It has been clear for some time that Australia is unlikely to come close to meeting the Albanese government’s goal of 1.2m new homes over the five years from last July.
The National Housing Supply and Affordability Council, set up late in 2023, expects “just under 1m homes” over that period – an estimate in line with bodies such as the Housing Industry Association. Approvals barely topped 160,000 last financial year, or just two-thirds of the government’s desired annual target.
As Labor battles the Coalition and Greens to legislate part of its housing package – the Help to Buy scheme to assist 40,000 households muster a deposit – there seems to be little immediate relief on the way.
Governments – and oppositions – at all levels have vowed to unclog planning pipelines and reverse the recent slide in new housing starts. That haste, though, runs the risk of jettisoning design and building standards in the race for quantity just as the first signs of a turnaround in the industry start to appear.
Many of the causes of the housing woes were detailed in a recent report by the New South Wales Productivity and Equality Commission, prompting headlines about the need for higher towers and fewer parking spaces. Financing costs have doubled, land prices are up 50% and construction costs have risen by almost 30% since 2018, hikes that will be familiar in most parts of Australia.
But the performance of the construction industry – which makes up about half the cost of new homes – deserves more public scrutiny than it has received.
“Construction sector productivity is weak and lags other sectors, like manufacturing and transport,” the commission found. “On some measures, productivity in the construction industry in Australia is lower today than it was in the 1990s.”
Graham Jahn, the director of planning at the City of Sydney since 2009, says that the industry has “been allowed to gradually decline in its robustness and its competency with construction practices” for the past 25 years.
Rising material prices and difficulties in securing labour have certainly taken their toll on many firms since Covid lockdowns ended. Insolvencies among NSW residential builders are running at more than double long-term averages, the commission noted.
Still, other industries are facing similar challenges but will spend much more on research and development this year, it says.
“The tech at work is sometimes worse than what you receive at home,” says Davina Rooney, the chief executive of the Green Building Council of Australia. “Your Domino’s pizza, you can track it the whole way through. What is the equivalent in the construction industry?”
Substandard work has been one serious drag, as many homeowners can attest. “Around 53% of strata buildings surveyed in NSW had serious defects in common property in 2023,” the commission said, citing data from the state’s Office of the Building Commissioner. “This need for re-work hurts productivity because it diverts resources away from new construction.”
Solutions include greater use of prefabricated modules that can cut construction times by 20% to 50%, improve labour efficiency and improve quality and safety, the commission said, citing Singapore’s success in this field.
The commission also recommended “relaxing” NSW’s apartment design guide, while national construction codes that took effect last October in most states and territories may also need reviewing. “In recent updates, there is some evidence that policymakers have pursued other social objectives [in the codes] at the expense of increases in housing costs, even where lower-cost options may have been available.”
The commission, for instance, said minimum requirements on the amount of “solar access” should be left to consumers to decide.
“Solar access requirements limit the ability to build apartments close to each other, which reduces the number of apartments that can be built in desirable locations,” it said. “Many prospective buyers are happy to live in a home with less solar access if it means homes are more affordable … It is unclear why regulations should take this choice away.”
Such a response is baffling to planners like Jahn, who said sunlight is “actually critical to stave off mould”.
“In a temperate humid climate like Sydney’s, it’s a debilitating condition,” he said, “which in some buildings – [such as] recent ones in Bondi Junction – makes them completely unliveable.”
Rooney said weakening standards rather than forcing the industry to innovate would have long-lasting impacts in terms of more costly heating and cooling.
“We’ve got to make sure we don’t build the ghettos of tomorrow,” she said. “Absolutely, we’re in affordability crisis, but we also have to remember that we’re in a climate crisis and we’re in a biodiversity crisis.
“We also know it’s going to get hotter. We need to be able to live into these dwellings in the future.”
The NSW government says it is considering the commission’s recommendations.
While it is early days, there are signs the market will improve – without lowering the bar – as construction cost increases start to ebb.
“Growth in construction costs has eased from [their highs], recorded in [the September quarter of] 2022 when costs were rising at the quarterly pace of 4.7%,” said Tim Lawless, CoreLogic’s executive research director. “Through the June quarter this year construction costs rose by just half a percent, less than half the decade average of 1.2%.”
Ongoing competition from government-funded infrastructure projects, though, mean materials and labour costs aren’t likely to fall in the near term.
Tom Devitt, an HIA senior economist, also cites mining and other non-residential construction as keeping “skilled trades scarce and expensive”. Such workers are about a third more expensive than pre-Covid levels and are continuing to rise at about 6% a year.
That’s about triple the pre-pandemic pace, he said.
The squeeze is “especially constraining for the higher-rise apartment sector that needs great labour certainty for large multi-year projects”, Devitt said. Multiple projects have stalled without such assurance even after being approved.
“This is why support for apprenticeships – and the businesses who taken them on - is so important, along with a need to fast-track visas for in-demand trades,” he said.
Lower financing costs will eventually come when the Reserve Bank starts cutting interest rates, a switch markets presently expect will happen either late this year or early 2025. (Another strong month of job gains in August made early cuts less likely.)
Still, capacity constraints in the sector are easing, and the HIA is among those expecting building activity to pick up from late this year. That uptick will be led Queensland, Western and South Australia, where land costs are cheaper, Devitt said.
“I think the perfect storm has passed, and it was a perfect storm,” Jahn said, noting that Sydney copped “24 weeks of rain that killed a lot of contracts and businesses that were on fixed prices over that time”.
The sunshine has returned weatherwise, and, with a bit of help, for the sector too, with construction of about 1,440 units in two sites alone in Sydney moving through approvals.
“I think we could be moving from the bottom of the cycle,” Jahn said. “So I think the green shoots are there.”
