MMC in Australia: State of Play 2024

Recent data on offsite manufacturing and modern methods of construction

 

The Australian Bureau of Statistics annual Australian Industry data is now available for the 2022-23 financial year. This data includes output as Industry value added (IVA, in current dollars for the financial year) and employment in June for industries and their sub-divisions. For manufacturing the data is more detailed with output and employment at the level of industry class.

 

There are 12 construction related manufacturing industry classes, such as those producing paint, cement and structural steel. Two of those classes are Prefabricated wooden structures and Prefabricated metal buildings, and this post first presents the data for those industry classes up to 2023. However, as well as manufacturing, other industries involved in offsite manufacturing (OSM) are construction, design services and business services. Therefore, the second part of the post collects recent information on prefabricated and modular building at the state level to get a wider view on current industry trends, with a focus on prefabricated buildings recently delivered for State Governments, typically under a modern methods of construction (MMC) policy. The third section looks at possible actions by government and industry that would increase the use of MMC in Australia. 

 

The ABS data is limited to the relatively small number of firms that classify themselves as prefabricated building manufacturers, and thus excludes offsite work by firms that are classified as building or trade contractors (e.g. Hickory Building Group), architectural (e.g. Dimension X) or engineering (e.g. James Energies) practices. It also excludes OSM done inhouse by other industries like hotels for tourism, student housing, manufactured housing estates, retirement and aged care accommodation. 

 

Therefore, unfortunately, the actual extent and depth of prefabrication and OSM used in Australian construction cannot not found from ABS data. The lack of accurate and up to date data on how many and what type of prefabricated buildings and components are produced each year in Australia is a significant gap in knowledge and understanding of the industry. Because OSM and prefabrication have an important role to play in increasing housing completions, particularly social housing, and addressing the industry challenges of sustainability, productivity and skills this gap also has important policy implications. 

 

 

Prefabricated Wooden Structures and Prefabricated Metal Buildings

 

In June 2023 total employment in the two industry classes was 10,048. The great majority are employed in Prefabricated metal building with 8,636 people, compared to Prefabricated wooden building with 1,412. However, since 2015 employment in Prefabricated wooden building has doubled, increasing by 102%, while Prefabricated metal building employment increased by 59%. While these employment figures are fully representative of the industry, they may be the one of the best indicators available for the growth of OSM in Australia. 

 

Figure 1. Employment in prefabricated building

Source: ABS.

 

When Prefabricated metal building and Prefabricated wooden building are combined, their percentage in IVA and employment of total construction related manufacturing has been gradually increasing since 2018. As Figure 2 shows, IVA growth dipped in 2017 and 2018 and employment was the same in 2016 and 2017. From 2018 to 2023 there was continual year on year increases in the shares of IVA and employment. Although not spectacular, this growth is indicative of wider industry growth.  

 

Figure 2. Prefabricated building manufacturing industry share

Source: ABS.

 

There are other, much larger, ABS construction related manufacturing industry classes that produce building components with some unknown proportion of OSM and prefabrication in their output. These other industry classes include Wooden structural fittings and components (employs 27,908 people), Concrete products (employs 8,133 people), Structural steel fabricating (employs 21,521 people), and Architectural aluminium products (employs 16,703 people). 

 

Measured as IVA per person employed (in current dollars), the productivity of the prefabricated building industries is higher other wood and metal manufacturing industries. As Figure 3 shows, Prefabricated wooden building has 60% more IVA per person than Wooden structural fittings and components, and 40% more than Veneer and plywood manufacturing (employs 1,268 people).

 

Figure 3. Wood product manufacturing productivity

Source: ABS. IVA in current dollars. 

 

There is a similar story for metal products, in Figure 4. Prefabricated metal building has 45% more IVA per person than Architectural aluminium products and around 11% more than both Structural steel and Metal roof and guttering manufacturing (employs 4,162 people). 

 

Figure 4. Metal products manufacturing productivity

Source: ABS. IVA in current dollars. 

