You may think that a newly built home or unit looks pretty swish. But what no one’s noticed until now is that our home building industry is clapped out. Gone to pot. It’s going nowhere fast. While most of our industries have improved greatly over the past 30 years, the housing industry hasn’t. If anything, it’s getting worse.
As I’ve mentioned before, now that the ever-worsening affordability of home ownership has reached a crisis point, our politicians – federal and state – have finally started taking affordability seriously.
It’s such a tough problem it will only be solved by fixing all the bits of the system that aren’t working as they should. So, for the first time in living memory, it occurred to someone – someone in Treasury, I suspect – that maybe we should take a quick look at the home building industry to make sure it’s ticking over OK.
The recent report by the Productivity Commission has revealed that the musclebound blokes in shorts and work boots – and their bosses – have yet to be introduced to the lovely Miss Productivity. They drive the latest monster SUV utes – all with names like the Bronco, the Wrangler, the Grunt, the BigOne and the BallScratch – but that’s where modernity ends.
According to the report, our home builders have clocked up “decades of poor performance”. It examined the whole building process, from site preparation and project management to the installation of fixtures and fittings.
Over the past 30 years, the productivity of the industry’s workers – the value they create per hour of work – has fallen by 12 per cent. This takes account of the increase in the size and quality of new homes over the decades. And this while all our other industries’ productivity improved by 49 per cent. The report calculated that, had all our industries performed as badly as housing, our average income would now be about 40 per cent lower than it is.
Of course, the industry’s productivity differs by housing type. Productivity in the building of actual houses has fallen by 25 per cent, whereas productivity in higher-density housing – building townhouses, units and apartments – has increased by 5 per cent.
The report admits the many reasons it’s difficult to make housing construction more efficient. For a start, you can’t pump out houses the way you produce cars on an assembly line. Each one has to be built at its own location; locations can be different, and there are many different sizes and styles of houses.
As well, house building is sequential; everything has to be done in a certain order. You can’t polish the floors or put down the tiles until the roof’s on, for instance. So, if there’s a delay in completing a particular stage, all the subsequent stages have to wait.
Then there are significant safety and quality issues to be considered. The plumbing must be of a standard that doesn’t disrupt the sewerage system; the electrical work must minimise the risk of electrocution; in these days of global warming, homes should be built with energy efficiency in mind; does its location mean the place needs to be cyclone-proof? And that’s before you get to houses built on a floodplain.
Next, unlike most industries, there’s been little pursuit of economies of scale. Housing construction is one of our least concentrated industries. The combined market share of the largest four firms is only about 12 per cent. Not exactly Woolies and Coles or Qantas and Virgin, eh?
The average firm in the home building industry has only two employees. Everyone’s a subcontractor. Even so – or perhaps because of this – the industry struggles to attract and retain skilled workers. Apprenticeship commencements and completions have stagnated. Training pathways can be restrictive and inflexible. And the higher density housing builders have to compete for skilled workers with big construction companies building expressways and suchlike.
What stands out, the report says, is the housing industry’s lack of innovation. Few of the industry’s bosses put much effort into searching out and trying new ways of doing things.
To be fair to the industry, however, it does have to do battle with a huge load of government regulation of its affairs. The local government development and construction approval process can be cumbersome, with inexcusable delays in issuing approvals.
Regulation can stretch the timeline for an apartment complex or new housing estate out to 10 years or more, the report says. Often, only a small part of this is time to actually do the building work.
The report identified four ways that government regulation reduces productivity. First is the sheer volume of regulation, with all three levels of government getting in on the act. The national construction code – which should have been a great means of reducing overlap and overload – has been allowed to grow to more than 2000 pages.
Second, approval processes can be unduly slow and poorly co-ordinated. Third, there can be inconsistencies between the levels of government, creating unnecessary confusion, duplication and delay.
And finally, excessive, unthinking regulation can discourage and even prevent innovation, deterring businesses from finding better ways to do things.
Now, I’ve long been sceptical of business lobbies demanding we get rid of “red tape”. Too often, what they’re really saying is, “I should be free to make my own decisions on how safe this needs to be and how it will affect the neighbours and the natural environment. I need to create jobs and make profits now, and we’ll worry about our grandkids later.”
But by the same token, government departments are monopolies and misbehave accordingly, making unreasonable demands and putting through approvals in their own sweet time.
So, if we want a lower-cost, faster-finishing building industry, we must wake up and put a huge amount of effort into rationalising our regulation of the industry while insisting the bureaucrats get approvals processed without unnecessary delay. Never again should we ignore the industry’s performance.
