Housing Affordability a Decades-Long Challenge, Says Productivity Commission Chair

Danielle Wood, chair of the Productivity Commission, has stated that measures to improve housing supply and affordability will require decades to take effect. She said the federal government's target of building 1.2 million new homes in the second half of this decade is unlikely to be met.

The Scale of the Problem

Wood described Australia's housing affordability problem as too significant to ignore further. She noted that housing costs relative to incomes cannot continue rising at the pace seen in recent decades.

Wood cited observations of young people leaving Sydney in large numbers and expressed concern that home ownership is becoming more dependent on parental wealth than personal income and effort.

Barriers to Building More Homes

Wood identified two primary obstacles to increasing housing supply:

• Planning rules, zoning regulations, and restrictions on what can be built and where.
• Declining construction productivity.

A 2023 report from the commission indicated a 12% decline in residential construction productivity over the past 30 years, even after adjusting for larger dwelling sizes and improved quality.

While states like New South Wales, Victoria, and Western Australia have altered planning rules to reduce delays and costs, Wood stated the national housing target will not be achieved. Industry experts have warned that skills shortages and regulatory barriers must be addressed to meet housing goals.

Australia's Broader Productivity Slowdown

Wood noted Australia's labour productivity growth has averaged about 0.4% per year from 2015 to 2025, approximately one-quarter of its 60-year average.

She attributed part of this slowdown to reduced private sector investment since the global financial crisis and a less ambitious government reform agenda compared to the 1980s and 1990s.

Wood suggested corporate tax reforms, such as a cashflow tax that allows full write-offs for investments, could encourage more productive investment. She also mentioned that reforms to the personal income tax system could provide greater work incentives.

The Potential of Artificial Intelligence

Wood expressed optimism that artificial intelligence could trigger a new period of productivity growth, comparing its potential impact to historical shifts caused by technologies like railways and electricity.

The commission conservatively estimates AI could boost labour productivity by 4% over the next decade.

According to Jobs and Skills Australia research cited by Wood, about 4% of jobs could be fully or mostly automated by AI, while over 30% of jobs could be augmented by it.

Wood stated that if AI proves more effective at replacing labour than augmenting it, policymakers may need to consider responses such as a universal basic income.