 

 

Queensland

 

QBuild’s modern methods of construction (MMC) program is building homes in a factory at Eagle Farm in Brisbane, opened in 2022. There is also a Rapid Accommodation and Apprentice Centre that provides training.A second, smaller RAAC operates at Zillmere. A third factory and RAAC in Cairns will open in mid-2024. There are 11 industry partners: Ausco, Fleetwood, Hutchies Modular, Modscape, Blok Modular, Eco Cottages, James Engineering, ModnPods, Saltair Modular, Volo Modular, and WestBuilt Homes. 

 

The government’s Homes for Queenslanders initiative aims to deliver 53,500 new social homes by 2046, with more than 100 modular homes built in 2023 and more than 150 homes expected by mid-2024.  The June 2024 budget includes $2.8 billion for up to 600 modular homes in 2024-25, and the medium term goal is to increase social housing production to 2,000 homes by 2027-28, a goal that puts Queensland at the front of housing policy in Australia. 

 

In Hervey Bay, 11 Volo Modular homes manufactured at Volo’s Yatala facility were delivered over two days in November 2023. Volo is also producing seven homes to go to Eidsvold. Also in Hervey Bay, a modular 24-bed medical ward is expected to be completed by the end of 2024 as part of the expansion of the hospital. In Gladstone, six two-bedroom modular homes constructed in Hutchinson Builders’ Toowoomba factory have been completed. 

 

New South Wales

 

In May the NSW Government and the Building 4.0 CRC committed $2 million each to developing and testing prototypes of medium-density social housing projects that incorporate MMC.

 

In May forestry company Pentarch group invested in Green Timber technology (GTT), a modular builder fabricating a timber kit of parts of walls, roofs and floors that is setting up a new factory in Orange. GTT has been prequalified for the School Infrastructure NSW scheme that uses a standardised design for buildings. 

 

Through Homes NSW the Government opened an offsite procurement list in April as part of a $10 million MMC development programme. The procurement list covers 3D primary structural systems (volumetric or modular), 2D primary structural systems (kit-of-parts), additive manufacturing, and non-structural assemblies and sub-assemblies like floor and wall cassettes and kitchen and bathroom pods. Applications are to include a description of ‘how your business contributes to the skills development of the MMC workforce, and the NSW Government’s skills and training policy’.

 

The Manufacturing for Schools program incorporates prefabricated elements to deliver new and upgraded school buildings for School Infrastructure NSW. In February the APP Group was awarded the Manufacturing Partner contract, responsible for connecting the supply chain to deliver the ‘kit of parts’, with partners including Lipman, Ark, MBM, WSP, Woods Bagot, Bennett and Trimble, Richard Crookes Constructions, and Roberts Co.

 

In November 2023 a modular construction taskforce was set up, with representatives from PreFab Aus, Shelter NSW, Community Housing Industry Association, Local Government NSW, Property Council of Australia, Government Architects, Industry suppliers and union representatives. alongside people with lived experience of social housing. In the 2023-24 NSW budget $10 million was allocated to new social housing supply and innovative solutions to get people off the social housing waitlist. 

 

Victoria

 

Melbourne-based Modscape opened a new Modbotics division in a 20,000 square metre facility in Essendon Fields in May 2024, after a two year installation and commissioning period. Modbotics was established to manufacture open and closed walls, passive house walls, and floor and roof cassettes, using a Randeck Robotics production system. Randeck are a leading provider of automated production systems and equipment for prefabricated house production. 

 

In March 2024 Homes Victoria announced an Expression of Interest for supply of 250 modular homes in Regional Victoria as part of the Modern Methods of Construction (Modular) Regional Victoria project, aimed at supporting the provision of social housing in the region. The project aims to deliver the homes by no later than 2026-27, with a phased delivery program expected. The Office of Projects Victoria's goal is for all projects to use offsite construction techniques where feasible and efficient. 

