Why did Australia get so bad at building homes?

A recent report from the Productivity Commission has thrown the spotlight on an industry in crisis. Over the past few decades, the rate at which homes are built in Australia has fallen dramatically compared to 1995—a staggering drop of around 53% in overall productivity. When you take a closer look at the factors behind this decline, several persistent issues emerge that have hampered the industry’s ability to keep up with demand.

One of the biggest challenges is the sheer amount of red tape that builders have to navigate. Australia’s planning processes are often seen as overly complex, with multiple layers of regulation at both the federal and state levels. The lengthy approval processes for permits and planning applications mean that projects are delayed before a single brick is even laid. These delays add to the overall cost of construction and reduce the number of homes that can be delivered in a given time frame.

Another issue is the outdated construction model that is still prevalent in the industry. Many of the building methods and practices used today have barely changed in decades. While other parts of the world have embraced modern, efficient techniques and technologies, the Australian home building sector has been slow to innovate. This lack of modernisation is compounded by the fact that the industry is dominated by small-scale builders. Without the economies of scale or the resources to invest in new methods, these companies often struggle to adopt more efficient practices that could speed up construction and cut costs.

The consequences of these challenges are far-reaching. For home buyers, a sluggish construction industry means that the supply of new homes is not keeping pace with demand. This imbalance contributes to higher property prices and fuels the ongoing housing crisis. Investors and developers are also feeling the strain, as the high cost of building materials, combined with delays and labour shortages, makes it difficult to finish projects on time and within budget. The industry’s inability to rapidly deliver new housing has become a significant part of the broader challenge facing Australia’s property market.

Moreover, the problems in the construction sector are not isolated. They are part of a larger systemic issue that affects the entire housing supply chain. The high cost and slow pace of new home construction put additional pressure on the existing housing stock, which struggles to meet the needs of a growing population. With the government targeting the construction of 1.2 million new homes by 2029, reforms are urgently needed to boost productivity and modernise the sector.

Experts agree that addressing these issues will require a multi-pronged approach. First, streamlining regulatory processes is essential. Simplifying the planning and permit system could help cut through the red tape that currently delays projects and inflates costs. Second, there is a need for the industry to embrace modern construction techniques and technologies. This could include better use of prefabrication, modular construction, and other innovative methods that have been successful overseas.

Finally, investing in training and skills development is crucial to address the chronic labour shortage. Building a more robust pipeline of skilled workers will help ensure that projects are completed more quickly and efficiently.