How Australia Could Build 12 Percent More Homes Annually Without Additional Workers

Australian home prices have skyrocketed amid a dire shortage of housing relative to the rapidly growing population. But what if the construction industry could boost output by 12 percent each year without hiring more workers? Both the federal’s Productivity Commission and the Committee for Economic Development in Australia (CEDA) believe it’s within reach by simply making the sector more efficient.

Melissa Wilson and James Brooks, economists at CEDA, highlight a troubling trend. Since 1994, construction labor productivity per hour has fallen by approximately 12 percent, even after adjusting for quality improvements. Meanwhile, the wider economy has experienced a 49 percent increase in productivity over the same period. This gap underscores a significant underperformance in the building sector.

Interestingly, Wilson and Brooks contend that the usual suspects industrial relations and workplace conditions are not the main drivers of this decline. Instead, they point to systemic issues: slow and complex approval processes, a lack of innovation, skills shortages, and insufficient scale within the industry.

Their focus on scale reveals a striking imbalance. Today, Australia has around 410,602 construction firms, with 98.5 percent classified as small businesses with fewer than 20 employees. A staggering 91 percent are microbusinesses with fewer than five staff up sharply from 43 percent in 1988/89. This fragmentation makes the construction industry one of the least concentrated sectors in the country.

Despite accounting for more than half of all building expenditure, these micro and small firms produce far less output compared to the handful of larger construction companies. Addressing this disparity by fostering greater scale and innovation could unlock the productivity gains needed to meet Australia’s housing challenges without relying on additional labor.