A $900 million fund has been welcomed by economists hopeful it will modernise the construction industry where productivity has been flat for three decades.
Cutting red tape standing in the way of modular home construction will be rewarded by the federal government via a new fund aimed at spurring states and territories towards a suite of productivity-enhancing reforms.
The $900 million fund is part of the Labor government's broader push to rev up the nation's economic growth and lift living standards.
Treasurer Jim Chalmers will also task the Productivity Commission with five new inquiries, including examining the implications of an ageing population.
"Making it easier for Australians to see a doctor" and "building a world-class health technology assessment framework" were flagged as goals by Dr Chalmers in his speech at an Australian Business Economists event in Sydney on Wednesday.
Grattan Institute program director for economic policy Brendan Coates said the principle of paying states to make competition-boosting reforms was a good one that had worked in the past.
As part of national competition policy reforms in the 1990s and 2000s, the federal government paid states and territories close to $6 billion to undertake reforms later estimated to have boosted GDP by 2.5 per cent.
Yet the design and implementation of the new $900 million national productivity fund was key, Mr Coates told AAP.
"We can't avoid the fact that we have to reach across the Commonwealth-state divide to make these reforms, but working with the states and working out exactly what you're paying for with this fund is going to matter enormously."
Mr Coates welcomed the focus on the construction sector.
"Productivity in the construction sector has gone backwards in recent decades at the same time as productivity across the economy has risen by 50 per cent, so there's clearly a big problem here."
The federal government is under pressure to boost the supply of housing and improve affordability, with rents soaring after the COVID-19 pandemic.
Spelling out his government's overarching approach to boosting productivity, Dr Chalmers said it would not come at the cost of higher unemployment or "by insisting Australians work longer for less".
"We're applying new thinking to the challenge, broadening our ambitions beyond the tired slogans of scorched earth industrial relations," he said.
To turn the "productivity problem" around, the federal government has embarked on a full revitalisation of the nation's suite of competition policies.
Modelling by the Productivity Commission suggests GDP could be boosted by up to $45 billion a year if all opportunities were pursued, Dr Chalmers said.
Responses
Industry groups have welcomed the announcement of the $900 million productivity fund.
Property Council chief executive Mike Zorbas highlighted the additional focus on prefabricated and modular homes in the fund.
“We need large-scale supply chains, substantial investment and regulatory reform to put industrialised construction on the front foot in Australia,” he said.
“State Premiers and Planning Ministers have a mighty housing supply challenge in front of them.
“We would have 1.3 million extra homes today if our planning systems retained the efficiency they had in the twenty years before 2001.”
Committee for Economic Development of Australia senior economist Melissa Wilson said the construction-related changes under the fund were welcomed amid the country’s dire housing shortage.
She cited a McKinsey study that found prefabrication could cut housing construction times by as much as 50 per cent and reduce costs by up to 20 per cent.
Ms Wilson said a consistent pipeline of work will be needed to maximise the gains from modular housing.
“Construction productivity has been flat for three decades,” she said.
“Skills shortages and rising materials costs show the importance of efficiency gains, technological innovations and new ways of working to deliver high-quality housing and infrastructure on time and using fewer resources.
“Encouraging pre-fabricated and modular construction has an important role to play.”
“Pre-fab and modular housing could also help reduce waste in the sector, with construction now accounting for 38 per cent of all waste generated by Australians, driven by both demolition and new-build projects.”
Ms Wilson said the federal government’s national productivity fund was a positive start.
"It will encourage states and territories to make critical reforms despite the fiscal odds often stacked against them,” she said.
“While paying the states to undertake reform sounds expensive, we've done this before, and it’s worked.
“Under the National Competition Policy in the 1990s, these payments averaged around $600 million a year while making the economy up to 5.5 per cent bigger over the long term.”
Housing Industry Association managing director Jocelyn Martin said the fund offered significant incentives for states to reduce regulatory barriers and roadblocks for better delivery of housing supply.
“One of the most significant issues our industry faces right now in meeting new homes targets, is the layers upon layers of regulation that builders need to navigate prior to obtaining approvals to build and putting a shovel in the ground,” she said.
“Not only are these layers of red tape adding significant time to the building approvals process, but they are adding excessive costs that directly impacts on housing affordability.
“It is pleasing to see from today’s announcement that a key component of the $900 million Productivity Fund, will be competitive funding for those states and territories that implement planning and zoning reforms and remove other barriers to boost construction productivity.”