 

The first of 25 dwellings for the Homes Victoria and Haven Home Safe social housing project in Horsham, Victoria, built by modular builder, ARKIt, arrived on March 29. The tender process involved both traditional and modular builders, and the ARKit proposal, including all site and civil works, was approximately 8% lower in cost.

 

In what was the Ford factory in Geelong, Cross Laminated Offsite Solutions (CLOS) is installing an automated production line to produce modular and flat-pack buildings. Their Homag-Weinmann panelised manufacturing wall line can cut a kit of parts for a modular home in a single day or a three-storey townhouse in three days. Homag is a leading automation and timber frame construction company. CLOS have partnered with Geelong’s Gordon TAFE for a Construction Pathways Program, a course for new workers. However, on May 28 CLOS announced it was going into ‘voluntary administration to restructure and stabilise the business and seek investment for future growth’. More capital is needed because of the cost of establishing the new factory. CLOS claims it has a significant order book of future work. 

 

South Australia

 

Timberlink’s new cross-laminated timber (CLT) and glue-laminated timber (GLT) manufacturing plant in Tarpeena, South Australia, opened in February. The NeXTimber facility is Australia’s only combined CLT and GLT radiata pine mass timber facility, integrated with a structural timber manufacturing plant. Capable of producing CLT panels up to 16 metres long and 3.5 metres wide, and GLT beams up to 12 metres long, the project was supported by a $2 million grant from the South Australian government under the Strategic Business Round 2020 of the Regional Growth Fund. 

 

Fusco Constructions is building a modular construction factory of 4,000m2 at Tonsley Innovation District, a former Mitsubishi car manufacturing site. Fusco Constructions was a plumbing business that expanded into civil, commercial and development projects, and now modular construction.

 

Western Australia

 

The Western Australian government took delivery of 19 new social homes in Hamilton Hill, Western Australia in April. The 19 homes were manufactured by Perth-based panelised timber specialist manufacturer, OFFSITE.  Their manufacturing process uses Homag-Weinmann timber processing machinery with an integrated ‘digital twin’ software solution by hsbcad that connects the process, from design through to manufacturing and assembly.

 

Ausco Modular is delivering a $15 million double-storey school building in Kwinana, Western Australia. The modular school building is part of their Progress-ED range, developed by in-house engineers and designers. In March the WA government announced Highgate Primary School will receive a similar two-storey building. Budgeted at $12 million, the building will be constructed using the MMC methods demonstrated with the Kwinana project. 

Tasmania

 

Property developer David Marriner currently owns a factory in Brighton producing concrete segments for Tasmania’s Bridgewater Bridge. Upon the bridge’s completion, he intends converting the factory into an automated facility capable of producing precast panels for 1,700 houses annually. The conversion of the factory will require investment of approximately $30 million, and Marriner is not seeking government funding for the conversion but is looking for government support in housing orders to ensure a stable financial base for the factory. 

 

Bridges

 

Australian company InQuik has built over 200 bridges using a modular system with prefabricated formwork trays with reinforcing steel that are placed onsite and filled with concrete, reducing construction time. The formwork is made from Magnelis, a corrosion-resistant material from ArcelorMittal Europe, and remains in place after concrete is poured. The system has now been used in the United States, where a 9-metre-long, 8-metre-wide bridge in, Eau Claire County, Wisconsin, was completed in a month, compared to three-to-four-months for a traditional bridge.

 

Mass timber

 

In May Cedar Pacific, an Australian property investment firm, and Sumitomo Forestry Co., a Japanese forestry and wood management firm, entered a strategic partnership to develop a $1.2 billion portfolio of build-to-rent apartments, in Australia and New Zealand using mass timber buildings. Sumitomo Forestry will acquire just under 50% equity in the BTR projects, starting with a $375 million development in Brisbane. The joint venture has a pipeline of projects in Melbourne, Canberra, Brisbane, and Auckland. 

 

What Could the Commonwealth Government Do? 

