Australia will not build homes more productively through one fix. The evidence points to a connected set of problems: weak long-run construction productivity, very small firms, slow and fragmented approvals, regulatory complexity, workforce constraints, limited innovation and builders exposed to financial and contract risk. The practical response is to coordinate approvals, review building rules, improve worker mobility, remove barriers to innovation and strengthen builder finances and consumer information—while measuring which changes actually improve delivery.
Why is Australia’s residential building sector under pressure?
Productivity has weakened over decades
The Productivity Commission’s 2025 report, Housing construction productivity: Can we fix it?, found that Australia completes about half as many homes per hour worked as it did in 1995. That physical measure compares dwellings completed with hours worked. On a separate, quality-adjusted measure, housing-construction labour productivity fell 12% from 1995 while economy-wide labour productivity rose 49%. These measures describe different things: the first counts homes relative to hours, while the second adjusts for the quality and characteristics of construction. They should not be merged into a single percentage.
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The Commission identifies a combination of constraints rather than one cause: complex and slow approvals, regulation split across levels of government, small firms with limited scale, low innovation and difficulty attracting and retaining workers. These factors can reinforce one another. For example, fragmented approval responsibilities can add uncertainty and delay, while smaller businesses may have fewer resources to absorb delays or invest in new processes.
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Fragmentation is visible in firm size
Residential businesses are often very small. The Commission cites IBISWorld 2024 figures showing an average of 1.5 employees for house-construction firms and 1.9 for firms building multi-unit apartments and townhouses. Small scale can limit economies of scale and scope and leave less capacity for process or product innovation. That does not mean that eliminating small builders is the answer: the evidence identifies a structural constraint, not a case for consolidation as a standalone policy.
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Sector-wide productivity figures need careful reading
The National Housing Supply and Affordability Council’s State of the Housing System 2026 reports that labour productivity across residential, non-residential and civil engineering construction fell 2.9%, while multifactor productivity fell 2.8%, in 2024–25. Those are construction-wide figures, not residential-only results. The Council notes that the figures reflect strong growth in hours required for large-scale infrastructure projects, so they should not be presented as a measure of homebuilding alone.
Why do builders go broke, and what does insolvency mean for housing delivery?
Builder insolvency can disrupt projects and affect subcontractors and home buyers, but the available evidence does not establish a single national, residential-only causal model. Victorian Building and Plumbing Commission research identifies several pressures that can converge on a builder’s finances and operations.
Contract and market pressures
- Fixed-price contracts can leave builders exposed when material costs rise or supply is interrupted.
- Market volatility and interest rates can add pressure to already tight margins and financing.
- Delays and disputes can prolong projects and complicate cash flow.
Business and project-control weaknesses
- Warning signs identified in the Victorian research include declining profitability, cash-flow constraints, rising debt, staff shortages and capability gaps.
- Weak financial oversight, governance, project controls and risk management can make it harder to identify and respond to problems early.
The Commission’s 2026 research hub says construction accounted for 26% of all Australian insolvencies in 2024–25. That is a share for construction as a whole, not residential building alone. The hub also says a 2025–26 research project produced 23 recommendations spanning regulation, builder education and business capability, fairer financial-risk allocation, early identification of distress and decision-support data. These are recommendations, not evidence that the measures have been implemented nationally or that a particular intervention has reduced insolvencies.
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Which reforms address which bottlenecks?
The proposals below target different parts of the system. The Productivity Commission’s recommendations and interim proposals should not be confused with adopted reforms or proven outcomes: the sources available as of 7 October 2026 do not establish national implementation results or a comparative estimate of which reform would produce the largest productivity gain.
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| Reform direction | Main bottleneck | What implementation depends on | Evidence status as of 7 October 2026 |
|---|---|---|---|
| Coordinate and adequately resource approvals | Slow decisions and split responsibilities across governments | Coordination among decision-making bodies and sufficient council capacity | Productivity Commission recommendation; national outcomes not established |
| Independently review building regulation, including the National Construction Code | Regulatory complexity and possible cost burdens | Review design and decisions about any resulting changes | Productivity Commission recommendation; no precise code-attributable cost established here |
| Improve occupational-licensing consistency | Difficulty moving workers across jurisdictions and occupations | Agreement on licensing consistency while respecting relevant qualifications and standards | Productivity Commission recommendation; a complete implementation model and evaluated outcomes are not established |
| Remove barriers to construction innovation, including modular methods | Low innovation and limited uptake of new building techniques | Changes that allow methods to be developed and adopted in practice | Productivity Commission recommendation; modular building is an example, not a guaranteed cost or speed advantage |
| Strengthen builder capability and early distress response | Financial oversight, cash flow, project control and risk sharing | Builder education, useful data, fair allocation of risk and timely recognition of distress | Victorian Building and Plumbing Commission research recommendations; national causal outcomes are not established |
| Change planning rules in suitable, serviced places | Land-use constraints on housing supply | Planning decisions, location suitability and infrastructure servicing | Productivity Commission interim proposals; final inquiry report listed for March 2027 |
How can Australia make approvals faster without ignoring the whole chain?
