Housing & Productivity: 5 Ways to Build Better Homes

For many Australians, housing represents a significant portion of their financial commitment, influencing crucial life decisions related to employment, education, and retirement. Over generations, the nation’s housing choices have profoundly shaped the economic success and productivity of its cities. Historically, stable and affordable housing fostered development by providing a consistent workforce, fueling progress. However, in recent decades, policymakers have largely overlooked housing’s critical link to productivity, a connection now thankfully gaining traction in government economic discussions.

Australia’s escalating housing affordability crisis is actively undermining urban economies. Many cities have become prohibitively expensive, deterring residents from living, working, establishing businesses, or pursuing education there. A growing number of Australians are consequently pushed to urban fringes, enduring arduous daily commutes. Simultaneously, many in job-dense areas reside in substandard dwellings they cannot afford to maintain or repair. Such poor-quality housing is known to worsen health outcomes, which inevitably acts as a drag on national productivity.

To reverse this trend and harness housing as a driver of productivity, several strategic shifts are necessary. One key area for improvement lies in how we build homes. Current Australian construction methods are notoriously inefficient, largely due to the fragmented nature of the industry, where head contractors manage dozens of subcontractors. This often leads to costly delays, with sites lying dormant or progress stalled awaiting a specific subcontractor. Embracing modern construction techniques offers a path to revolutionise housing delivery. This involves rapidly testing and scaling innovative technologies such as prefabrication, the use of alternative materials like recycled steel, 3D printing, and robotics. Standardisation alongside these advancements can significantly speed up and streamline the construction workflow.

Beyond construction, we must also consider how we utilise our existing housing stock more productively. As the population ages and household compositions evolve, the traditional ideal of a quarter-acre block no longer aligns with contemporary needs. While the average Australian household size has halved over the last century to 2.5 people, Australian homes are now, on average, the largest globally, double the size of those in most European and Asian nations. Greater stock diversity, including more townhouses, apartments, and other higher-density forms, would better match housing supply with population needs. Given that the vast majority of tomorrow’s housing supply already exists today, there is immense potential in repurposing aging structures and increasing their efficient use, even adapting former office buildings for residential purposes. Policy changes, such as abolishing stamp duties on home purchases and replacing them with a broad-based land tax, could further promote labour mobility and encourage downsizing, freeing up larger homes for families.

Furthermore, streamlining government responsibility for housing is crucial for increasing supply and improving productivity. Achieving integrated policy requires federal and state governments to align housing and cities portfolios under a single minister, with a clear mandate to prioritise housing delivery. Moving away from a fragmented approach where multiple ministers and departments inadvertently impede each other is essential. Some states have already demonstrated the success of such streamlining, with South Australia, for instance, combining housing and planning responsibilities under a “super department.”

The national target of 1.2 million well-located homes should not be misconstrued as exclusively inner-city development. There is significant economic potential beyond major urban centres. Australia’s regional areas have experienced substantial growth in recent years and could expand further if governments prioritised their future planning and delivered necessary infrastructure. This would unlock tens of thousands of new homes, simultaneously alleviating pressure on major city housing markets and providing the workforce needed for national ambitions, such as a better-connected electricity grid and stronger regional economies. Building more housing in the regions would directly boost productivity outside the metropolitan hubs.

Finally, embracing innovation, particularly through data and artificial intelligence, can transform housing policy. Australia’s diverse housing markets behave very differently across urban, regional, and remote areas. Waves of AI innovation offer the promise of streamlined planning processes and can generate precise predictions of housing behaviours at an individual level through advanced machine learning models. These models are already being trialled in the health sector for disease risk screening and can be adapted for housing through partnerships between leading housing and computing science experts. Housing programs, like HomeBuilder and Commonwealth Rent Assistance, have often been criticised for being poorly targeted. Machine learning models offer much-needed tools to achieve highly accurate targeting in housing policy design, leading to long-overdue improvements.

There is no singular “silver bullet” to solve the housing affordability crisis. It is time to overcome policy inertia and actively experiment with new solutions. The Australian government, states and territories, the private sector, and individual communities must undertake pilot programs, acknowledge what fails, and then scale up the most promising innovations. For example, emerging construction methods could first be pioneered in regional areas, where supply chains are often more fragile, before being rolled out nationally. As Australia’s productivity levels reach historic lows, understanding, discussing, and acting upon the wider housing system has never been more urgent. Like labour and capital investment, housing is fundamental economic infrastructure—a massive and powerful lever that must be harnessed to reverse productivity declines and revive prospects for long-term economic growth.