Modernising construction: Can we fix Australia’s enduring housing crisis? Yes, we can

Despite political promises and public outcry, Australia continues to significantly underperform on its housing targets, currently lagging a staggering 50% behind what is required.

The critical question remains: What is holding us back?

The current election debates in Australia highlight a concerning imbalance in proposed housing policies.

While both major parties focus on demand-side interventions – Labor’s reduced minimum deposit and the Coalition’s mortgage repayment tax deductibility for first home buyers – a much-needed supply-side response is missing.

Labor’s commitment of $10 billion to build 100,000 new homes for first home buyers, coupled with plans to leverage underused government land and streamline development approvals, represents a direct attempt to address the supply shortage. As does its recently announced offer to state governments of $2b in concessional loans over four years to boost housing supply.

However, the experience of the existing Housing Australia Future Fund, established to boost social and affordable housing, reveals the challenges in translating policy into tangible construction outcomes. The fund has faced delays in finalising contracts and commencing construction, highlighting a broader weakness in effectively tackling the fundamental issue of housing supply.

The urgent need for productivity gains in housing

In a direct response to this pressing issue, the Albanese government established the National Housing Accord (Accord) in October 2022. This initiative pledged to facilitate the construction of one million new, well-located dwellings over five years, commencing in 2024.

This commitment explicitly acknowledged the government’s role in boosting the housing supply, subsequently evolving into a more ambitious target of 1.2 million homes by June 2029 – a goal necessitating a quarterly completion rate of approximately 60,000 dwellings.

Alarmingly, the current national construction completion rate – 44,884 homes nationwide in the September 2024 quarter – is demonstrably falling short of the required trajectory.

A significant factor hindering progress is the absence of productivity gains in housing construction.

A recent study by the Productivity Commission revealed that the amount of value workers create each hour has actually gone down by 12% over the past three decades in housing construction. This is surprising because, at the same time, the average worker in Australia is now much more productive (by 49%). This lag in productivity is significantly impacted by escalating construction costs, which have risen by 35% in the past five years.

This productivity challenge shows the urgent need for innovative approaches to building homes more efficiently, utilising resources effectively, and ultimately delivering more dwellings to meet the growing demand.

Our research reveals that historic efforts to address the construction productivity crisis have predominantly centred on improving on-site activities. However, it is well known that making changes during the construction phase is significantly more expensive and offers less flexibility for impactful adjustments.

Our research indicates that project success is heavily influenced by adopting a holistic perspective that prioritises the early stages of design and engineering, where modifications are more cost-effective and easier to implement.

Our research project has also found that leveraging this holistic approach is achievable through the adoption of Modern Methods of Construction (MMC). MMC involves the off-site fabrication of building components in controlled factory environments, followed by on-site assembly.

This process-focused approach significantly reduces reliance on large on-site workforces and enhances project predictability. The utilisation of prefabricated elements and modular construction has the potential to dramatically decrease construction time and resource consumption while simultaneously minimising waste and promoting environmental sustainability – benefits that directly translate to improved sector productivity.

Despite growing awareness of MMC’s potential among government and professional bodies, its widespread implementation will only be realised through substantial structural changes throughout the industry, requiring decisive and coordinated action from both federal and state levels.

Our research reveals that the pursuit of MMC can and will drive productivity improvement, but must be pursued from a holistic industry perspective across product and process rather than simply moving construction offsite.

Such an approach requires a range of interventions that our research has defined and is exploring, namely — a renewed and upskilled workforce that focuses on the integration of design and production, pursues innovation and invests in research, and is underpinned by new business/financial models, within a reformed regulatory context.

Future-focused workforce: Cultivating a modern trades force

International experience confirms that MMC demands a distinct skillset compared to traditional building trades. For white-collar professionals, training programs need to evolve to emphasise digital skills, logistics management, and crucially, design optimisation for efficient off-site production and seamless onsite assembly.

Conversely, blue-collar training should focus on upskilling towards multi-skilled operators proficient in off-site manufacturing processes, alongside enhanced softer skills such as communication, collaboration, and problem-solving.

Cultivating a modern trades workforce involves establishing new roles and clear career pathways within manufacturing facilities, which can attract a more diverse talent pool to the construction sector.

To facilitate this transition, the Vocational Education and Training (VET) sector must proactively adapt its curriculum to meet this evolving demand. This includes a critical update of National Training Packages to incorporate MMC-specific competencies and the creation of multi-credential pathways to foster both awareness and advanced upskilling in MMC methods.

Design for manufacturing and assembly: A new design ethos

Successful MMC adoption hinges on meticulous early planning, including a firm design freeze and strong supply chain coordination, highlighting the crucial role of design. However, fully leveraging MMC also requires a shift in design philosophy towards Design for Manufacture and Assembly (DfMA). This involves actively utilising standardised components and a ‘kit of parts’ approach—akin to how other industries have developed product platforms—facilitated by increased familiarity with available MMC products and potentially a centralised database of such resources.

This entails a transition from predominantly bespoke, site-specific designs towards solutions intentionally conceived and optimised for off-site fabrication and streamlined on-site assembly, and points towards a renewed white-collar workforce and skills base

Empowering small businesses through research and innovation

The distributed and fragmented nature of the Australian construction industry, dominated by numerous small companies, presents a unique challenge for Research & Innovation (R&I) investment.

Contrary to the perception of a sector led by large corporations, the vast majority of construction entities are micro-businesses with limited capacity for strategic future planning and the implementation of significant operational changes. Targeted funding for R&I initiatives specifically aimed at these smaller players is essential.

Our research demonstrates that documenting and disseminating real-world case studies showcasing successful transitions to MMC, particularly those leveraging prototyping for design refinement, testing, and communication, can serve as invaluable knowledge-sharing resources and provide practical lessons learned for small construction companies.

Regulation: Adapting to new ways of building

Existing regulations and contractual frameworks may also present barriers to the widespread adoption of MMC. Risk allocation in new types of contracts, particularly those involving collaboration between manufacturers and main contractors, material procurement, transportation, and on-site storage, needs careful reconsideration to reflect the unique characteristics of MMC projects.

A collaborative approach between industry and government is necessary to identify and address regulatory hurdles and ensure a smooth transition towards modern construction practices.

Financial models: A mismatch with modern construction

A key structural barrier hindering MMC adoption lies within current financial models. Traditional banking practices for development projects typically release funds in stages tied to conventional on-site construction milestones.

This established framework often clashes with the different payment schedules and the need for upfront investment characteristic of off-site manufacturing and construction. Adapting financial instruments to accommodate the unique cash flow requirements of MMC projects is crucial to unlocking their potential.

While the echoes of the 2022 housing crisis remain frustratingly familiar, our research offers a potent recipe for a different future.

By tackling the systemic barriers we've identified – a traditionally skilled but not future-fit workforce, a design ethos rooted in bespoke on-site builds, under-resourced R&I for small businesses, misaligned regulations, and outdated financial models – Australia can finally forge a tangible pathway forward towards supply-side solutions.

Our ongoing research will pursue practical implementation strategies for MMC. This includes designing a purpose-driven VET qualification system tailored for MMC, developing automated tools for streamlining coordination across all project stages, creating accessible R&I frameworks for SMEs through documented case studies and interactive prototyping, and proposing concrete regulatory reforms that actively facilitate off-site construction.

The time for incremental change has passed; a bold, modern approach is essential to finally turn the tide on the nation’s enduring housing crisis.