Australia's housing construction sector has long been marked by sharp swings. According to a new inquiry, it has been gripped by booms and busts. Strikingly, the rate of building has been basically unchanged since 1980. The finding points to a sector that struggles to lift its output despite repeated efforts.
The inquiry itself took a broad view of the industry. It was a holistic study carried out by the Australian Housing and Urban Research Institute. The work singled out one factor above all others. It identified market volatility as the biggest constraint to lifting completions.
The researchers were specific about what they meant by volatility. They were not referring to normal property cycles. Instead, they pointed to extreme cases of demand: deep booms and deep troughs. These are tied to stimulus measures and what was described as the artificial manipulation of demand.
The consequences of those swings have been visible in recent years. There was an increase in builder insolvencies after the COVID pandemic. Builders often have fixed-term contracts with clients but not with suppliers and contractors. When the cash flow they depend on dries up, many of them go under.
The volatility also affects the quality and pace of work. During strained periods, builders may have to work with less experienced people. Materials are not always available when needed, causing delays. Both factors can drag down the quality of construction output.
Downturns bring a different but related problem for the sector. In a downturn, the industry lacks the capacity to focus on productivity improvements. There is simply less work available. Resources can also shift into adjacent sectors like commercial building and infrastructure, and once they move, they are hard to bring back.
The inquiry also pointed to possible policy responses. One recommendation is to put a floor under the trough in demand by adding more social and affordable housing. The findings carry weight for the federal government's goal of building 1.2 million new homes in five years. Asked about the chance of reaching that goal, a lead researcher gave it a very low chance.