Why building a house in Perth is so slow

Decades of falling productivity in housing construction has restricted the supply of new homes and contributed to increasingly unaffordable housing, research from the Productivity Commission has revealed.

The damning assessment of the residential construction sector found that over the past 30 years, physical productivity has declined by 53 per cent and labour productivity by 12 per cent. In contrast, labour productivity in the broader economy has increased by 49 per cent over the same period.

Perth’s building industry is unable to keep up with demand.Credit: Ross Swanborough

It comes on top of construction costs increasing by 40 per cent in the past five years while residential build times are up 80 per cent over the last 15 years.

Commission chair Danielle Wood said governments were rightly focused on changing planning rules to boost the supply of new homes, but the speed and cost of new builds also mattered.

“Lifting the productivity of home building will deliver more homes, regardless of what is happening with the workforce, interest rates or costs,” she said.

A complicated and slow approval process, lack of innovation, a fragmented industry dominated by small players (the average residential building firm employs less than two people), and difficulties in attracting and retaining workers are all issues that have dragged on productivity, the report found.

Definitions

‘Physical productivity’ measures how many homes are built per hour worked. It doesn’t account for the quality of those homes or their size.

Fewer homes may be being built per hour worked - but they are substantially bigger and better homes today than 30 years ago. 

The best measure is the ‘labour productivity’ estimate. This does factor in size and quality, and is based on the value of the homes being built, rather than the number of homes.

Master Builders’ Association chief executive Denita Wawn said the report confirmed what builders and the broader industry have long called for. We aren’t going to build the homes we need without a focus on improving productivity.

“Productivity is more than an economic buzzword. Every day we drag our heels on tackling the challenges faced in the industry, the longer we drag out the housing crisis,” she said.

“Just like the housing crisis, there is no silver bullet to solving woeful productivity in the industry, and it requires a coordinated and comprehensive approach by all levels of government.”

The report focused on four key challenges faced by the sector: complex and slow approvals, lack of innovation, lack of scale and workforce and outlines seven reform directions for governments to help make home building more efficient.

The impact of government policies on housing construction productivity has also been laid bare with the report shining a spotlight on the impact of slow and poorly coordinated regulatory processes, inconsistency across jurisdictions, and policies that have chilled innovation.

Property Council chief Mike Zorbas said the report was the first time the Productivity Commission had taken the time to fully address the productivity of creating Australian cities.

“The report reads like a love letter to better housing supply,” he said.

“We must build our way out of the housing crisis, and every lever we can pull to boost the construction of new housing is essential.

“All sides of politics and all levels of government need to get on board for these reforms.

“The sooner we embrace the Productivity Commission’s solutions the sooner we can eliminate Australia’s housing deficit,” he said.

The report outlines seven reform directions, focused on four main areas including calling on governments to consider establishing coordination bodies to speed up the development and construction process and address delays and there should be an independent review of building regulations.

Start the day with a summary of the day’s most important and interesting stories, analysis and insights. Sign up for our Morning Edition newsletter.