 

In March 2024 Building Ministers ‘agreed to work together to cut red tape and enable further expansion and growth in Australia’s prefabricated and modular construction industry.’ The Australian Building Codes Board is to ‘work closely with industry bodies and jurisdictions to reduce barriers’. The next Building Ministers meeting is in June. 

 

The Commonwealth Government is responsible for the National Construction Code and the Building Code of Australia. Revising and updating these is a slow, consultative process from initial proposal through technical advice, impact analysis, comment and review, and the process would be speeded up with more resources. These would allow the Australian Building Codes Board to develop performance standards for prefabrication and modular construction for inclusion in the NCC, and Standards Australia to review relevant standards and develop a set of ‘deemed to satisfy’ construction solutions for prefabrication and modular construction. A set of standards for MMC would be the basis for a quality assurance scheme like the UK‘s Buildoffsite Property Assurance Scheme (BOPAS) discussed below. 

 

What Could State Governments Do?

 

State governments could identify unused land or repurpose appropriate sites for housing development with MMC. By specifying the use of prefabrication, modular construction or 3D concrete printing these developments would be demonstration projects for MMC. Access to data on costs of construction for different versions of MMC for researchers should be a contract condition so a credible evaluation of comparable delivery costs can be published. There are also Commonwealth Government sites this applies to.

 

Technology and training centres like the Queensland RAAC can be established to produce social housing or essential worker housing. A version of this model could also be used for training workers and producing indigenous housing in regional areas. 

 

Institutional projects like hospitals and schools can be built with prefabrication and modular construction, the NSW Schools Infrastructure program is a model for this. Again, these can be used as demonstration projects and data on costs and defects should be published for the finance and insurance industries to assess risk associated with MMC.

 

What Could Industry do?

 

The UK Buildoffsite Property Assurance Scheme (BOPAS) was developed to address the risks associated with MMC. It provides firms independent third party accreditation to industry standards and allows access to mortgage financing and insurance for MMC projects. The scheme was developed by MMC industry association Buildoffsite with insurance companies and finance industry associations input, and started in 2013. A similar certification scheme is needed for Australian MMC producers.

 

 

Conclusion

 

The scale and extent of offsite manufacturing and MMC in Australia is not well defined at present. There are many producers, ranging from large contractors like Hutchinson to architectural practices like Dimension X. New factories are being set up in 2024 in NSW and South Australia by builders and contractors, and by government in Queensland. How many producers there are and what type of prefabricated and modular construction (volumetric, panelised, pods etc.) they are producing is not known.

 

That is because ABS industry data does not include offsite work done by firms classified as building or trade contractors, architectural or engineering practices, or work done inhouse in industries like hotels for tourism, student housing, manufactured housing estates, retirement and aged care accommodation. The ABS problem in measuring the prefabricated building industry is that the industries firms involved come from include manufacturing, construction, professional and design services, and this sort of detailed data spread across different industries is hard for the ABS to collect.

 

With OSM and prefabrication being seen as important to addressing the industry challenges of providing affordable housing and improving sustainability, productivity and skills, this lack of data is regrettable. The lack of data on how many and what type of prefabricated and modular buildings and components are produced each year in Australia is a problem if an objective of industry policy is to increase the use of prefab and modular construction. 

 

Nevertheless, there is good evidence that MMC is growing strongly in Australia, both from the ABS data and from reports from industry. State governments have started sponsoring prefabricated and modular buildings, although some of these programs are small scale, toe in the water trials where a few buildings have been procured for regional centres. On the other hand, the NSW schools program and Queensland’s housing policy are major policy commitments to MMC. Some state government owned sites should be used for housing developments specifying MMC for demonstration projects, and researchers given access to cost data for evaluation and credible comparisons. 

 

Queensland is leading in promoting MMC. Qbuild has established three factories and training centres, and produced over 100 houses in the last year. There are 11 industry partners in the Homes for Queenslanders MMC program, which has the goal of delivering 53,500 houses by 2034 through a combination of contractor and government production, and the 2024 state budget has funding for 600 prefabricated houses.

