$900 Million Fund to Boost Modular construction with policy Incentives

Treasurer Jim Chalmers will today announce a $900 million National Productivity Fund designed to reward states and territories that adopt productivity-enhancing reforms. Speaking at an event in Sydney, Chalmers will detail the initiative’s potential to revitalise the construction sector by encouraging modular and prefabricated housing through streamlined policies and regulations. (main pic: Henley Properties building with Melbourne-based modular manufacturer TBS.)

Federal Treasurer Jim Chalmers.

“There is no more important structural problem in our economy than productivity. No higher priority for reform,” Chalmers will outline, underscoring the urgency of policy change in the construction sector, which has seen stagnant productivity for decades. By offering grants for states and territories to improve productivity, the government aims to address Australia’s housing shortage with more efficient, modern building techniques.

The fund aligns with the Albanese government’s goal of delivering 1.2 million new homes within five years, a target at risk due to regulatory barriers and other procedural challenges. Recognising the limitations at the federal level, the government has opted for a cooperative approach, offering financial incentives in return for state-led reforms.

“This is all about rewarding states with more revenue, where they deliver meaningful and measurable economic reforms,” and the fund’s flexible structure will provide States with a “menu of options” for achieving productivity gains, from simplifying commercial planning and zoning processes to removing obstacles that have hindered the adoption of prefabricated and modular housing.

The Treasurer will highlight that adopting modern construction methods could help unlock more homes while lowering costs, saying, “Areas of focus could include streamlining commercial planning and zoning and removing barriers to the uptake of modern construction methods.” By improving efficiency and embracing offsite manufacturing, modular housing has the potential to address housing affordability by delivering quality homes faster.

The National Productivity Fund will complement existing federal efforts in the housing sector, such as funding for social housing and planning reform. Unlike these programs, however, the new fund aims specifically at enhancing productivity by addressing red tape that slows down construction timelines and raises project costs.

“We’re applying new thinking to the challenge, broadening our ambitions beyond the tired slogans of scorched-earth industrial relations,” Chalmers said. He stressed that improving productivity does not mean increasing work hours or cutting wages, but rather finding more efficient ways to produce homes through innovation and updated policies.

Australia’s productivity performance has been in steady decline, with growth averaging only 1.1 per cent per year over the past decade, compared to higher rates in the 1990s. This drop has led to a widening gap in living standards, which the new fund aims to close by fostering growth in sectors where productivity is lagging. Modelling by the Productivity Commission suggests that GDP could increase by up to $45 billion annually if productivity opportunities were fully realised.

“That GDP boost represents about $5000 per household, per year,” Chalmers will say, pointing to the fund’s potential economic impact. While not every suggested reform will be pursued, “we want to make meaningful progress where we can.”

The Treasurer’s speech will also address the significant barriers faced by the construction industry, particularly in modular housing. Simplified, consistent regulations would enable more widespread adoption of modular housing, a solution that has proven effective in other countries for scaling up housing supply.

Chalmers will reiterate the importance of investing in productivity as a means to advance living standards, arguing that the $900 million fund is just one part of a broader agenda. Other federal initiatives include the Future Made in Australia program, skills-focused migration reform, and new measures to support a competitive construction sector.

“This fund represents a commitment to build the next generation of productivity growth … applying new thinking to the challenge,” he will assert. The government will continue to advocate for reforms, but success will depend on cooperation from state governments, who must enact changes to unlock the funds.

With a limited window to enact these reforms before the next federal election, Chalmers emphasised the importance of timely legislative action. The government is also optimistic that this collaborative approach, which gives states the tools and incentives to reform at their discretion, will yield the productivity gains needed to boost housing supply and address affordability pressures.