This episode was recorded on the land of the Wurundjeri people of the Kulin nation. We pay our respects to their elders past, present and future.
Richard: Hello, and welcome to another episode of Precise Property. I’m your host, Richard Temlett. I’m excited to have you with us today. If you’re here for the first time, thank you for joining us. I encourage you to listen to our previous episodes where we discuss all things property with a focus on dynamic discussions with industry leaders.
In this episode, we’ll be discussing productivity in the construction industry with Danielle Wood. So sit back, relax, and let’s get started.
Danielle Wood commenced a five-year term as chair of the Productivity Commission on 13 November 2023. Previously, she was CEO of the Grattan Institute and held key advisory roles with the Australian government. She has worked in senior positions at the ACCC and NERA economic consulting and began her career at the Productivity Commission. Danielle holds an honours degree in economics and two master’s degrees in economics and competition law. She’s an honorary fellow and former president of the Economics Society of Australia, cofounder of the Women in Economics Network, and a member of the Competition Review Expert Advisory Panel. Welcome, Danielle.
Danielle: Thanks for having me, Richard.
Richard: Danielle, in today’s episode, we’re going to explore the role of the Productivity Commission and the recent report that was out this week entitled ‘Housing Construction Productivity. Can We Fix It?’ We’re going to discuss the key challenges across the construction industry, the practical solutions to improve productivity and housing supply, and, certainly, I’m going to also be adding in my own findings and from the research that I’ve been hearing and seeing on the ground, and I cannot wait to get into it. That being said, before we get into it, for this season, I’m going to be asking a icebreaker question.
And so, the question I thought I’d ask you today is – What’s a surprising insight you’ve picked up from something you’ve read or listened to lately?
Danielle: It’s a fantastic question. And I find myself, I spend a lot of my downtime listening to podcasts these days. I don’t know if you’re the same. Hopefully, people are listening to this one. Honestly, probably too much of my feed is American politics at the moment. I think I’d forgotten how much Trump gets to live rent free in all of our heads. And it’s sort of, you know, I can’t look away. But none of that has changed the way I think, although it’s changing the amount of time I have to think about it. I did a panel, an event the other day where one of the other speakers was Steve Vamos. Now, he is a really interesting guy. Most recently he was the CEO of Xero, the accounting software, but has worked in Microsoft and IBM. And he gave me a copy of his book, which is called I think it’s From Shifts to Shocks [Through Shifts and Shocks], something along those lines. Sorry, Steve, for butchering that. But the thesis of the book is essentially that change management is the heart of leadership and that often people are not good at change. Leaders aren’t good at change. People aren’t good at change. It’s very human to resist change. And he writes about how that is so important for firm performance and ultimately for productivity. So that was quite an interesting insight from my perspective, and I’ve been thinking about how that applies, not just in the private sector, which is really important for productivity, but also within government because our job is to advise government on how they do things. That resistance to change is very real inside government as well. So, I thought it was an interesting observation and certainly got me reflecting on the role of change and how we think about change.
Richard: Oh, great answer. That’s very deep and meaningful. So, thank you. I’m glad we started off on that foot.
In terms of the role of the Productivity Commission, are you able to explain to our listeners? I know you started to in your answer, but what is the role of the Productivity Commission?
Danielle: Sure. So, the simple way to describe it, I think, is that we’re like the government’s think tank. We provide research and advice on policy. We want government to have a great evidence-base when it’s making decisions on policy. And even though our name sounds very economics and our background is sort of strongly in economic policy, we also span social policy, environmental policy, increasingly First Nations policy. We touch a whole range of different policy areas. We can be commissioned by the government to look at particular problems. They may have a thorny issue that they’re grappling with and they think it would benefit from having us take a really deep and detailed look, including all our processes which are very transparent, very broadly consultative, and very much take a national interest lens. We can also self-initiate our own work, and then we hand that work to the government. And then, it’s up to them from there. They’re under no obligation to pick up our recommendations, but we certainly hope by providing them with strong evidence-based advice that will inform better decision making for the Australian public.
