Hidebound builders, outdated regulations exacerbate housing shortage

National efforts to boost the housing supply are being held back by outdated building practices and regulations, Assistant Minister for Competition Andrew Leigh has said.

As the federal government faces intense scrutiny over the effectiveness of its actions to alleviate the nation’s shortage of affordable housing, Dr Leigh has taken a swipe at the home building industry and states and territories over inefficient practices he says are hampering the construction of new dwellings.

In a speech to the Committee for the Economic Development of Australia in Perth, the assistant minister said Productivity Commission analysis showed the number of homes being completed per hour worked had plummeted by 53 per cent in the past 30 years.

“Much of construction remains organised around a building site where materials and workers arrive in sequence, exposed to weather and repeated setup costs,” Dr Leigh said.

Modern methods that involve making components or whole rooms in a factory and assembling them into a home on-site are far more efficient, potentially halving construction time and cutting costs by 20 per cent, the assistant minister said.

“Factory production can reduce weather delays and improve quality. Faster construction cuts financing costs and gets families into homes sooner,” he said, but lamented that less than one in 20 homes were being built using these techniques.

Outdated state and territory regulations compounded the problem because they were largely written for conventionally-built homes.

For example, the assistant minister said, a prefabricated bathroom might be assembled and inspected in the factory but may need to be taken apart after installation because of the onsite inspection requirements.

“Jurisdictional differences make things even worse. A producer serving several states may need to assemble different evidence for the same module. Production runs shrink and design changes multiply. The factory begins to inherit the inefficiencies it was designed to solve,” Dr Leigh said.

“Given the potential for the technology to drive down costs and drive up quality, I reckon we can do better,” he said.

Figures show the nation is struggling to lift the pace at which new homes are built.

The number of private detached dwellings homes approved for construction fell in July to 10,199, including just 1688 in WA. Aside from a surge during 2021, approvals have been largely stuck around the 10,000 a month level since 2014, during which time the resident population has jumped by 4.5 million. 

Independent economist Saul Eslake said the assistant minister’s criticisms were justified, describing the performance of the housing construction sector as “pretty abysmal”.

“Detached housing construction in Australia is a cottage industry [that] has been resistant to change,” Mr Eslake said.

“It is dominated by small businesses who typically rely on subcontractors rather than employees. They don't train their workers. They don't innovate. They want to do things the same way that their grandfather, who established the firm, did 60 years ago.”

Mr Eslake housing in the US was much cheaper than in Australia in part because of modular construction.

Master Builders Australia chief executive officer Denita Wawn endorsed the minister’s call for improvements in the way homes are built.

“Australia needs to build smarter, faster and in an innovative way in the years to come,” Ms Wawn said.

But the industry head said improving construction methods was only one component to solving the nation’s housing shortage.

“It is not a substitute for the other structural barriers to housing supply being removed, to encourage investment, improve efficiency, cut unnecessary red tape and grow the construction workforce while delivering enabling infrastructure.”

Dr Leigh made his remarks about housing construction as part of a broader speech on the economic benefits to be gained from building a seamless national economy.

For example, the assistant minister said all states and territories had recently signed up to an automated approvals system which will slash the volume of paperwork for interstate truck operators.

The system matches a vehicle’s characteristics with pre-approved road and bridge networks, largely automating the permit system.

“Automation speeds the decision where a road manager has already established safe access. We get quicker decisions without compromising on road safety,” Dr Leigh said, delivering a potential $1.3 billion boost to the economy.

Similarly, a consistent national approach to mandatory standards for everything from household electrical products to agricultural chemicals and waste regulation, together with closer alignment to trusted international standards, could deliver an annual $3 billion economic boost.

“A fragmented standard can act like a barrier. A consistent standard can operate like a bridge,” the assistant minister said.

“With fewer than 30 million people, there’s a strong case for building a more connected national economy, while protecting the standards Australians expect. Together, we can join the dots.”