 

Timberlink’s new cross-laminated timber (CLT) and glue-laminated timber (GLT) factory in South Australia joins Xlam in NSW and Cusp in Tasmania as Australian manufacturers. There is also Crosslam Australia manufacturing CLT panels in Perth and Hyne Timber in NSW making GLT beams. The number of high-rise buildings using mass timber is growing with current projects like student accommodation for La Trobe University and the T3 office block in Melbourne, residential tower C6 in Perth, Atlassian’s new Sydney headquarters (the world’s tallest hybrid timber tower), the Sydney Fish markets, and Cedar Pacific’s build-to-rent development in Brisbane.

 

At the May Building Ministers meeting enabling growth of MMC was agreed. The Commonwealth Government should increase the resources available to the Australian Building Codes Board to develop performance standards for prefabrication and modular construction for inclusion in the Construction Code, and to Standards Australia to review relevant standards and develop a set of ‘deemed to satisfy’ standards for MMC. These would be the basis for an Australian quality assurance scheme like the UK ‘s Buildoffsite Property Assurance Scheme. 

 

Australian Construction and the Shortage of Workers

 Industry employment and the quantity of work done

 

This post looks at output and employment in Australian construction over the last few years. Although there have been many suggestions there is a shortage of workers and this is the main constraint on industry capacity, construction employment is now all-time high. Between June 2021 and June 2023 employment increased by 14% while output increased by only 4%.

 

The construction industry is widely seen as having a serious employment problem, or more precisely a significant lack of workers. In November 2023 Master Builders Australia estimate was the industry will need to attract about 480,000 new workers by the end of 2026 to build enough homes for a growing population. How they got this improbably large number of about 40% of current employment is not explained. 

 

The December 2023 Skills Shortage Quarterly report from Jobs and Skills Australia found fill rates for Engineering Trades Workers (30%) and Construction Trades Workers (38%) suggests ‘skill shortage pressures are most acute for these occupation groups’. (The fill rate is the percentage of advertised positions filled). 

 

Another indicator, the April 2024 HIA Trades Availability Index was -0.58, down from -0.64 at the end of 2023. The index has had a shortage of skilled tradespeople in Australia since 2021, as in Figure 1. This ‘acute shortage’ of skilled trades in 2024 is despite a slowdown in building activity. 

 

Figure 1. Housing Industry Australia Trades Availability Index

 

Source: HIA

 

In October 2023 BuildSkills Australia was established by the federal government, as the national Jobs and Skills Council for the built environment sector, to find solutions to the workforce challenges facing the construction, property and water industries. Their March estimate that an extra 90,000 workers will be needed to achieve the National Housing Accord target of 1.2 million homes over five years led to  headlines like this one in the Sydney Morning Herald and The Age on March 24:  Australia skills shortage preventing Labor's housing goal. 

 

Finally, in response to Peter Dutton’s budget reply speech developers and economists lined up in the Financial Review  to argue any limits on skilled migration that reduced construction workers would add to the shortage of skills and workers and further reduce the already remote likelihood of building anything close to a million new homes in the next five years. Residential developers also claimed non-residential building and engineering construction, which are increasing output, are taking workers away from residential building, where output is falling, and making the skills and worker shortage worse. 

 

For all the claims of lack of workers and constraints on capacity it is an inconvenient fact that construction employment is actually at an all-time high. According to the Australian Bureau of Statistics it was a record 1,338,314 people employed in November 2023 and was 1,316,931 in February 2024. There has been significant growth in the number of people employed over the last few years, but over that period the volume of work done has barely increased. That is the issue, why is output not increasing as the number of people employed is increasing? Because it is a relatively labour intensive industry, construction industry capacity is assumed to be directly related to the size of the industry workforce.  

