Decades of falling productivity in new home building have held back new housing supply and are contributing to current housing affordability challenges, a report by the Australian Government's independent research and advisory body on social, economic and environmental issues says.

Released by the Productivity Commission last night, the report details how productivity in new home construction has fallen behind over the past thirty years.

In its new productivity estimate, the Commission says that the nation is completing only half as many homes per hour as it did thirty years ago in 1995.

The Commission’s analysis also includes 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).

According to this measure, housing construction productivity has declined by 12 percent over the past 30 years.

In contrast, labour productivity in the broader economy has increased by 49% over the same period.

Productivity Commission Chair Danielle Wood said the importance of improving productivity should not be underestimated.

“Too many Australians, particularly younger Australians, are struggling to afford a home in which to live,” Wood said.

“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.”

(image source: Housing construction productivity: Can we fix it? Productivity Commission, Feb 2025)

According to the report, the poor productivity performance is being driven by several factors.

These include complicated and slow approval process, a lack of innovation, a fragmented industry dominated by small players (the average residential building firm employs less than two people) and challenges in attracting and retaining workers.

It calls for seven actions across four main areas.

These include:

• consideration by governments of establishing coordination bodies to speed up the development and construction process and to address delays
• an independent review of building regulations
• addressing barriers to the development and uptake of new building techniques (such as modular housing); and
• a national approach to occupational licensing to boost workforce mobility.

Wood says that action is needed.

“The sheer volume of regulation has a deadening effect on productivity,” she said.

“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.”

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