Regulatory burdens stifle productivity in construction, report finds

Australian housing developments can take years to complete, and in some cases over a decade, the report said. Most of this time is taken up by the approvals process, rather than constructing homes.

“The sheer volume of regulation has a deadening effect on productivity. If governments are serious about getting more homes built, they need to think harder about how their decisions unnecessarily restrict housing development and slow down the rate of new home building,” Productivity Commission chair Danielle Wood said.

To address a national housing crisis, Australian state and territory governments agreed to implement the National Housing Accord goal of building 1.2 million homes over five years.

This translated to a target of 240,000 homes per year, starting from July 2024. However, modelling by the National Housing Supply and Affordability Council currently predicts that Australia will miss the National Housing Accord’s target by approximately 257,000 dwellings.

The time it takes to complete a new dwelling has risen over the past decade, further confounding efforts to address the housing crisis. The average time to complete a single detached house was 10.4 months in 2023–24, compared to 6.4 months a decade earlier.

To ease approval bottlenecks and speed up the development process, the commission recommended that the government should improve coordination between regulatory decision makers.

This could be achieved by establishing coordination bodies that oversee end-to-end regulatory decision-making on developments, the report suggested.

“Governments also need to adequately resource regulatory and service delivery agencies to enable timely decisions, and ensure there is sufficient accountability,” the report read.

The fragmented nature of the construction sector is also an impediment to productivity, the commission found, as it reduces the industry’s capacity to benefit from economies of scale. The industry is largely composed of small firms due to geographically inconsistent regulations, and subcontracting is common.

To address this, the Productivity Commission recommended that the government should take an independent review of building regulations and improve regulatory consistency between states and territories. This would enable larger-scale businesses to retain efficiency.

The report also suggested that state and territory governments should implement quality rating systems to improve information for consumers.

“Better information could help create a price premium for higher quality builders and buildings,” the commission said.

To promote innovation, the government should also invest in research and development in construction, and remove unnecessary regulatory barriers that impede the adoption of new building techniques, according to the Productivity Commission.

Furthermore, the government must address workforce issues in the construction industry by improving support for apprentices, addressing barriers to migration and working towards national consistency in occupational licensing, the report said.

“There is no single thing to blame for this poor productivity performance. But there are steps that governments could take to remove or ease regulatory bottlenecks and encourage innovation in an industry where the way we build homes has barely changed,” Productivity Commission commissioner, Julie Abramson, said.