 

The current high level of employment does not, of course, mean there is not a problem with training, skill levels and worker availability, or that there will not be a problem with maintaining the construction workforce in the future, which is aging and has to compete for new workers. And the focus on trade skills means that shortages in professional services like designers, project managers and quantity surveyors are often not included as part of the problem.  

 

Industry Output

 

The Australian Bureau of Statistics final estimate of the quantity of construction work done is published several months after the quarterly estimates of the value of building and engineering work done. The most recent data is up to December 2023. These chain volume measures of work done adjust value of work done for inflation and are for the volume or quantity of work done. Construction industry capacity is the volume of work that can be done in a year, based on the limits that exist in the supply of materials and the availability of workers.

 

With the significant increases in prices for building materials and labour costs over the last couple of years the headline numbers for the nominal value of work done have increased by around 40 percent for both building and engineering. Adjusting the nominal value of work done for these price increases to get an estimate of the quantity of work done dramatically changes the picture. 

 

The output or volume of work done by the construction industry has increased over the last few years, but not by much. From the ABS chain volume measure low of $189 billion in 2021 and 2022 it was $196 billion in 2023, and my forecast is $202 billion in the year to June 2024. In the six months to December 2023 the volume of work done was $106 billion, but less work is done between January and June because January is usually the annual holiday and there are other public holidays.  

 

As Figure 2 shows, the increase in work done is due to small increases in non-residential building and engineering construction. Engineering construction was $63 billion in the year to June 2023 (half the record levels of the peak mining boom years of 2013 and 2014) and will be at least $3 billion more in 2024. Non-residential building work done was $54 billion in the year to June 2023 and will be a couple of billion more in 2024. The quantity of residential building work done has been $80-81 billion a year since 2020, and is forecast to be at that level for 2024 (there was $53 billion of residential building work yet to be done in December 2023).  

 

Figure 2. Australian construction output by sector

Source: ABS

 

Industry Employment

 

Both Infrastructure Australian and the National Housing Supply and Affordability Council claim skill shortages, a lack of workers and low productivity are the limiting factors on Australian construction output. However, ABS data on construction employment has a record number of people employed in the industry in 2023 and 2024. The most recent ABS Labour Force data had total employment of 1,316,931 persons in February 2024 and an all-time high of 1,338,314 in November 2023. Also. around 80% of people employed in construction are working full-time. Figure 3 shows output and employment since 2007. The chain volume measure of construction work done is over the year to June and employment is for the month of May. Between 2021 and June 2023 employment has increased by 14% but output by only 4%. This is the issue. 

 

 

Figure 3. Australian construction output and employment

Source: ABS 

 

The number of people employed in construction has increased year after year from 2012, until a slight dip in the Covid years of 2020 and 2021. Then there was a large increase of 168,421 workers in construction between the 2021 low and February 2024, with most of that increase (130,000) between 2022 and 2023. 

 

Is this a shortage of workers in the industry? All the official reports and industry commentators all argue this is the problem, but the number of people employed increased steadily until 2020, and then in 2022 and 2023 grew strongly. Perhaps the ABS is getting its figures wrong and over-estimating the number of people employed. The big increase in 2023 may be revised down in future data releases. However, ABS data is generally reliable and there have been no issues raised with their methodology. 

 

Between February 2021 and February 2024 the increase in total construction employment was 168,421 or 14.7%. For the three industry divisions the increases were 34,616 for Building (10.6%), 22,736 for Engineering (19.5%) and 168,421 for Construction services (15.8%). The increase in Engineering employment reflects the high level of infrastructure work in transport and energy, but Building and Construction services also had substantial growth in employment.

 

 

Figure 4. Construction employment by industry division

Source: ABS

 

An Inconvenient Fact

 

For all the estimates of a lack of workers and constraints on capacity it is an inconvenient fact that construction employment is at an all-time high, and was at a record 1,338,314 people employed in November 2023. The big increase in employment over 2023 came with a slight increase in output as a small drop in Residential building was counterbalanced by increases in work done in Non-residential building and Engineering construction. The big increase in output was in Engineering work, which is the least labour intensive of the three industry sectors, and over the last 12 months Engineering has actually lost about 3,000 workers.

