Construction sector under siege as builders working harder, paying more, producing less

The construction sector is working harder and paying more for materials, yet producing fewer homes.

The result is higher housing costs that push homeownership out of reach for many Australians – today, more and more Australians can no longer afford to own or rent in most markets.

As affordability falls and supply dwindles, governments are pressuring builders to deliver faster. Builders, in turn, must contend with inflated material costs and a shrinking skilled workforce, both of which drive up expenses and ultimately, home prices.

Every month, Australia falls further behind its housing targets.

A recent Productivity Commission report points to an even deeper issue: housing construction productivity has barely improved in the last 30 years. In fact, the report finds that dwellings completed per hour have dropped by more than 53 per cent over that period, meaning fewer homes are being built for double the labour, time, and resources.

So how can the cycle of higher construction and housing costs be broken and productivity brought back on track?

The government is introducing measures like faster assessments, quicker approvals, and modernised processes, all of which will ease pressure for the construction sector.

For real progress to happen, the sector must embrace huge and lasting reforms to its construction delivery models and building methods.

Current delivery models have cracked under pressure

Since mid-2023, Australia has approved 181,643 new homes – well short of the 240,000 needed annually to hit the National Housing Accord target of 1.2 million homes by 2029.

To close this gap and restore housing construction productivity, the sector must urgently take bold action, and it can start with a complete rethink of its housing delivery models.

The construction sector completed a record $267 billion worth of work in 2024, yet residential building made up just $79 billion of that total. This imbalance clearly highlights how traditional construction is struggling to keep up with urgent demand for high-quality housing.

Rising material costs, skilled labour shortages, supply chain disruptions, and weather-related delays further constrain the effectiveness of rigid traditional methods.

On top of that, traditional build times are significantly longer – often up to 12 months for traditional methods versus 16 weeks for prefab builds – slowing the addition of much-needed housing supply.

Modern Methods of Construction (MMC) provide a proven alternative.

Housing delivery is made faster and more sustainable through techniques like modular building and off-site prefabrication.

Standardisation is key and the adoption of the Toyota principles will be critical to reducing cost and waste, which are embraced from the concept stage of any project. The Toyota Way famously set out 14 principles grouped into two main categories: philosophical principles focused on long-term vision and process principles focused on creating a continuous flow and efficient systems.

State governments like New South Wales have committed $10 million to modular social housing trials, while Queensland has allocated $2.8 billion to deliver up to 600 modular homes through volumetric, flatpack, and kit-of-parts methods in 2024–25. Western Australia is also making modular homes a priority.

For real change to happen, however, the broader industry must embrace MMC at scale.

The biggest obstacle thus far would be the entrenched belief among industry players that traditional methods remain superior to modern approaches.

But with construction insolvencies rising to nearly 21 per cent year-on-year, clinging to models that have failed to deliver will only increase costs, delays, and failures that have led to diminished productivity over the years – further placing housing targets out of reach.

A productivity reset for the industry 

The shift from traditional to modern delivery methods doesn’t need to happen overnight, in one fell swoop, or mean that we prefabricate everything – but it must begin now.

Builders can implement several practical steps today to boost productivity, accelerate delivery, and keep costs under control:

Design for less: Aim for smaller project footprints, limited customisation, and tighter specifications to reduce material use and shorten construction time. This not only lowers costs but also cuts embodied carbon – a key advantage in an increasingly carbon-conscious regulatory environment.

Standardise and repeat: Take cues from the NSW Pattern book and make construction more predictable with common grids, repeatable wall types, and pre-approved assemblies. The state’s $1 architect-designed home templates demonstrate how standardisation can cut construction costs by up to 17 per cent while accelerating approvals.

Build more offsite: Prefabricated components such as roof trusses and bathroom pods can be manufactured offsite in factories, saving both time and labour. While unit costs may not always be lower, this approach saves construction time, which reduces on-site labour and finance costs. 

Adopt digital practices: Deploy digital-first approaches across design, procurement, and site control to compress project durations and eliminate rework. Collaborating with professional quantity surveyors can further improve forecasting and material planning, de-risking delivery.

Procure for productivity: When sourcing contractors or tradies, focus on certainty and efficiency rather than just the lowest upfront price. Engage contractors early to ensure construction sequences are well-optimised from the start.

Without systemic and decisive change, the sector faces a slow decline, with builders working harder and paying more only to deliver fewer homes as the public loses confidence in the industry.

The only sustainable path forward is to embrace modern delivery methods and productivity-focused techniques.

It’s the only way the sector can cut costs, save time, and ease labour pressures – all while also making affordable, high-quality homes a reality for millions of Australians.