Richard: Well, look, certainly, the mission statement of the research team at Charter Keck Cramer is also to use evidence and data to help private and public sector with their policy decisions as well as their investment and their development decisions. And the report that we’re going to dive into in a second has a number of great recommendations, but they’re informed by evidence and data. And I absolutely love that. And certainly, I really hope, having looked at that report, I hope that the government picks up a lot of those recommendations because they’re, in my view anyway, unbiased and highlight issues that have been building for decades now. But more importantly, also provide certain solutions or ideas that we need to think about differently to start resolving these solutions. So, it’s fantastic to have you on the show and, it’s good for our listeners to know where your organisation sits in the grander scheme of things because I wasn’t entirely sure what the relationship was to government and if they do or they don’t pick up some of your recommendations. So, thank you very much for clarifying that.
I’m going to ask you probably what sounds like a really silly question, but I need to ask it anyway because it’s quite loaded and it’s – what was the point of this particular report? Why was it commissioned? What are the issues in the construction industry?
Danielle: Look, it is an important question to ask where we started. So, this one, a self-initiated report. This wasn’t one that we were commissioned by government to do. And I think the reason that we did so when we self-initiate, we’re trying to identify what we think are big and important policy issues and ones where we feel that the Productivity Commission’s very data evidence driven approach can add value. So that’s our high-level criteria.
I think it’s very clear to us and probably clear to every Australian that housing is a pretty top tier policy priority. We’ve got into what I think is a pretty challenging equilibrium with affordability issues. And you and I have both been thinking about that for a long time. My observation was there was a lot of work and really important work going on planning systems and how to think about what we can build and where. But there was less conversation about end to end and how efficiently we’re able to deliver homes. And so, I was quite struck by talking to state governments and hearing them saying, “well, you know, we’re trying to do some stuff on planning and free up supply, but we’re finding that the houses are not getting the approvals through.” And I thought, okay, that’s interesting. There’s these other constraints on supply that we’re not really grappling with. I got interested in this question of, well, we’re the Productivity Commission, how productive are we really at delivering new homes? So that’s the sort of opening question that we started with. And as we started to delve into the data, we found some very interesting things.
Richard: Well, before we get into some of those facts and figures and stats, certainly, we’re in the middle of doing our State of the Apartment Market report that we do every six months. Part of that is I speak to the industry, and part of the industry are the builders. And I chat with them and I go, guys, what are you seeing on the ground across the different states, whether it’s in residential or nonresidential? And then even in residential, the different types of residential, whether it’s apartments, townhouses, house and land. And this is a significant issue that has been growing for a number of years. And some of the stats, the headline stats that you’ve quoted in terms of how long it’s taking for houses, townhouses, or apartments to be built or overall productivity of the sector compared to thirty years ago, it’s actually horrifying to see some of those stats. But I’m not surprised given that when I have honest, vulnerable conversations with some of the builders or the developers or the financiers of those projects, they’re certainly seeing it, especially the ones that have been in the industry for a number of years. And in our apartment database where we track the apartment projects and how long they’re taking to get built, again, our own data certainly confirms what you’ve put together.
So let’s frame that with a couple of headline numbers, if that’s alright, before we get into some of the recommendations and things like that. What were some of the main findings in terms of the productivity or the timing, or the approvals process or the regulation that is adding to the costs or the complexity of property development?
Danielle: Sure. So, at the very headline level, we were interested in this question of productivity, which is essentially how much are you producing per hour worked? We’re looking at labor productivity in this case. And answering that involved, as I was talking with you before, Richard, some pretty complex playing around with national account data. The reason being that in the national accounts, we can look at the construction sector as a whole. We were interested looking particularly at housing. Where we got to was that if we look back over 30 years, physical productivity, which you can think of as the amount of house physically produced for an hour work, has declined by more than 50%, which is a pretty extraordinary figure. People will come back and very rightly say, well, houses are bigger than they used to be. They’re better quality than they used to be. To have double glazing or insulation or all these features that maybe weren’t standard. We can adjust for that, and the ABS does adjust for that. They do various adjustments for quality over time. When we do that, we find that productivity is still 12% lower than it was 30 years ago. And what we would typically expect to see, in fact, what we see in every other sector of the economy, is that productivity would normally rise over time. You get better at doing things overtime. So, if we compare across the economy as a whole, productivity across the board increased by 50% during that time. We have housing construction going backwards while the rest of the economy essentially improves. We get better at making stuff. It is a very stark finding, I think.
Richard: Asking, obviously, the obvious question, why does it matter? If that’s gone backwards, everything else has gone forwards, what’s that leading to in terms of the delivery of housing? Is it increasing costs? Is it just the slower delivery of supply? For people that might go, well, who cares? Or what’s in it for me? Why does it matter? Why does it matter?
