The headlines are full of the challenges in our housing market and the various government initiatives to remedy it. While there is no silver bullet, maybe everyone is looking in the wrong place? Is Housing Productivity reform the answer?
For example, in preparation for the May budget Dr Jim Chalmers and the Treasury Department are reviewing options to tweak the capital gains tax and negative gearing concessions currently available to property investors. At the same time the Victorian Planning Scheme is being updated to encourage faster and denser development.
Do you think tax changes or planning rules will fix the housing problem?
Remember the housing objectives currently espoused by Governments of all levels try to do two things.
- Stimulate more housing development.
- Make housing more affordable.
Let’s follow some simple logic.
- Reducing the tax incentive for investors to buy and own property, reduces investment buyer numbers and price growth of both current and new housing.
- If the price growth of property starts to slow relative to construction cost, less new homes will be built (assuming there is no change to building cost).
- If less homes are built, and home buyer demand contiunes as expected, then obviously pressure builds on prices to rise.
- Rising prices make housing more attractive to investors, who re enter the market (despite the potentially less favourable tax settings).
So the outcome of removing tax concessions on property, is house and unit prices rise. This is not what the government meant to do I assume. Maybe values rise to a point that justifies new construction and prices adjust.
Many people argue that changes to CGT and negative gearing won’t impact buyer demand or prices very much. It’s also likely any change will only apply to new purchases anyway.
So these tweaks are unlikely to fix the housing conundrum.
Construction Productivity is unfit.
A big problem that gets almost no attention, is that housing construction productivity has gone backwards for 20 years.
The Productivity Commission’s 2025 research paper estimates that between 1994–95 and 2022–23:
- dwellings completed per hour worked fell by 53%, and
- dwelling construction gross value added per hour fell 12%,
- At the same time, economy-wide labour productivity rose 49%.
These are staggering numbers. They confirm that while we are desperate for housing, the sector as a whole is producing significantly less output per unit of effort than it used to. And by a long way.
Alan Kohler does some of his best work here outlining this exact issue.
For any government with genuine intent to address the housing problem this really should be a “Penny drop” moment. Our housing productivity inefficiency explains why Australia can have strong population growth, strong demand, strong price signals, but still struggle to complete enough homes at an affordable price. It also explains why planning changes and tinkering to the tax settings is not going to do very much.
Victoria’s CFMEU hasn’t helped.
In Victoria, the CFMEU corruption allegations haven’t helped. There is serious reporting on allegations of underworld infiltration, intimidation and corruption, and the union construction arm being placed into administration in August 2024, with ongoing attention since.
But blaming Victoria alone is not the full story.
Way back in 2017, McKinsey Global Institute, prepared a paper “Reinventing Construction: A route to higher productivity”. Even then it found construction had lagged manufacturing on productivity for decades because it’s fragmented, project-based, exposed to site conditions, and reliant on many disparate inputs and subcontractors. McKinsey’s work (building on its earlier global research) makes the point that construction productivity has historically trailed other sectors and requires systemic change.
So yes, Victoria must clean up governance, procurement and site culture. But even if that were fixed tomorrow, we’d still face the bigger challenge of a low-productivity building model trying to meet high-volume housing needs.
A Construction Productivity Solution.
If the root cause is productivity, then the solution looks different from the usual government adjustments.
- Treat construction productivity as a national economic reform.
The Productivity Commission makes recommendations about the levers required to streamline and speed up approvals, reduce unnecessary regulatory burden, support innovation, and improve workforce flexibility. - Industrialise apartment delivery
Apartments are where Melbourne can add housing at scale. That means standardisation, repeatable designs, more prefabrication and modular components, and procurement models that reward time certainty and quality. - Fix the risk settings that punish developers for taking risks
Apartment feasibility is as much about delivery risk as it is about end prices. Faster, clearer planning pathways are important but so are building warranties, insurer appetite, contractor capability, and predictable code interpretation. - Incentivise investment buyers of new apartments / houses.
If Governments must touch CGT/negative gearing, align it to the supply side.
Tax reform should be designed to support new supply and not just reduce investor demand. That means preserving or enhancing incentives tied to newly constructed housing (where investment helps projects proceed), and grandfathering current investments so as not to trigger a rental sell-down that tightens vacancy.