 

The largest increase the last few years was over 160,000 more people employed in Construction services, which are the trades. The great majority of these people are usually employed in residential building, so the increase in employment at a time when the volume of residential work has been steady or slightly falling is somewhat mysterious. There may have been more people employed in civil engineering related trades like equipment operators and electrician, but because the ABS does not allocate the trades to the sectors of residential building, non-residential building and engineering it is impossible to know where these people are working. This would be an extremely useful one-off survey to add to their data collection, as was done in recent years for other industries like Professional and technical services and Building cleaning, pest control and other support services. It could also identify the extent of worker mobility across the three sectors in construction, which would be an important addition to the policy framework for improving productivity and housing and infrastructure delivery. 

 

Whether the recent increase in the number of workers will lead to greater industry capacity and an increase in industry output not clear. New workers lack experience and are expected to be less productive than current workers while they get up to speed, a process that can take a couple of years of learning by doing. So there is a potential boost to productivity in the future. On the other hand, over the last few years the industry has employed a lot more people to produce a volume of work that has barely increased. That may be a management problem. 

 

 

Industry Capacity

 

There are no official estimates of construction capacity, despite the numerous reports issuing from the various agencies and research organisations about the housing crisis and rising project costs. Infrastructure Australia published their 2003 Infrastructure Market Capacity report in December, where ‘several market capacity constraints are inhibiting the ability of the sector to deliver projects on time and on budget’ (p. 5). These were skills shortages, non-labour supply challenges, and stagnating productivity. On their Public Infrastructure Workforce Supply Dashboard in October 2023 there was a shortfall of over 200,000 workers of which about 130,000 were construction trades and the rest professional services like engineers, quantity surveyors and project managers. The shortage is forecast to double by mid-2025 to over 400,000 workers. The report did not, however, include an estimate of infrastructure construction capacity, which is primarily engineering construction where output volume has increased to over $60 billion a year

 

The National Housing Supply and Affordability Council (established in 2023) released their first report in May 2024 with a lot of data on residential building activity and forecasts for the next 6 years. But no estimate of capacity as the maximum number of houses and apartments that could be delivered in a year was given. Chapter 3 discusses current supply and demand conditions and the price of housing, and Chapter 4 has projections for new housing supply and demand over the next 6 years finding ‘market housing supply is projected to average around 43,300 dwellings per quarter, or 173,000 dwellings per year … New net market supply is expected to peak at an annual rate of 177,000 dwellings in 2026–27’ (p. 83). Their view is the housing supply system is limited because it is inflexible and unresponsive to demand, with a long-term trend of limited availability of skilled labour, materials and finance, and weak productivity growth.

 

Industry capacity is the limit on production, a theoretical maximum of what can be produced in a single period. In some cases this is straightforward, based on the installed capacity of paper mills, blast furnaces or other machinery, adjusted for their utilization rate and maintenance requirements. A production line for bottles, chips or cars can produce a set amount day after day, week after week. Construction is not like this.

 

Buildings bring together many suppliers at many sites. This creates coordination and logistical problems to a degree not found in other industries, shipbuilding for example brings together many suppliers but at few sites. Manufacturing usually has a few suppliers at a few sites. Prefabrication can go some way in solving the many suppliers problem but adds transport and installation costs, and still requires site preparation and coordination. Those sites can be remote, or difficult to access, or have challenging ground conditions. All these and other issues affect the organisation and delivery of projects to a greater or lesser degree. On a large project the set-up costs of the site office and sheds can be significant. 

 

Also, it is hard to optimise the use of machinery and equipment, such as cranes, excavators and hoists. These will be worked as efficiently as possible but can be affected by weather, use rates at different stages of a project, interruptions to site deliveries and other factors outside the project managers control. And despite the increase in plant, equipment and powered hand tools, construction is much more labour intensive than industries it is typically compared to such as manufacturing or mining. While there are significant differences in labour intensity between residential building, non-residential building and engineering, which is high, medium and low respectively in these three sectors when compared to each other, labour intensity is high compared to manufacturing or mining. This makes the number of people employed the key constraint on construction industry capacity.