Danielle: Well, you should care. It matters a lot. One is the timing point that you raised at the start, and I’d be really interested in how it aligns with your numbers, Richard, but we found, this is sort of over a 10 year period. The average time to construct a house is a single dwelling has increased from six months to ten months. For apartments, it’s gone from 20 months to 28 months. So, things take longer, but they also cost more. Very important input into production is labour. If you are getting less house per hour worked, that means that the economics of those developments is getting weaker over time rather than stronger. We all know that’s really important for getting new houses online. And, ultimately, if you believe that housing supply matters for affordability, as I very much do, anything that is putting a handbrake on the supply of new housing is going to have broad implications for the affordability of housing in the market.
Richard: Well, just to respond to some of your questions about timing, our database tracks townhouse construction as well as apartment construction. Townhouses, in effect, have doubled in the length of time for building them out. Apartments, in many respects, have doubled too. So, probably, even higher than what some of your stats have shown. I haven’t had the team, though, break down…because we can break them down by number of levels, number of apartments. We’ve just done it in different time periods, the average apartment block getting built out. What also concerns me, especially in the high-density spaces, is not as many builders as there were, five or eight years ago. A bunch of them have gone and become insolvent. So that’s a major issue in itself. And, the question that I was teasing out with you is to go, well, there’s a number of input costs in the delivery of feasible housing products. One of them is land, the other is construction costs, and then you get profit and things like that. But I’m convinced that if you’ve got an industry that is going backwards in productivity, whereas all the other industries or the majority of them, if I remember seeing in your report, the majority of them have rapidly improved. Not only is there an opportunity for construction to become more productive, but that certainly is one of the input costs that’ll make construction come down and be quick, and we can get that supply mobilised faster. So, it’s really just having that background. I’m amazed to see that compared to 30 years ago, it’s taking so much longer to build. I mean, you look at the technology now versus 30 years ago, and I’m not sure I really agree with if people have spoken to you going, oh, well, they’re much more difficult to build. Sure. Maybe some of the really high end projects, but look, we’re obviously recording this from Melbourne and I look at the Docklands and I see the apartment projects in the Docklands or in the CBD or in Southbank at 30 years ago were built and the ones that are being built now, and there’s not that much of a significant difference, yet those build times are taking a lot longer. And that for me is a huge issue. It’s a bit of a, I suppose, an elephant in the room in terms of one of the things that we can do to address this housing crisis because, it frustrates me to no end when I hear the government going, oh, we’re doing everything that we can, and we don’t have any more solutions. Your report highlights some fantastic solutions. Some of them they are already aware of, but others, they may not have thought of. And I’m sure we’ll touch on things like modular or prefab construction. But it’s quantifying that. And then if we’re able to expedite that, deregulate it, shorten things, it’ll then reduce time and costs, and ultimately, we’ll be able to, it’ll be one of the tools to deliver stock more quickly. Were there any other findings of the reports? You made a comment about the construction of houses and how long they take. Does that include the planning process as well as the construction process, or is it just the physical construction of these dwellings on the site?
Danielle: It does include the planning process, and what we found really is that fewer build times aren’t growing by as much as those overall end to end times. And so, what seems to be happening is there’s just more time waiting for relevant approvals. And that can flow through. As you know, building is highly sequential and sometimes that can slow things down in the actual build itself as well. But, we found that build time is only a fraction of the total time to deliver houses and that sort of turned our mind to some of these questions of regulatory burden in the sector.
Richard: Let’s jump into some of the recommendations. Let’s start with the one where you were talking about a review of the National Construction Code. I’m interested to get your views on how you think that ought to occur. I know, obviously, the Coalition said that they have a view on what should or shouldn’t happen with the National Construction Code and leaving aside whether that’s right or wrong. What did you find with that? What are some of your recommendations as it applies to that code?
Danielle: Look. So we did have a detailed look at the code, and I think, overall, it is a positive thing that we have a national code. I think it is a positive thing that we’re at least trying to push towards performance based regulation. I’m not here to be critical of the National Construction Code wholesale in any way. But I think what we see with the National Construction Code in a way is reflective of what we see in the regulatory environment for housing and more broadly, is that we have had a sort of gradual ratcheting up of complexity and to some degree fragmentation and implementation over time. The construction code now runs to over 2,000 pages.
Richard: Incredible.
