Housing construction productivity: Can we fix it?
Research paper
Released 16 / 02 / 2025
This paper examines productivity growth in the housing construction sector, with the Commission’s estimates telling a story of decades of poor performance.
It provides policy directions for improving construction productivity by reducing regulatory burden, streamlining and speeding up approval processes, supporting innovation and improving workforce flexibility to help turn the dial on this persistent policy challenge.
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Transcript
We know that housing affordability is a big concern for many Australians and productivity in the building sector makes a difference to how quickly and cheaply we can add to the supply of houses and apartments. That's why we decided to identify practical things that governments can do to improve housing construction productivity.
But first the bad news... Dwelling construction productivity has been in the doldrums for at least 30 years. That means we get about half as much house per hour work and we did three decades ago even after we adjust for the fact that our houses are bigger and better quality, construction productivity is 12% lower now.
Many other countries share Australia's housing productivity woes. So why is productivity in housing construction going backwards?
Housing construction is complicated and there are a range of barriers to greater efficiency including complex and slow approvals, lack of innovation, the small scale of most construction companies and workforce issues, including the ability to attract and retain some types of workers. One factor uniting these issues is regulation, including the lack of coordination between local, state and territory and national governments.
So can we fix it? From our research we identified four priorities for governments.
First, developing more streamlined and better coordinated planning approvals and making sure that those that have to make the decisions including local councils have enough resources to do so.
Second, undertaking an independent review of building regulations with a focus on the National Construction Code. The code has never been comprehensively reviewed and aspects of its operation are likely making the cost of building higher than it should be.
Third, improving workforce mobility and flexibility through national consistency and occupational licensing.
And fourth, removing impediments to innovation and investing in it, including through encouraging new building techniques, such as modular building.
Done Right these reforms can help Australian governments meet their commitment to build 1.2 million homes over 5 years.
Read the full report on our website pc.gov.au
Media release
Reversing 30 years of poor productivity growth can help fix housing affordability
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%.
In contrast, labour productivity in the broader economy has increased by 49% 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% 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.
Media requests
Media team – 02 6240 3330 / media@pc.gov.au
Contents
- Preliminaries: Cover, Copyright and publication detail, Contents, and Acknowledgments
- Executive summary
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1. Australia’s housing challenge
- 1.1 Housing supply in Australia
- 1.2 The role of productivity
- 1.3 The role of this report
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2. Productivity in Australian housing construction
- 2.1 The nuts and bolts of housing productivity
- 2.2 Dwelling construction productivity is falling
- 2.3 Measurement error cannot explain persistently low productivity growth
- 2.4 Lacklustre construction productivity is an international issue
- 2.5 Construction productivity has not always been sluggish
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3. Why is productivity poor?
- 3.1 Construction is complex and subject to ‘cascading failures’
- 3.2 The construction sector is fragmented
- 3.3 Low levels of innovation
- 3.4 High regulatory burden
- 3.5 Workforce and employment issues
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4. How to improve housing construction productivity
- 4.1 Improve the regulatory system that governs housing
- 4.2 Promote innovation
- 4.3 Improve workforce flexibility and supply
- Appendices
- A. Public consultations
- B. Measuring dwelling construction productivity
- C. ABS quality adjustments in residential construction
- D. International comparisons
- References
Consultation
Printed copies
Printed copies of this report can be purchased from Canprint Communications.
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