 

 

Why is output not increasing with employment?

 

Despite the growth in the number of people employed over the last few years the volume of work done has barely increased. That is the issue, why is output not increasing as the number of people employed increase? Because construction is a relatively labour intensive industry, industry capacity is assumed to be directly related to the size of the industry workforce. If the volume of output had increased by the same percentage as the number of workers it would be over $25 billion more in 2023-24. 

 

There are two common answers to this question: inexperienced workers are less productive, or the quality of managers may not be very good so they don’t get high levels of productivity from their workers. Both of these may explain some of the missing capacity, but cannot plausibly explain all of it. I don’t think these are the important factors affecting capacity, instead there are three others that could account for much of the missing output.

 

First, increased regulation, safety, planning and approval requirements might require more people working on tasks that do not directly produce more buildings and structures. This probably does not affect the trades as much as employment by building and engineering contractors. For example, the 2020 NSW Design and Building Practitioner Act introduced compulsory insurance, declarations to be given by designers and builders to ensure compliance with the Building Code of Australia, and a registration regime for engineers. Other states have also introduced legislation, following recommendations in the 2018 Building Confidence report, to address the problems of defects in apartment buildings, insolvencies and phoenixing that became common during the housing boom. 

 

Second, projects are taking longer to complete. In many cases this might be due to increased size and complexity, and the number of large transport and energy infrastructure projects now under construction will be stretching resources with their requirements for materials and labour. In residential building there has been an increase in high-rise apartment developments, which take years to complete compared to months for a detached house, but all types of residential builds are taking longer and it is not obvious what is causing the increase in completion times. The Commonwealth 2024-25 Budget Papers included ABS data on rates of construction:

Apartment, townhouse and detached house completion times increased nationally by 39 per cent, 34 per cent and 42 per cent respectively over the 10‑year period to 2022–23. Most of this increase is concentrated over the pandemic period, however there has been a relatively consistent upward trend in apartment construction times since 2018–19. (Statement 4: Meeting Australia’s Housing Challenge, p. 141).

 

Finally, the industry is dealing with new types of occupations and projects, particularly in projects related to the energy transition. It is possible that new types of projects such as wind and solar farms are in the early stages of a learning curve and efficiency and productivity will improve as more are completed. There may also be a problem with the Australian Standards Classification of Occupations (ASCO) not including new roles in construction, for example in data or BIM management, renewable energy and energy efficiency related tasks. Both the Master Builders Association and the Australian Industry Group have argued the pace of occupational change in construction between ASCO revisions results in a growing mismatch between ASCO’s classifications and contemporary job titles or skill sets.

 

Conclusion

 

The relationship between construction employment and output has changed over the last few years, as employment has increased but real output has not. As well as the number of inexperienced new workers and the quality of the workforce, there are three other factors that could account for the missing growth in output that the increasing number of people employed could be expected to lead to: the industry may be becoming more labour intensive as projects get bigger and more complex; more people may be involved in digital and design tasks; and regulation becoming more extensive requires more people for compliance. 

 

Projects are also taking longer to complete, and this also needs explanation. There may be supply chain and logistics issues, size and complexity may be affecting the rate of construction, or projects may not have sufficient workers onsite and the work force could be spread across too many projects that are simultaneously under construction. There may be a range factors causing increased completion times, lowering industry capacity and the volume of output. 

 

The ABS could survey the industry to identify what has been causing this increase in project completion times, which might allow policy initiatives that would reduce completion times. It could also survey Special trades workers so they can be allocated to residential, non-residential or engineering work, which would significantly add to our understanding of construction employment at a time when shortages in skills and workers are affecting the capacity of the industry and the output it can produce.