Danielle: Yeah. We used to focus a lot on questions of quality and safety. We’ve gradually added other objectives around environmental standards and accessibility standards. And a lot of these are very worthwhile objectives, but we’ve always got to be very clear whenever we’re making a regulatory change, it comes at a cost. And certainly some of those more recent ones, such as 7 Star Energy Efficiency, the most recent accessibility changes, didn’t pass on the cost benefit analysis that was done at the time of those changes. Politicians made a decision to go ahead anyway, but certainly that is adding cost into the process. On top of that, as I alluded to, you’ve got state governments not necessarily always implementing the code in a consistent way, doing things differently. All of that reduces the benefits of national consistency that the code was designed to achieve.
And then I think a really strong piece of feedback we got was the three year rolling update, this idea that we’ve got to find new things to add every three years, it’s kind of a strange way of doing regulation. And when you talk about the drive for innovation in the sector, some feedback we heard was, well, I could try and design things differently or do things differently. But if I’m worried that that’s going to have the rug pulled out from underneath me in two years’ time when the code changes again, I just don’t have the appetite to do that. So, I think the frequency of update question is very real as well. And then there’s a broader question about to what extent we’ve been nimble enough in evolving that code to apply to new technologies like prefab. All of those things, I think, you’d like to have on the table. We’ve not had a wholesale review of the National Construction Code since it was introduced in 2011. It seems like that’s an area where we haven’t spent as much time thinking about regulatory burden, and there’s some things I think you’d want to take a pretty serious look at.
Richard: Another section of your report was talking about regulation. Do you believe that the industry’s overregulated? What is your view on that?
Daneille: Look, I think it’s certainly hard to hear a lot of the feedback we did about the timeframes, the costs of compliance without thinking there’s overregulation, at least in part. There’s very good reasons we have regulation in construction, so this is never going to be a regulation free industry and we all absolutely accept that and the importance of it. But I think what has happened over time is we’ve had, like the construction code, a layering of different objectives coming in. We have layering again by different levels of government, particularly local and state government. We heard a lot about big differences between local governments, some of them doing this well, some of them doing it a lot less well. But the cumulative effect of that is that, as I said at the start, a lot of time trying to comply with all the approvals, you get points where things can get stuck. Bottlenecks in the process can slow things down. And I just think when you look at the totality of regulation, we haven’t factored in that trade off and the impact on cost and housing supply as sharply as we should have.
Richard: Look my personal view when I speak with a lot of the industries is that it is overregulated. I appreciate that there have to be the necessary checks and balances. But when it gets to the point where right now it’s just so cost prohibitive, I do feel that there needs to be at least a good chat and a discussion about the degree of regulation and really the cost benefit.
I was going to ask, were different states doing better at this than others in terms of, when I speak with the industry, they go, it seems to be most regulated in Sydney. It’s very difficult to either get planning approvals or get discussions with whether it’s Sydney Water or the various authorities. That is one of the major issues that’s driving costs in that state. Did you find across Australia that there are any states that are perhaps doing it better than others? And if they are doing it better, what are some of the lessons learned that we could maybe try and implement across the country more broadly?
Danielle: Look, it’s a really important question. And we didn’t go into the level of detailed benchmarking across states, although I think that would be a fantastic exercise to do at some point. We certainly heard similar things around some of the challenges in New South Wales, and I think many of those have been long standing. There is a government that is at least sending the right signals on the importance of housing supply, but it seems like it’s a very challenging one to speed up. We heard some things going on in South Australia to streamline processes which were being very well received, including adoption. I think it was South Australia that are using AI to help people fill in their various planning approvals and to give feedback.
Queensland is doing something quite interesting that we thought may well have broader applicability through the Queensland State Assessment and Referral Agency, which is essentially a coordination body that helps developers work their way through the thicket of approvals that are needed. And where there are blockages, tries to help push those through. So, in a world, ideally, we streamline the regulation and what’s required. But given there will still be multiple levels of government, that idea of coordination and end to end help, I think is a positive development.
Richard: Great. There was also a very good discussion about innovation in the report, and I’m keen to talk to you about what some of the findings were with innovation. You’ve mentioned AI, and also, what are your views on prefab and modular? Is it a solution to the future? What did you find in your research?
