple terms, that means that for the same output, fewer than half as many houses are being completed.
A more comprehensive “value-added” measure, which factors in quality improvements and increases in housing size, still shows productivity declined by 12%.
If the broader economy (where productivity increased 49% over the same 30-year period) moved at the same pace as the construction sector, average wages would be 41% lower, the report found.
“Australian housing is increasingly unaffordable [and] decades of inadequate supply coupled with high demand has driven this outcome,” the report said.
The commission chair, Danielle Wood, said governments had been focused on changing planning rules to boost new home supply but addressing the speed and cost of building was also important.
“Too many Australians, particularly younger Australians, are struggling to afford a home in which to live,” Wood said. “Lifting the productivity of homebuilding will deliver more homes, regardless of what is happening with the workforce, interest rates or cost.”
The report found that four key areas had constrained housing productivity: complex and slow approvals; a lack of innovation in the construction sector; an industry dominated by smaller building firms; and difficulties attracting and retaining skilled workers.
Working through complex regulations and approvals processes can create “cascading failures” – delays and disruptions to different stages – that ultimately push up costs.
“The volume of planning regulations in some locales has increased markedly over past decades and can run into the thousands of pages,” the report says.
“Policymakers must balance the benefits of regulation – including neighbourhood amenity, reducing carbon emissions, building accessibility, build quality and safety, liveability and environmental protection – against the decrease in construction productivity and housing affordability that such regulations cause.
“Currently, policymakers do not get this balance right, and one of the consequences is poor construction productivity and less affordable housing.”
Julie Abramson, the productivity commissioner, said there was “no single thing to blame” for poor productivity in the housing sector but governments could ease regulatory bottlenecks and “encourage innovation in an industry where the way we build homes has barely changed”.
The commission found that the National Construction Code had overall been a positive development and “remains sound in principle” but “some aspects of the code and the way it is implemented, including its interaction with state and local government regulations, impose unnecessarily high costs and on building construction”.
The chief executive of Master Builders Australia, Denita Wawn, said the recommendations were “sensible” and welcomed the report.
“Every day we drag our heels on tackling the challenges faced in the industry, the longer we drag out the housing crisis,” Wawn said.
“Just like the housing crisis, there is no silver bullet to solving woeful productivity in the industry, and it requires a coordinated and comprehensive approach by all levels of government.”
