Australia building half as many homes for every hour worked compared with 30 years ago, Productivity Commission finds

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The Australian housing construction industry is only building half the number of homes in relation to the number of working hours compared to 30 years ago, as stated in a new report from the Productivity Commission, which suggests that faster planning approvals and fewer regulations are needed.

The industry has "dropped well behind the rest of the economy".

The commission reckons using a straightforward measure (the number of new homes built compared to the number of hours worked in the industry), housing productivity has taken a 53% dive since 1995. In plain English, that means for the same output, less than half as many houses are being finished.

A more thorough "value-added" measure, which takes into account improvements in quality and bigger homes, still shows productivity fell by 12%.

If the overall economy (where productivity increased by 49% over the same 30-year period) moved at the same rate as the construction sector, average wages would be 41% lower, the report discovered.

“Housing in Australia has become increasingly unaffordable, and a long-standing shortage of homes combined with strong demand has led to this situation,” the report stated.

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The chair of the commission, Danielle Wood, said governments have been focused on changing planning rules to increase new home supply, but also need to address the speed and cost of building.

“Too many Aussies, especially younger Aussies, are having a hard time affording a place to live,” Wood said. “Boosting the productivity of house building will get more homes built, no matter what's happening with the workforce, interest rates or costs.”

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The report discovered that four main areas were holding back housing productivity: complex and lengthy approval processes; a lack of innovation in the construction industry; a sector dominated by smaller building companies; and challenges in attracting and retaining skilled workers.

Working through complicated regulations and getting the necessary approvals can create "cascading failures" – delays and disruptions to various stages – that ultimately increase costs.

"The volume of planning regulations in some areas has gone up significantly over the past few decades and can now run into thousands of pages," the report states.

“Policy-makers must weigh up the advantages of regulation – like neighbourhood character, cutting back on carbon emissions, making homes more accessible, building standards and safety, and a good quality of life, against the negative impacts on construction productivity and the affordability of housing that these regulations can have.”

“At the moment, policymakers are getting this balance wrong, and one of the outcomes is low construction productivity and housing that's becoming increasingly unaffordable.”

Julie Abramson, the Productivity Commissioner, said there was "no one thing to be held responsible" for poor productivity in the housing sector, but governments could simplify regulatory hurdles and "encourage innovation in an industry where the way we build homes hasn't changed much for years".

The code had been a positive development overall and "remains sound in principle" but "some aspects of the code and the way it's implemented, including its interaction with state and local government regulations, impose unnecessarily high costs on building construction".

The CEO of Master Builders Australia, Denita Wawn, said the suggestions were "sensible" and welcomed the report.

“Every day we put off dealing with the challenges we're facing in the industry, the longer we delay, the bigger the housing crisis becomes,” Wawn said.

“There’s no magic solution to fixing the productivity crisis in the industry, and it'll take a joint effort from governments at all levels to get it right.”