Danielle: What we found and we first of all, just pulled apart the ABS stats and other numbers out there, low levels of innovation in construction itself compared to most parts of the economy. And we did find it notable, for example, low take up of digital technologies for things like supply chain planning and other areas where you could think that maybe you would see good applications in construction. The second point is around prefab and that it really is, I think, the big potential process innovation. Essentially, we build houses the same way we did 100 years ago. The idea that you can build off-site, whether that is just a wall or a roof truss or a kitchen pod, all the way to an entire house, there’s some pretty big upsides, less so on cost, at least at the moment at current scale. That’s the challenge for the industry to get the scale to be able to deliver cost savings. But even at the moment, some benefits in terms of quality, environmental benefits, but we’re not seeing it take off in a big way yet. We have the best estimate we could find that less than 5% of construction jobs were using some element of prefab. That’s construction in the broad, not just housing.
It seems, as I said, scale and economics is one reason. Culture and acceptance of doing things differently and trying different products is another. And third is the regulatory picture. We certainly heard some confusion or some areas of grey about to what extent things were compliant with the National Construction Code. There were certainly, the code is designed for traditional building. Things like the various sequence of approvals doesn’t make sense if you’re building a whole kitchen pot at once. I think there’s a recognition that the code needs to evolve to be really clear about the way it applies to prefab. And some of that work is underway, which I’m really pleased to see because the economics is one thing, but what we don’t want to be doing is creating regulatory barriers to innovation.
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Richard: Grattan did a report on the age of the industry, the construction sector. And I’m just wondering, you spoke about the lack of adoption of innovation. And I’m just wondering, do you think that has something to do with it? When you look at the tech industries, there’s obviously lots of younger people coming out. They’ve lived effectively on the internet their entire lives versus building and construction. When I saw some of those stats from Grattan and just with the average age of the workers and this is obviously a bit of a blanket statement, and I don’t mean it that way because there are certainly, even in our office, people that are older that are really great adopters of innovation. But do you think that has something to do with the industry or is it more of a broader issue? For example, you said with the National Construction Code perhaps not being fit for purpose or not being able to promote innovation, I’m just trying to land on why. That my question. Why has there not been the adoption?
Danielle: I think it’s all of the above. I think it’s not just the age. It’s also building construction is characterised by lots of small firms, generally. The average firm size is fewer than two people.
Richard: I read that. Can you just explain a bit more? So when you say firm size, these are the ones like building houses or just two people?
Danielle: Yeah. Yeah.
Richard: Wow. Okay.
Danielle: Yeah. So there’s lots of small firms, and this is subcontracting. So, you’ve obviously got a lot of sole operators in there. So I think in a very fragmented sector like that, often it’s just the scale. You don’t have the head office people that are thinking about tech adoption. You’ve got the plumber who’s going out on-site to do the thing and not necessarily thinking about the way in which he or she might pick up digital technology. So, I think partly just the structure of the sector itself.
I think there’s the very project-based nature. You’re working with different teams all the time. That can actually make innovation harder as well. One way we learn to innovate is by trying something. We learn, we iterate. But if you’re not able to do that iteration because you’re moving to another job and working with someone different, that kind of inherent structure makes innovation harder, I think, in this space. I would differentiate between some of the structural barriers to doing things differently, versus the things that government can do something about, which is pulling back any kind of regulatory barriers that might stand in the way.
Richard: Gotcha. Alright. Well, look, if we can shift gears, let’s jump into solutions. You know, it’s very easy to talk about the housing crisis and trying to blame everyone and point fingers. That’s not going to get us anywhere. So, let’s talk about solutions. Obviously there were seven recommendations for reform in the report. Are you able to, at a high level, summarise all seven? And let’s talk through a few of them or some of the key points.
Danielle: Sure. I think we’ve touched on some already. The regulatory picture is really around streamlining and coordination, and that’s got to be end to end. So, yes, develop approval process, but also, construction code, post construction approvals, all of that. We think that’s a very important area to focus energy. We recommended a review of the National Construction Code. We certainly point to areas that we’ve already spoken about where we think things could be different, but we think it needs a detailed look and a fresh set of eyes.
On boosting innovation, again, removing regulatory impediments, but also, potential government outreach on innovation. This is something that happens a little bit in the agriculture industry. Government sends out small teams to work with individual farmers, look at the way they’re doing things, give them advice about newer technologies and processes that are out there. We’ve got evidence of that working in a fragmented sector and, we think government could look at that here.
The other thing we note is there is a government review of R&D (Research and Development) spending on at the moment where they’re looking right across the R&D system. Governments spend quite a lot, particularly if you add in R&D tax concessions in there on R&D and innovation in this country, thinking about whether there’s a greater role for government in R&D in this space.
