Slow home building holds back Australia as Reserve Bank meets to consider rates cut

The commission found a lack of innovation across the sector with many businesses unable or unwilling to change how they build. There has been little take-up of advanced building technologies or processes such as pre-fabrication.

This is partly related to the small scale of many building firms. The average residential building company has fewer than two employees, much smaller than the average Australian business. Productivity is higher for apartment blocks than individual houses.

The commission also blames a shortage of skilled workers for the sector’s woeful productivity levels. It argues that inconsistent occupational licensing arrangements across the country, limited opportunities for migrants to enter the sector and poor numbers of apprenticeships have all hurt housing construction.

While the commission’s research focused on Australia, it found that productivity in the home building sector has cratered across the world. Compared with countries such as the United States and Britain, productivity on Australian building sites is higher.

Wood said dealing with the regulation around home construction had to be tackled by all governments.

“The sheer volume of regulation has a deadening effect on productivity. If governments are serious about getting more homes built, then they need to think harder about how their decisions unnecessarily restrict housing development and slow down the rate of new home building,” she said.

Master Builders Australia chief executive Denita Wawn said the commission had made sensible recommendations that should be considered by all governments.

“Just like the housing crisis, there is no silver bullet to solving woeful productivity in the industry, and it requires a co-ordinated and comprehensive approach by all levels of government,” she said.

Housing construction has also been affected by the Reserve Bank’s sharp increase in official interest rates which financial markets and most economists expect to start reversing following its two-day board meeting which begins on Monday.

For a household with a $600,000 mortgage, a quarter percentage point cut in the cash rate would slice the monthly repayments by $100.

In NSW, where the average new loan has hit a record high of $811,000, the monthly savings from a quarter percentage point cut would be $133 or almost $1600 a year.

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Westpac chief economist Luci Ellis said the central bank could be confident that inflation, both headline and underlying, continued to point to falling price pressures which would enable the bank to cut interest rates this week.

Nomura economist Andrew Ticehurst said the long wait for a rate cut for Australian borrowers was coming to an end, aided by the economic growth risks posed by US President Donald Trump’s recent tariff announcements.

“We expect the RBA to note much uncertainty here, but think it would likely be more concerned about downside growth risks than upside inflation risks stemming from higher tariffs,” he said.

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