Perth housing market productivity in question

The Decline in Productivity in Housing Construction: A Growing Concern

Over the past three decades, the residential construction sector in Australia has experienced a significant decline in productivity, which has severely impacted the supply of new homes and contributed to the rising unaffordability of housing. According to a report by the Productivity Commission, physical productivity in the housing construction industry has dropped by a staggering 53%, while labor productivity has fallen by 12%. This decline is particularly concerning when compared to the broader economy, where labor productivity has increased by 49% over the same period. The report highlights that this downward trend in productivity has been a major factor in the inability of the industry to meet the growing demand for housing, especially in cities like Perth, where the construction sector is struggling to keep up with the influx of new residents.

Rising Construction Costs and Build Times: Compounding the Problem

The challenges faced by the housing construction sector are further exacerbated by rising costs and longer build times. Over the past five years, construction costs have jumped by 40%, while residential build times have increased by 80% over the last 15 years. These increases have made it even more difficult for the industry to supply new homes at a rate that matches demand. The combination of declining productivity and rising costs has created a perfect storm that has driven up housing prices and deepened the affordability crisis. These factors have also made it harder for potential homebuyers, especially first-time buyers, to enter the market. The report emphasizes that addressing these issues is crucial to ensuring that the housing market remains accessible to all.

The Complexity of the Problem: Understanding the Root Causes

The Productivity Commission’s report identifies several key factors that have contributed to the decline in productivity in the housing construction sector. One of the primary issues is the complicated and slow approval process, which can delay projects and increase costs. Additionally, the industry has been slow to adopt new technologies and innovative building methods, which has hindered efficiency. The sector is also highly fragmented, with the majority of residential building firms employing fewer than two people on average. This fragmentation can make it difficult to implement industry-wide improvements and share best practices. Furthermore, attracting and retaining skilled workers has become a significant challenge, which has further strained the industry’s capacity to meet demand.

The Importance of Improving Productivity: A Path to More Homes

Despite the many challenges facing the housing construction sector, the report emphasizes that improving productivity is a critical step in addressing the housing affordability crisis. Commission chair Danielle Wood highlights that increasing the efficiency of homebuilding will result in more homes being built, regardless of other factors such as workforce size, interest rates, or construction costs. While governments have rightly focused on reforming planning rules to boost housing supply, the speed and cost of new builds are equally important. The report suggests that by addressing the underlying issues affecting productivity, the industry can build more homes without relying solely on increasing the workforce or investing in new technologies. This approach would help to ensure that the housing market can meet the needs of a growing population.

The Industry’s Call to Action: Recognizing the Urgency of the Problem

The findings of the Productivity Commission’s report align with what industry leaders have been advocating for years. Denita Wawn, chief executive of the Master Builders’ Association, echoes the report’s conclusions, stating that improving productivity is essential to building the homes Australia needs. She emphasizes that productivity is not just an economic buzzword but a critical factor in addressing the housing crisis. Wawn warns that every day spent without addressing the challenges facing the industry only prolongs the housing affordability problem. The report and industry leaders alike underscore the need for a concerted effort to tackle the root causes of declining productivity, including the slow adoption of innovation, the fragmented nature of the industry, and the difficulties in attracting and retaining skilled workers.

The Way Forward: Addressing the Challenges and Building a More Efficient Industry

To address the productivity crisis in the housing construction sector, governments and industry stakeholders must work together to implement meaningful reforms. Streamlining the approval process, encouraging the adoption of new technologies, and supporting workforce development are all critical steps in improving efficiency. Additionally, efforts to consolidate the fragmented industry and share best practices could help to drive innovation and reduce costs. The report and industry leaders agree that improving productivity is not a quick fix but a long-term strategy that requires sustained effort and collaboration. By prioritizing productivity, the housing construction sector can build more homes, faster and at a lower cost, helping to address the housing affordability crisis and ensure that all Australians have access to safe and affordable housing.