And then finally, we had some recommendations that go to the functioning of the labour market in construction. So occupational licensing requirements, we’ve spent a lot of time talking about this over the years, as you know, Richard. I think there’s questions about the flexibility of the current system. We’ve had an increasing number of licenses. Is it allowing people to enter while controlling for quality? I think that’s an open question. And then more generally, things like the mutual recognition of licenses. Can I, as a plumber, move from New South Wales to Queensland without having to relicense? And we still have a range of states that put up barriers to that movement. And then related to that point, barriers to skilled migrants coming in the trades. We have a migration system which is supposed to be about bringing in skilled workers to complement and drive productivity in the broader workforce. We do create extra barriers where trades are concerned. And we think, particularly in an industry that’s really cyclical, trying to make sure that that system is functioning well for construction is really important.
Richard: Well, look, let’s build on that last point because I just made a note as you were talking. Thank you for going through all those points.
When I speak with the industry, their biggest concern or certainly the risk that a lot of them are looking out over the next 5-10 years is the shortage of labour. Because a lot of the governments, through the pandemic, not just in Australia but around the world, sought to build themselves out of the pandemic by investing in infrastructure. We’ve got huge infrastructure projects coming across or being delivered from this year forward across Australia. I speak with the builders on the ground, and they basically say, Richard, we would prefer to go into those projects. The government is basically our client. There’s different contracts. They’re more lucrative. There’s less risk. In addition to that, especially in both WA and Southeast Queensland and then to probably a similar extent, actually, in South Australia there’s a small labour pool. When I chat with Grattan, they have very real concerns. And I share their concerns, and I agree with them that we don’t have enough skilled labour coming into the country in the building and the construction sector to allow us to hit not just the infrastructure projects, but also the aspirational housing targets that we have. What did you find in this research in that regard in terms of the shortage of labour? And, obviously, there’s a federal election coming up this year. Should the government be focusing even more on that in terms of getting the right types of workers into the country to build out these projects?
Danielle: Look, I think the government has focused on this question in terms of how do we build domestic supply? And they’ve done things like make various courses fee free. They’ve done some work on the apprenticeship system, but that doesn’t alone seem to be enough. And certainly, the feedback we had from industry was that attracting the right labour really is an ongoing struggle. Partly, you’re right. It is the broader infrastructure pipeline, which has been so crowded, as we know, although we found that there wasn’t as much direct substitution between workers in housing construction and, say, major transport infrastructure. But where governments are building out schools and hospitals and other things like that, that’s where you get the more direct competition for labour. And certainly, that has been growing as the population has grown as well. So that is a challenge. We certainly support the broad thrust of the Grattan work around making it easier to bring in high skilled migrants. Grattan’s talked a lot about removing occupational lists and just relying on wages as a signal of the contribution that someone would make to the economy. That would really improve the ease of bringing people in. And government has partly responded to that through the specialist visa stream, but quite notably, trades are excluded from that. I think that that’s a pretty easy fix. I think you could do that with the stroke of a pen.
The other challenge, which was picked up in the Parkinson Review of Migration, is that often people will need to have their skills tested twice on arrival. Through the visa process itself and then again through whatever the relevant occupational licensing system is in a particular state, and having those dual assessment tracks can be slow and expensive. Again, I think a relatively easy win. We only need to test the plumber once and in one place.
Richard: Yes. Look, a question that might be a little bit controversial, but I’m going to ask it anyway because I think it’d be remiss of me not to, is the issue with the unions and whether they are having an impact on productivity. And certainly, when I’ve done my own research, particularly in Victoria and in Southeast Queensland, there have been issues with certain sites that are impacted by unions and productivity and things like that. Certainly, I appreciate and respect that there’s a role for the unions. But do you think that that has impacted productivity? And where is the happy medium in this space?
Danielle: Look, it was an issue that it was somewhat challenging for us to go into, frankly. Partly because of where the CFMEU is at and the deregistration process. So to do this well, we would have to be able to consult deeply with the unions as well as the sector. And it just wasn’t at a place where it was easy to do that. We didn’t go into detail for this report because we felt we couldn’t do it justice. It certainly came up in various consultations. Although one thing I would say is, unions are relevant for a fraction of this market, the kind of high-rise apartment buildings, the single storey detached housing at sites are not unionised. If anything, we found the productivity challenge in standalone housing was even greater. So certainly, that suggests to me, there’s a lot of things going on over and above industrial relations. That’s not to say industrial relations isn’t relevant, but it was not something we were able to pull apart in the detail that I would have liked to for this particular report.