The Productivity Commission recommends streamlined, coordinated planning approvals and adequate decision-making capacity at local councils. Its analysis also points to coordination bodies as a possible way to address delays in development and construction. The practical implication is that speed depends on the sequence and coordination of decisions across relevant authorities, not simply on asking one agency to work faster.
For governments, a useful test is whether a proposed change clarifies who decides what, gives decision-makers the capacity to act, and reduces avoidable hand-offs or delays. Approval reform still needs to be assessed against the full chain; the evidence reviewed does not provide a single national estimate of the productivity gain from a particular coordination model.
What should a building-regulation review examine?
The Commission calls for an independent review of building regulations, with a focus on the National Construction Code. It argues that the Code has not been comprehensively reviewed and that aspects may increase construction costs. That is a diagnosis and a recommendation, not a quantified estimate of how much the Code adds to the cost of a home. A review should therefore identify specific requirements and their effects rather than assume that reducing regulation, in general, will improve productivity.
How can skills and innovation improve the way homes are built?
Make qualified workers more mobile
The Commission recommends greater workforce flexibility through national consistency in occupational licensing. The intended mechanism is to make it easier for workers to move across jurisdictions or occupations where their qualifications and applicable standards permit. The detailed design remains a policy question; the evidence cited does not establish a complete licensing model or show the results of such a change.
Make it easier to adopt new building methods
The Commission points to modular construction as an example of innovation and recommends addressing barriers to the development and adoption of new techniques. Repeatable off-site processes may be relevant to how projects are delivered, but modular construction is not automatically cheaper or faster. Its performance depends on the circumstances of the project and the way the method is implemented; the evidence here supports it as an innovation example, not a guaranteed outcome.
What could make builders more resilient and help buyers spot risk?
The Victorian Building and Plumbing Commission’s insolvency research points to a response that combines business capability with better information and risk allocation. Relevant measures include stronger financial oversight, project controls and risk management; fairer sharing of financial risks; and earlier identification of firms in distress. The Commission’s research hub also describes decision-support data and builder education as parts of its recommendations.
For home buyers, the research supports practical due diligence rather than a guarantee that any checklist can predict failure. Check a builder’s credentials using the relevant state or territory regulator’s current guidance, understand the contract’s terms and risk allocation, and pay attention to warning signs such as project delays or disputes. Licensing, consumer protections and regulator processes vary by jurisdiction, so use the guidance that applies where the project is located.
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In its 2026 interim Housing supply regulation report, the Productivity Commission proposed broad-based upzoning in cities, including three-storey development on most residential land, lower minimum lot sizes, mixed residential and commercial uses, and more mid-rise and high-rise apartments in high-demand, well-serviced locations. These are interim recommendations open to feedback, not settled national policy. The Commission listed March 2027 as the due date for its final inquiry report.
These planning proposals address land-use constraints and are distinct from reforms to building approvals, construction regulation, workforce mobility or builder solvency. Treating them as one intervention would obscure which bottleneck a particular change is meant to address.
How should reform progress be judged?
Because the proposals address different constraints, a meaningful assessment should separate the mechanism from the outcome. A change to council capacity is not the same intervention as licensing consistency or earlier detection of financial distress. Governments and industry should be able to identify what was changed, which delivery bottleneck it targeted, who bears the costs and risks, and whether results were measured.
- Match the intervention to the bottleneck: approval delay, regulatory complexity, worker mobility, innovation uptake, builder financial distress or land-use constraints.
- Identify dependencies: council resources, intergovernmental coordination, licensing agreement, market capability or regulator data and oversight.
- Make risk allocation visible: account for effects on governments, builders, subcontractors, home buyers and communities.
- Distinguish evidence from policy: the productivity figures are measured historical findings; most proposed responses are recommendations, while the housing-supply report’s planning changes remain interim proposals.
The central policy challenge is not merely to build faster. It is to make the approvals, regulation, workforce, construction methods and business practices fit together well enough to deliver housing reliably, while tracking whether reforms improve productivity and reduce avoidable delivery risk.
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