Over-regulation has contributed to a marked decrease in construction productivity to the point where half as many homes are being built compared to 30 years ago, says the Productivity Commission.
As the authors of a new report highlight: three tiers of government regulate where housing can be built, how it should be built and what it should look like.
“The sequential nature of housing construction means that regulatory issues and other interactions with government can create significant delays at key points of the construction process,” says the PC. “This is exacerbated by poor coordination between and across levels of government, and under-resourcing of key approvals agencies – including local governments.”
Pointing to the National Construction Code – which has grown to more than 2,000 pages since its implementation in 2011 – the government advisory body says: “The volume of planning regulations in some locales has increased markedly over past decades and can run into the thousands of pages … If governments are serious about boosting housing supply, they need to rethink how they make decisions that affect housing development and construction.”
Policymakers must balance the benefits of regulation against the marked decrease in construction productivity and housing affordability, says the PC. “Currently, policymakers do not get this balance right.”
The number of dwellings completed per hour worked by housing construction workers has declined by 53 per cent since 1995, the report finds.
When that figure is adjusted to account for the fact that houses are bigger and of a better quality nowadays, the PC finds productivity has declined by 12 per cent. In contrast, productivity across the broader economy has increased by 49 per cent over the same period. It is, say the report’s authors, “a story of decades of poor performance”.
Faster planning approvals and fewer regulations are needed to halt the backward trajectory, says the PC. If productivity isn’t significantly increased, governments are unlikely to meet the commitment to build 1.2 million new homes in five years.
Released on Monday, the report states that, in order to hit the housing target, 240,000 new homes need to be built in Australia each year. But as the report’s authors acknowledge, in the 12 months to June 2024, just 176,000 homes were built.
As well as over-regulation, the report finds a complex and slow approval process, a lack of innovation, and workforce issues have all contributed to sluggish productivity.
“Working through the often-extensive development and construction approval process can mean that the timeline for major housing development projects can stretch to ten or more years,” says the PC.
Innovation in the construction sector is low compared to other sectors and the industry “has been slow to take advantage of digital technologies and new processes like prefabrication”.
The sector also struggles to attract and retain some skilled workers, says the PC report. “Reasons for this include stagnating apprenticeship commencements and completions, restrictive and inflexible training pathways for trades, and competition for labour from public infrastructure projects in recent years.”
Among the reform measures the PC recommends to government to boost productivity:
- the establishment of coordination bodies to speed up the development and construction process and address delays
- an independent review of building regulations
- address barriers to the development and uptake of new building techniques
- the adoption of a national approach to occupational licensing to encourage workforce mobility.
Urban Taskforce Australia – a not-for-profit representing property developers and equity financiers – says the PC’s report confirms the negative impact government regulation has had on Australia’s housing supply.
“The paper makes particular note of the impact of over-regulation,” says CEO Tom Forrest. “Every new planning requirement increases the number and cost of consultant reports, the time taken by assessors and risk associated with property development. Every new construction code change or regulatory impost also adds to both time and cost. These flow on to the cost of construction and the price paid for new homes.”
Forrest says the PC accurately calls out “the weighty and ever-changing NCC that, for all its good intentions, results in unnecessarily high construction costs”.
The property development sector has regressed into protectionism, adds Forrest. “Protectionist regulatory systems foster productivity decline … The big question now is which political party is going to be willing to do something about it?”
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