Richard: Gotcha. Yep. I must admit, I was aware that, the unions weren’t very much involved in the lower density or detached housing market. And I still find it interesting when you look at all the stats and you’ve lined them up, whether it’s houses, townhouses or apartments, there’s been delays across the board. So it’s very interesting. I do feel that there’s a role to work through and find a happy medium for the unions, but I take your point and certainly as well, there’s no single factor that’s caused this and there’s no single change that is going to resolve everything. The point of today’s podcast and, obviously, your report is to educate the industry on what the issues actually are and some of the tools and levers that can be pulled.
I suppose, just before we wrap up, do you have anything else you’d like to let the industry know? I suppose the question that I’ll ask you is with the work that you did, you went into this and you probably had a certain idea of what some of the research was going to show. Obviously, you would be led by the data, the evidence, and the research. Was there anything that really jumped out at you that went, “oh, my goodness. I did not expect this as a finding?”
Danielle: The negative productivity. Honestly, the headline finding was kind of shocking to me. I’ve spent a lot of time looking at different sectors. I have never seen this come out in the numbers before.
Richard: Actually, good point. So, you were expecting productivity to be low but not negative. Is that right?
Danielle: That’s right. So, my working hypothesis was that it probably wasn’t as strong as the broader economy, but the negative number. The other thing that we haven’t touched on, which is relevant, is that we then went and did some international comparisons, which we had to do it. We couldn’t do specifically for housing, but we did for construction in the broad. And we found exactly the same pattern in all the other developed countries that we looked at.
Richard: Yes. I was going to ask you about that. So really, it’s not unique to Australia. It’s unique to the industry.
Danielle: Exactly. We found, whether it’s the US or UK or Japan, if anything, Australia is slightly better than those countries. So, it does suggest it’s something in the industry structure that some of the regulatory challenges we talked about are pretty common across country. That sort of creeping regulation picture is very real elsewhere as well.
But what I would say is we did then look going back over longer periods and there were times, the 80s, early 90s in Australia where construction actually outperformed the broader economy in terms of productivity. We don’t think necessarily it’s impossible to do this in construction. That suggests it’s not always going to necessarily be a low productivity industry. It just has been for a number of decades. I personally like to be optimistic. And I think there is enough in innovation. There is enough scope, if we are able to streamline the regulatory burden to believe that we could see productivity rise in this sector.
Richard: Well, that was actually going to be the take I was going to have on it where, again, you can always look at things glass half full, half empty. I look at this as going, this seems to be, if it’s negative productivity, something that we could move the dial significantly on. And it may well be working with overseas counterparts to try and solve this problem. But compared to a lot of the other issues that appear in the industry, it’s almost like you can make minor tweaks around the edges. This one, if we came through with some sort of innovation, whether it’s prefab or modular or the use of AI or whatever it is, we could shift the dial quite significantly. I’m convinced that this could start to create some significant, not so much easy wins, because I don’t think there’s easy wins, but it could move the dial. And I think, certainly, when I saw the report, it was very refreshing. I expected to be honest with you, the way you articulated it, I didn’t expect it to be negative either. I’d seen other stats to show that productivity was extremely low. Certainly, construction seems to be the latest adopter of new technologies. I saw things like, obviously, technology industries were the fastest adopters. Construction seems to be the one that was the slowest to adopt new technologies. But listening to what you said, and it’s gone backwards, the positive from that then is definitely we can turn that around. And I think shining the light on that, again, it’s something that is now tangible that the governments can…they’ve got an evidence base, they can start working on addressing, which ultimately then will benefit the construction industry, the delivery of dwellings, and longer term then hopefully start to address both the housing affordability and then the rental affordability crisis in Australia.
Danielle: Look, I really hope so. And one thing I would say to your listeners is, it feels to me like the political window is open in the way that it hasn’t been at other points over the past decade. People genuinely appreciate this is a real problem. I think governments actually have the political will to do something about it. The more constructive the industry can be, and that is showing up with very concrete examples of where you think the regulation’s not working, what that means for projects, I think is the way you can be most helpful at getting a good outcome in terms of the policy settings.
