Australia's housing construction productivity crisis and the case for modular housing

Australia’s housing construction sector is facing a sustained productivity slump, with new research published by the Productivity Commission showing the number of dwellings completed per hour worked has plummeted by 53% over the past three decades. Despite increasing demand, driven by population growth and a housing shortfall, the industry has failed to achieve efficiency gains comparable to other sectors, placing further pressure on housing affordability.

A Sector in Decline

The Productivity Commission’s research highlights a stark reality: while overall labour productivity in Australia has increased by 49% since 1994-95, productivity in dwelling construction has gone backwards. The decline is attributed to multiple factors, including an outdated regulatory framework, inconsistent approval processes across jurisdictions, and an industry structure dominated by small-scale operators that struggle to invest in innovation.

Delays in planning approvals, variations in building codes across states, and restrictive zoning laws have significantly slowed construction timelines. The report notes that regulatory complexity alone adds substantial cost and time to projects, contributing to cascading failures where hold-ups in one stage of development lead to knock-on delays throughout the process.

Modular Housing: A Productivity Solution?

The report identifies modular and prefabricated construction as a potential method to improve productivity in the housing sector, though not a definitive solution. Prefabricated housing allows for components—or entire dwellings—to be built in controlled factory environments before being transported and assembled on-site, offering improved efficiency, consistency, and reduced weather-related delays.

However, modular construction remains underutilised, accounting for less than 5% of Australia’s total building output. The report highlights several barriers to wider adoption, including regulatory complexity, financing challenges, and industry hesitancy towards non-traditional construction methods. While the National Construction Code (NCC) does not prohibit modular construction, it remains largely structured around conventional onsite building methods. This has led to uncertainty in approval processes, with certifiers and local governments often taking a conservative approach, limiting investment in modular solutions.

Government Moves Towards Reform

There are signs of progress. The Australian Building Codes Board has begun working with industry to clarify regulatory pathways for modular and prefabricated housing. Additionally, governments are investing in modular solutions for social and affordable housing, such as QBuild’s Modern Methods of Construction program in Queensland, which aims to deliver 600 modular homes by the end of 2025.

Other proposed reforms include streamlining certification processes, recognising modular construction as an accepted practice in building regulations, and introducing product registration schemes to ease compliance burdens.

An Industry at a Crossroads

Australia’s construction sector faces a critical moment. Without meaningful productivity improvements, the country risks falling even further behind in meeting housing demand. Modular housing offers a path forward, but significant policy shifts are needed to facilitate its wider adoption.

If regulatory barriers can be addressed, and investment encouraged, prefabricated and modular housing has the potential to reshape Australia’s housing market—delivering homes faster, more efficiently, and at a scale that traditional construction struggles to match.

Find the Government’s Productivity Commission report HERE (pdf).