Australia’s Construction Productivity Crisis Demands Innovation

Even as tower cranes puncture Australia’s urban skylines and nailguns echo across the suburbs, a crisis threatens the nation’s ambitious housing targets. Behind the hoardings of construction sites lies an industry in productivity freefall—delivering half the housing per labour hour it once did, with costs soaring ever upward. According to Productivity Commission chair Danielle Wood, value output per worker has dropped from $1400 an hour in the late 1990s to just $500 an hour today. While labour productivity across the Australian economy grew by 60 per cent over the past 30 years, housing construction productivity declined by 12 per cent during the same period. How did Australia’s construction industry become half as efficient as it was 30 years ago? Australia’s productivity stagnation not unique Wood says the challenges facing the construction sector are not unique to Australia, with productivity stagnation evident in construction industries across developed nations. Building 4.0 CRC chief executive Mathew Aitchison describes the Australian sector’s challenges as a “Russian doll of issues” where housing shortages represent a cost problem that, at its core, is a productivity problem. “And right inside the middle of that little Russian doll is innovation,” he says. “We’re just not good at innovation in this industry.” In an era where technological advances have revolutionised nearly every industry, it seems Australia’s construction sector stands as a puzzling exception. ▲ Briget O'Callaghan, Stuart Penklis, Sarah Kay, Mathew Aitchison and Danielle Wood at the Property Council of Australia’s National Housing Solutions Summit in Melbourne this month. Woods Bagot chief executive Sarah Kay says this lack of innovation manifests in inefficient building practices that create financial risk. Kay points out the average variation increase in project costs reach 28 per cent when built using conventional approaches. In contrast, projects using Design for Manufacture and Assembly (DfMA) methodologies experience only 2 per cent cost variations. “There’s a lot of decisions that are being made onsite that should be made before you even get to site,” Kay says. The waste and rework in building methods Andrew McKenzie discovered during his time as head of New Zealand’s Kāinga Ora social housing program were “striking.” “We found out that 88 per cent of things we asked for had to be reworked,” McKenzie says. Through the organisation’s Housing Delivery System, he helped achieve an 80 per cent reduction in construction time and at least 30 per cent in cost savings. McKenzie identified loose coalitions of trades as a key inefficiency, with skilled workers only using their specialised tools and skills about 35 per cent of the time. Through standardised processes and detailed tracking, Kāinga Ora reduced the due diligence and design phase by 94 per cent—from 17 months to just six weeks—while construction times were cut by nearly two-thirds. ▲ Former head of New Zealand’s Kāinga Ora social housing program Andrew McKenzie. “If you standardise the way you put up a house, you immediately save 25 per cent in materials,” McKenzie says. “It’s about half the cost of a gold standard home in New Zealand just through standardisation and eliminating waste.” Standardisation emerges as critical strategy Mirvac chief of development Stuart Penklis highlights the need to streamline housing designs by “focusing on standardising and optimising.” Penklis wants to see a bigger shift towards volumetric prefabrication, which involves constructing entire sections of buildings off-site. “I think it comes down to the right designs. Standardising as much as we can, while still providing the customer with opportunity to customise,” he says. Building 4.0 CRC’s Aitchison agrees with the need for new approaches to solve the productivity crisis but cautions that “people often think Modern Methods of Construction (MMC) means going straight to stacking boxes onsite, which isn’t true”. “Understanding that it’s not a one-size-fits-all solution is crucial,” Aitchison tells The Urban Developer . “We need to look at it in a more nuanced way and ask, ‘What are we trying to achieve, and is this the right way to get there?’.” The solutions to Australia’s alarming construction productivity decline might already exist internationally. Aitchison highlights Sweden as a leader in industrialised building methods. “Around 85 to 95 per cent of detached housing in Sweden is made in factory settings in highly controlled setups,” Aitchison says. “You walk into a factory there, it’s full of happy looking people, it’s a diverse environment, it’s a safer environment for people working, and the products are great.” ▲ Modular residential areas such as this in Bålsta exist all over Sweden. Manufactured housing now contributes around 80 per cent of the US affordable housing supply. Aitchison says Australian productivity could benefit from similar approaches. There is progress in different states, he says, though at varying rates. “Western Australia has done impressive work. Within the last five years, they’ve reached a position where about 50 per cent of their social housing is delivered using alternative construction methods,” Aitchison says. “What excites me is New South Wales’ willingness to try different approaches. They’re very keen and highly mobilised to explore new ideas to get that wheel of production turning again.” Program sequencing an ongoing challenge Kay says the sequential processes in construction are “problematic” and wants to see overlapping stages and more detailed upfront planning. “If we just drew more, we would then be better at building,” Kay says. “We should also build earlier. Having more builders helping architects to draw and architects drawing more—that’s a big step towards offsite manufacturing.” Current construction timelines underpin the urgency of the situation. Penklis says “construction programs in residential towers of 150-200 apartments historically took 32 months,” but now stretch to “40 to 45 months”, according to builder estimates. Industry consensus is that increasing regulatory complexity is making construction harder and more expensive. Wood describes the impact as “deadening.” “If governments are serious about getting more homes built, then they need to think harder about how their decisions unnecessarily restrict housing development,” she says. “This is not just about development application processes. There’s a whole range of other approvals that go into making housing a reality.” ▲ A building in Berlin built in modular timber construction. The National Construction Code (NCC), while providing valuable standardisation, was identified as problematic in several aspects. The frequency of updates, insufficient implementation time, and variable enforcement across states create challenges for industry adaptation. Industry cannot innovate quickly enough Despite widespread interest in prefabrication and modular construction, industry fragmentation blocks its wider use. “Everybody is interested; everybody wants to contribute. Somehow, we can’t talk to each other properly. There’s no uniting direction,” Kay says. Some industry leaders would like to see a research and development corporation (RDC) created for the building industry, modelled after successful agricultural initiatives. “This is a model that is really trusted in Australian government,” Aitchison says. “It’s a model used widely in agriculture. There are 15 such RDCs in agriculture, and they’ve done enormous work in helping to coordinate those industries and improve their productivity and their levels of innovation. “It could also help to create case studies and building tests to show how we get these new technologies and processes on to middle-ring suburbs and actually make them work, because it’s really hard to do that under the pressure of time and money. “We have to confront a really basic fact here: the industry on its own, for the reasons that we were saying—fragmentation and lack of concentration—does not appear capable of self-generating the innovation we need to get out of this hole.”

Australia’s Construction Productivity Crisis Demands Innovation

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