Richard: I must admit, Danielle, one of the reasons why I started this podcast was because I detected about 12 months ago the significant pressure that the government was under. And so I’d go as far as saying it’s actually political suicide to not start addressing these. And gone are the days where people can just talk about things but not actually putting things into action. And when I reflect on the last 12 months with either Victoria or New South Wales and some of those substantial planning changes that they’re trying to enact, that says to me that’s the government that is desperately looking to get solutions on the ground, and I commend them for that. And, certainly, doing the reports that you’ve prepared and having these presentations or these sessions to educate the industry on what needs to happen is absolutely critical. I’m 100% convinced that they will be acting because, really, it’s not going to end very well for any of them politically, if they don’t. So, I hope to see more announcements at the federal and the state level. But, again, they need the right people around them, the right bodies of evidence like your report, and they need to make decisions that are in the best interests of Australia and not in the best interest of holding their power for the next political cycle.
And I suppose the advice to government is, I think that they’d get a lot more respect and support if they came out and actually said that. Property investment and development decisions are made over longer terms, whether it’s 7-10 years. It’s not the political cycle. And changing every three years or every six years is not sufficient to actually set up the development industry, whether that’s infrastructure or housing or social infrastructure for success. And it’s important that there’s that change in mindset. So, I wanted to thank you very much for coming on. Again, I love my data and my evidence. I will certainly be attaching the report to the podcast, a link to the report. Listeners, jump on and have a read of that. The data and the evidence is absolutely fantastic. And I must admit, it punches you in the face when you see some of the charts showing productivity or prices or supply. And it’s empirically proven that the issues that we have with productivity that I know a lot of the listeners would be seeing on the ground, but it’s now been more formally recognised. Thank you again for coming on, and I really hope that the report gets the airtime that it deserves.
Danielle: Thank you so much, Richard. Appreciate you having me.
Richard: Thanks very much. Bye.
Hi, everyone. I hope that you enjoyed today’s session with Danielle. I certainly found it incredibly insightful, both having read the reports and talking to her about productivity across the industry. In terms of the findings for today or for the session that I would like everyone to go away and think about, they’re as follows.
Productivity has gone backwards over the last 30 years. I must admit, that is a significant and a very alarming finding. I had anticipated that productivity to be very low because I had seen stats either by the Productivity Commission or by Grattan that showed the take up of various innovative technologies across various industries. And I always saw that building and construction and property was really at the lower end of the list in terms of embracing new technology. But the fact that it’s gone backwards is quite staggering to me. And as I said in the podcast, there’s two ways to look at it. We can either go, “oh, it’s all the world’s over and nothing could be done about it.” I choose to look at it differently and go, well, that then is a way we can significantly move the dial. And the fact that we are building houses the same way that we did 100 years ago just screams that there’s opportunity for innovation and also disruption to expedite the construction of dwellings. And I’m convinced that’ll go a long way to resolving one of the key input components of the housing crisis and the costs of construction that we have at present. So that’s the first point.
The second finding that I thought was very interesting is that these issues are not unique to Australia, but it’s rather the actual industry across the world. And I think that’s important for them to keep in mind because I suppose there’s the tendency to have a big crack at the various levels of governments saying that there’s too much regulation in Australia, these are the issues that are unique to Australia. Clearly, that’s not the case. Given that it’s worldwide, perhaps there’s a worldwide answer that we can do, and I’m hoping my instinct says that there’s significant opportunity for either disruption or for a pivoting of the industry given that this is a phenomenon that the world seems to need to solve.
The final one that I’d like everyone to keep in mind is the National Construction Code (NCC). I still haven’t landed on the fact as to whether it’s fully fit for purpose to encourage enough innovation or not. Again, my instinct in speaking with developers and builders in the industry, it says to me that perhaps more thought needs to be put into making the NCC more fit for purpose or future proof. I’m convinced then that having those proper regulations in place to encourage this innovation will certainly be very positive for the industry. And particularly, the first cap of the rank could be modular or prefab, and we’re going to do a separate session on modular and prefab. But when you do some reading into it, the impact that it can have on cost and quality and time is absolutely significant. And I appreciate that finance is not particularly keen on it right now. We’re certainly slowly adopting it, and I commend the CBA for starting to adopt it. But I can’t help thinking that if the NCC was amended to acknowledge and embrace some of this innovation, it would go a long way to helping finance derisk, and make proper investment and development decisions as it applies to building and construction.
Anyway, I hope that this podcast gave everyone some food for thought. You’ll be able to get the links to the reports attached to the show notes, and please do reach out to myself or to Danielle if you’d like to discuss anything further. Thanks very much.
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