Australia is facing significant challenges in meeting the Albanese government’s ambitious target of building 1.2 million new homes over five years. The National Housing Supply and Affordability Council, established in late 2023, has predicted that the country will fall short of this goal, estimating that fewer than one million homes will be constructed during this period. The Housing Industry Association echoes this sentiment, with building approvals barely exceeding 160,000 last financial year—just two-thirds of the annual target set by the government.
Despite these challenges, the Labor government is striving to pass critical housing legislation, such as the Help to Buy scheme, designed to assist 40,000 households in saving for a deposit. However, immediate relief appears elusive. Both the government and opposition parties at various levels have pledged to accelerate planning processes and reverse the decline in housing starts. Yet, there are concerns that rushing to increase housing supply could compromise the quality of design and building standards, especially as early signs of recovery in the construction sector begin to emerge.
One of the key reasons for the housing shortfall is the broader challenges faced by the construction industry, which were highlighted in a recent report by the New South Wales (NSW) Productivity and Equality Commission. This report emphasized that rising costs in financing, land, and construction have significantly impacted housing affordability. Financing costs have doubled, land prices have surged by 50%, and construction costs have risen by nearly 30% since 2018. These pressures are felt across most regions of Australia. However, the performance of the construction sector, which constitutes about half of the cost of new homes, is under more scrutiny.
The commission noted that productivity in Australia’s construction industry lags behind other sectors such as manufacturing and transport, with some metrics indicating that it has deteriorated since the 1990s. According to Graham Jahn, Sydney’s Director of Planning, the industry has suffered a steady decline in both quality and competency over the past 25 years. The impact of rising material prices and labour shortages—exacerbated by the effects of the Covid-19 pandemic—has taken a toll on many construction firms, with NSW seeing a doubling of residential builder insolvencies.
While other sectors are investing heavily in research and development, the construction industry has lagged behind. Davina Rooney, CEO of the Green Building Council of Australia, highlighted the industry’s lack of technological innovation, comparing it unfavourably to the food delivery industry, where customers can track their orders in real time. Furthermore, substandard construction has become a significant issue, with 53% of NSW’s strata buildings reportedly having serious defects in 2023. This trend has hurt productivity, as resources are often diverted to rework rather than new projects.
The report recommends solutions such as the adoption of prefabricated construction modules, which could cut construction times by up to 50%, increase labour efficiency, and enhance quality. The commission also suggested revising NSW’s apartment design guidelines, which include requirements for solar access, arguing that such regulations could be left to consumer preference. The commission contends that loosening solar access requirements could allow for higher-density developments in desirable locations, improving affordability.
However, this suggestion has been met with resistance from planners like Jahn, who argue that access to sunlight is essential to prevent issues such as mould, especially in humid climates like Sydney. Critics, including Rooney, caution against lowering building standards, warning of the long-term consequences such as increased heating and cooling costs, which could result in future housing becoming unfit for a changing climate.
While the NSW government is considering the commission’s recommendations, there are signs that the housing market may improve without compromising quality. The rate of construction cost increases has slowed, with a significant drop from 4.7% in the September quarter of 2022 to just 0.5% in the June quarter of 2023. However, ongoing competition from government-funded infrastructure projects means that material and labour costs will remain high.
Tom Devitt, a senior economist at the Housing Industry Association (HIA), emphasized that the shortage of skilled tradespeople, which has worsened since the pandemic, continues to constrain the sector, particularly for large-scale apartment projects. Nevertheless, as interest rates stabilize and land costs remain lower in regions such as Queensland, Western Australia, and South Australia, the HIA expects a gradual recovery in construction activity by late 2024. With improved weather and reduced cost pressures, industry experts are optimistic that housing development may soon see a resurgence.
