National Fund to Drive Modular Construction and Boost Productivity

In an address to the Australian Business Economists today, Treasurer Jim Chalmers outlined a $900 million National Productivity Fund that will incentivise state-led initiatives to revitalise Australia’s construction sector through modernisation. Emphasising the importance of boosting productivity in modular and prefabricated construction, Chalmers detailed how this new fund would be a catalyst for change, rewarding states that streamline regulations and foster innovation in construction methods. (Main pic: Modular builder Modscape affordable housing.)

Federal Treasurer Jim Chalmers.

“There is no more important structural problem in our economy than productivity. No higher priority for reform,” Chalmers stressed, highlighting the fund’s goal to address persistent productivity shortfalls, especially within the housing construction sector. With the ambitious target of delivering 1.2 million homes within five years, Chalmers noted the urgency of a productivity overhaul that includes modular construction, which offers efficiency gains while helping ease Australia’s housing affordability crisis.

Streamlined Policies to Drive Modular Construction
Chalmers underscored that the National Productivity Fund would specifically support modular construction—a method that has lagged in Australia due to bureaucratic barriers despite its proven benefits in other nations. “Areas of focus could include streamlining commercial planning and zoning, and removing barriers to the uptake of modern construction methods,” he noted, envisioning a simplified regulatory environment where modular housing can thrive. The fund, he explained, would serve as an incentive mechanism for states to adopt policies that reduce red tape and unlock modular construction’s potential.

The fund’s design is structured to offer a “menu of options” for state governments to pursue, allowing them to address specific regulatory challenges that obstruct construction timelines and inflate project costs. “This is all about rewarding states with more revenue, where they deliver meaningful and measurable economic reforms,” Chalmers said. By doing so, the government aims to reduce construction times and costs, ultimately easing pressure on Australia’s housing market.

Impact of Modern Construction Methods on Housing Supply and Affordability
The Treasurer also highlighted the productivity boost achievable by expanding modular and offsite construction. Prefabricated housing, he argued, could contribute significantly to the supply of affordable housing. “By improving efficiency and embracing offsite manufacturing, modular housing has the potential to address housing affordability by delivering quality homes faster,” he stated, suggesting that modular housing could offer both cost and time benefits if regulatory hurdles are removed.

Australia’s construction sector has experienced stagnant productivity for decades, averaging a growth rate of only 1.1% per year over the last decade. Chalmers cited Productivity Commission modelling, which suggests that if the sector’s productivity potential is realised, Australia’s GDP could increase by up to $45 billion annually. “That GDP boost represents about $5000 per household, per year,” he noted, providing a tangible perspective on the broader economic benefits.

A Broader Productivity Agenda
Beyond construction, Chalmers pointed out that the National Productivity Fund is part of a larger effort to drive efficiency across the Australian economy. The government’s productivity agenda addresses five pillars: competition, workforce skills, digital transformation, net zero transition, and an evolving care economy. Each pillar represents an area with significant potential for efficiency improvements that could benefit sectors ranging from manufacturing to healthcare.

“We’re applying new thinking to the challenge, broadening our ambitions beyond the tired slogans of scorched-earth industrial relations,” Chalmers said, underlining a commitment to progressive policies that enhance productivity without undermining worker welfare. He emphasised that the focus of productivity reform is not to push workers to work harder or longer, but to leverage modern approaches to achieve efficiencies.

Collaborative Approach with States
Recognising the limits of federal control over zoning and planning regulations, the Treasurer noted the fund’s cooperative structure, which enables states to tailor reforms to local challenges while accessing federal support. “We are revitalising and incentivising National Competition Policy with every state and territory, to make our economy more dynamic and resilient,” Chalmers said. This collaborative framework is expected to not only improve construction productivity but also drive growth across various economic sectors.

According to Chalmers, state cooperation is crucial for the fund’s success. “The PC [Productivity Commission] found a revitalised NCP could boost GDP by up to $45 billion a year and reduce prices by 1.45 percentage points,” he stated, citing the commission’s recent findings. The National Productivity Fund’s focus on competition and productivity, he added, will be supported by dedicated inquiries into each productivity pillar, allowing the government to continually refine its strategy.

Modular Construction as a Catalyst for Future-Ready Infrastructure
Chalmers’ address emphasised modular construction’s potential role not only in addressing current housing needs but in setting the foundation for a more sustainable and adaptable infrastructure landscape. By supporting offsite construction, he argued, Australia could develop housing more quickly and efficiently. “The National Productivity Fund is all about rewarding states with revenue where they deliver meaningful and measurable economic reforms,” he said, reaffirming the fund’s dual goals of incentivising state-led reform and catalysing the adoption of future-ready infrastructure.

He illustrated the broader implications of these efforts by referencing global shifts in construction. “Our economic strategy is built on relief, repair and reform,” Chalmers explained, noting that the fund aligns with Australia’s broader shift towards renewable energy, AI integration, and advanced manufacturing. These areas, along with the modular construction emphasis, represent the type of structural changes that the fund is designed to promote, helping ensure that future Australian infrastructure aligns with the nation’s evolving economic needs.

A Call for Prompt Legislative Action
In closing, Chalmers urged for timely legislative action to maximise the fund’s potential. With the next federal election approaching, he said, the government is keen to make headway on this agenda. The National Productivity Fund, he argued, represents a tangible investment in Australia’s economic resilience, one that can provide immediate and long-term benefits if states act decisively.

“This fund represents a commitment to build the next generation of productivity growth,” he concluded. Through a coordinated approach with state governments, the Treasurer expressed optimism that Australia’s productivity challenges can be addressed, paving the way for a more dynamic, resilient economy powered by modern, efficient construction practices and a collaborative, reform-oriented government approach.