productivity commission

Breaking the Housing Deadlock: Why Supply is Only Half the Battle

Australia’s housing affordability crisis has reached a tipping point where it can no longer be ignored. While the federal government has set an ambitious target of 1.2 million fresh homes, evidence suggests this goal is unlikely to be met.

The challenge isn’t just about the number of roofs over heads. it’s about structural barriers that make building slower and more expensive. Planning rules and zoning laws remain significant hurdles, dictating what can be built and where, often at the expense of density and affordability.

Beyond regulation, there is a worrying trend in how we actually build. Residential construction productivity has fallen by 12 per cent over the last three decades, even when accounting for the fact that modern homes are larger and of higher quality.

The social cost of this stagnation is already visible. In major hubs like Sydney, young people are leaving in mass numbers because they can no longer afford to live close to the jobs and opportunities that drive their careers. We are moving toward a reality where parental home ownership is a stronger predictor of future ownership than an individual’s own income or effort.

Reviving the Economic Engine: The Productivity Slump

Productivity—the value of output relative to the labour required to produce it—is currently languishing. Between 2015 and 2025, labour productivity growth sat at approximately 0.4 per cent per year.

To place that in perspective, Here’s only about a quarter of the 60-year average. This slump is partly attributed to reduced private sector investment since the global financial crisis and a general lack of ambition in the government’s reform agenda compared to the aggressive changes seen in the 1980s and 90s.

To shift the dial, experts suggest that Australia needs to move beyond “quick fixes” and embrace bolder structural reforms. This includes addressing the “drag” on investment and finding new ways to incentivize productivity gains across the board.

Tax Reform: A Lever for Investment and Work

Taxation is often viewed solely as a revenue tool, but it can as well be a powerful lever for economic growth. Current company income taxes can create a strong disincentive for businesses to invest in new equipment or technology.

One proposed solution is the cashflow tax. Unlike traditional systems, a cashflow tax allows businesses to write off investments in full as they occur, reducing the financial drag on productive investment and encouraging companies to modernize.

On the individual side, reforms to the personal income tax system could provide greater incentives for people to work. This would involve reducing “leakages” and concessions to lower overall tax rates, making employment more rewarding for the average worker.

For more on how these policies impact the economy, see our guide on national economic reform or visit the Productivity Commission for detailed research.

AI: The Productivity Wildcard

While structural reforms are leisurely, artificial intelligence (AI) offers the potential for a rapid productivity boom. AI is being categorized as a “general-purpose technology,” similar to the impact of electricity or railways.

Conservative estimates suggest AI could boost labour productivity by 4 per cent over the next decade. While that number seems compact, it would effectively double the rate of productivity growth seen over the last ten years.

Augmentation vs. Automation

The fear of a “jobs bust” is common, but the data suggests a more nuanced future:

• Automation: Only about 4 per cent of jobs are estimated to be fully or mostly automated, putting a small share of the workforce at high risk.
• Augmentation: Over 30 per cent of jobs are subject to augmentation. In these roles, AI handles specific tasks, but a human remains essential to the equation.

However, Notice “tail risks.” If AI evolves to replace labour rather than augment it, policymakers may need to consider radical responses, such as a universal basic income, to provide structure and meaning to people’s lives in a post-work economy.

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