Most Australians allocate a significant portion of their income to housing, influencing decisions related to employment, education, and retirement based on the location, timing, and strength of their housing investments. Over the past four generations, these housing choices have played a crucial role in shaping the economic success and productivity of Australia’s cities. Stable and affordable housing has not only facilitated development but also provided a reliable workforce that fuels progress.
However, in recent decades, policymakers seem to have overlooked the importance of housing for productivity. Encouragingly, it has become a focal point in discussions at the government’s economic roundtable. Australia’s housing affordability crisis is currently undermining urban economies, making cities prohibitively expensive for many to live, work, start businesses, or pursue education. This has forced a growing number of Australians to relocate to urban fringes, enduring long commutes to work.
Addressing the Housing Affordability Crisis
The current housing situation presents several challenges. Many people in job-dense areas reside in substandard dwellings they cannot afford to repair, which adversely affects health and, consequently, productivity. To harness housing as a driver of productivity, here are five innovative strategies:
1. Building Houses More Efficiently
The construction of Australian homes is often inefficient due to the fragmented nature of the industry, where a head contractor manages numerous subcontractors. This leads to increased costs from delays and days with no activity on site. Embracing modern construction methods could revolutionize housing delivery.
Rapid testing and scaling of innovative technologies, such as prefabrication, alternative materials like recycled steel, 3D printing, and robotics, can expedite construction workflows. Standardization can further enhance efficiency, ultimately delivering housing more quickly and affordably.
2. Utilizing Housing Stock More Productively
As Australia’s population ages and household compositions change, it’s essential to move beyond the traditional quarter-acre block model. Despite an average household size of 2.5 people—half of what it was a century ago—Australian homes are now the largest globally, double the size of those in many European and Asian countries.
Increasing stock diversity through townhouses, apartments, and other higher-density forms can better match housing supply with population needs. Since most of tomorrow’s housing supply already exists today, repurposing aging stock and adapting former office spaces can yield significant benefits. Additionally, replacing stamp duties with a broad-based land tax could promote labor mobility and downsizing.
3. Streamlining Government Responsibility for Housing
To boost housing supply and enhance productivity, integrated policy is crucial. Federal and state governments should align housing and cities portfolios under a single minister with a mandate to prioritize housing. This approach has seen success in some regions, such as South Australia, where housing and planning responsibilities have been consolidated under a “super department.”
4. Tapping Into Economic Potential Beyond Cities
Australia’s national target of 1.2 million well-located homes should not be misconstrued as exclusively inner-city developments. Regional areas have experienced significant growth and could expand further if governments prioritize planning and infrastructure delivery, unlocking tens of thousands of new homes.
This would alleviate pressure on urban housing markets and provide the workforce necessary to achieve national goals, such as a better-connected electricity grid and robust regional economies.
5. Embracing Housing Innovation
Australia’s diverse housing markets, spanning urban, regional, and remote areas, require innovative solutions. Advances in AI offer streamlined planning processes and precise predictions of housing behaviors through machine learning models, already tested in the health sector for disease risk screening.
By applying these models to housing, policymakers can achieve greater precision in housing policy design, improving programs like HomeBuilder and Commonwealth Rent Assistance, which have faced criticism for poor targeting.
Time for New Thinking
It is time to abandon the search for a singular solution to the housing affordability crisis. The Australian government, states and territories, the private sector, and communities must pilot new approaches, acknowledge failures, and scale up promising innovations. For instance, pioneering emerging construction methods in regional areas with fragile supply chains could set the stage for national implementation.
As Australia’s productivity levels reach historic lows, understanding, discussing, and acting on the broader housing system is more urgent than ever. Housing, like labor and capital investment, is essential economic infrastructure. It is a powerful lever that must be harnessed to reverse productivity declines and revive long-term economic growth prospects.
The authors would like to acknowledge the contributions of Michael Fotheringham, Managing Director of the Australian Housing and Urban Research Institute, to this article.
