Housing supply in Australia will be a key battleground in the election campaign. With home ownership more and more out of reach for young and not so young Australians, red tape and low productivity are strangling the builder industry just when it needs to be stepping up.

The productivity Commission, the government’s independent think tank, has a new report report pointing to ways governments need to address the issues. In this podcast we talk to commission chair Danielle Wood about the housing challenge, as well as Australia’s parlous productivity performance generally and her drive to get some fresh ideas on how to improve it.

On one of the report’s main recommendation, cutting red tape for construction approvals, Wood says,

I like to think of regulation as a bit like a hedge. […] There’s almost an unwavering tendency for it to grow over time if you don’t clip it back. And I think in housing that’s particularly true. You have multiple levels of government involved, particularly local governments and state governments. Lots of different policy objectives in play. So obviously, quality and safety being pivotal, local amenity, heritage, traffic, environmental, accessibility.

Lots and lots of decisions are taken, often without considering the trade off. And every time we add new regulations or more complex regulations, that imposes a cost. And ultimately that is a drag on housing, productivity and supply.

So what should be done?

We’ve certainly said we think there should be a good look at the national construction code, which is one source of regulatory burden where we think there’s scope to improve. I would love to see state governments – and I think they are turning their mind to this – to look at this question of just the sheer amount of regulation, the timeframes for approvals and look to ways to streamline the burden and also help develop and builders coordinate their way through that process more smoothly.

On why productivity in construction in particular has fallen so far, Wood explains,

You do not see many sectors go backwards in productivity  over that sort of time horizon. One reason is that our homes are bigger and better quality. So I think that is worth noting. If we adjust for that, productivity has declined, but only by 12% rather than 50%.

We haven’t seen the same sort of innovation in homebuilding that we’ve seen in other parts of the economy. We still essentially build most houses the same way we did 100 years ago so we haven’t had that technological change driver of productivity. It’s an industry that’s characterised by lack of scale.

And then there are workforce challenges as well. And, you know, we all hear a lot about the challenge of attracting and retaining skilled trades workers. You know, that can make it hard, particularly building.

The Productivity Commission asked for submissions from the public on how to improve Australia’s productivity more generally. Wood is happy with how the initiaive is going,

It’s been worth the effort. We’ve actually ended up with more than 500 submissions in the end, And they’re from a mix from individuals, from businesses, from organisations. But for me, the beauty is being able to hear from people that we wouldn’t normally hear from in our reviews and the point is that all of us interact with aspects of government policy every day in our lives and I think we absolutely heard that through the submissions.

There were some fun ones there – high quality Japanese public toilets, more freely available free coffee. But more generally, I mean, we heard from small business owners about impacts of red tape and regulation [and] lots of interest in education policy. Unsurprisingly, again, it touches a lot of our lives, but looking for things like more work experience in schools, trying to build more industry-relevant skills into higher education.