It’s time to disrupt the property industry

Our resident demographer finds some prefabricated ways to change Australia’s property market.

Nov 06, 2023, updated Jan 31, 2024

New building materials, shrinking household sizes, the introduction of the internet changing how housing is advertised, and even new property classes such as purpose-built student accommodation popped up.

Considering a steady flow of innovations, it is somewhat understandable that we sleepwalked into the current housing crisis and overlooked that the industry more or less functions the same way as it did 50 years ago.

The housing shortage and its related housing affordability crisis are catastrophic and severely threaten the social contract in Australia.

Work hard, own a small piece of this land and enjoy a prosperous life. Hard work still pays, Australia pays great wages in global comparison.

Unfortunately, these wages didn’t grow nearly fast enough to keep pace with the rising housing costs. Once we fix housing, Australia is set up for success.

So, let’s get on with it. Rather than a few isolated innovations, we need systemic disruption in the property sector.

I see political appetite to tackle this issue for the first time since I moved to Australia fifteen years ago.

Gone are the days of silly first homebuyer grants that never ever did anything but drive up house prices. The government finally actively helps to increase housing supply. Mostly, I see positive change and movement in the right direction, but I will also do some moaning.

Some major policy changes are underway already. New South Wales and Victoria are becoming increasingly serious about taking vetoing power from local government to enforce strict housing targets. That’s a reaction to the systemic issue of local elected officials being incentivised to veto all development.

Even the best, most appropriate local development faces aggressive opposition by at least a few residents (let’s say the immediate neighbours). Therefore, local officials were always better off blocking developments.

This keeps current residents, who voted them into power, happy while ignoring the interest of future residents and the broader housing system.

The ‘evil bureaucrats‘ response

If a development was important enough, VCAT & Co would push it through anyway and the local officials could wash their hands clean: “I fought for you, but the evil bureaucrats overruled me”.

This was at least partly responsible for the massive urban sprawl of our Australian cities. Only on the urban fringe could we develop new housing without councils and current residents intervening. This made urban planning rather cumbersome and relatively weak.

The current power grab takes the veto power from local government and allows the states to direct urban growth more directly.

When you make a major change in a system there tend to be unintended consequences. We risk losing local intelligence in the process.

There is a reason we have three tiers of government. Smart councils are embracing the new push towards higher density and proactively seeking to collaborate with their state government – I don’t think councils stand a chance against the states.

For councils to actively shape their built environment they need to embrace a pro-growth, pro-density, pro-development approach and collaborate with their state. This very much requires a shift in thinking from local government and won’t come easy. Expect a prolonged struggle for power between local and state governments.

Rezoning will be less cumbersome in the future. Supply is the name of the game now. I see the political and bureaucratic landscape being slowly transformed to encourage more housing supply.

So, it’s just a matter of time until more housing stock pops up and all is well?

But wait! There is the issue of the ongoing skills shortage in Australia. I wrote in the past about why the current skills shortage won’t get better in the coming decade.

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We are reacting to this shortage by making TAFE education free. This is great news for jobs that are part of the TAFE system, but certain jobs in, say, civil construction get their training from RTOs (Registered Training Organisations). These organisations will need to push all the costs associated with training to the employers.

And don’t forget the skills shortage…

If they charged a fee from their trainees, they might consider a TAFE level career instead. The training sector will be disrupted in the coming years. Buckle up if you are part of this industry.

Either way, we will do our best to create as many workers as possible to build homes and infrastructure in Australia.

Considering the relatively small size of Gen Z (born 2000-17), we will still need to import skilled labour from overseas to have even a remote chance of adding the needed amount of stock. Yes, these new labourers will need to be housed and initially might make the housing shortage worse before they make it better.

We also must rethink how we build housing.

If you were to build the system up from scratch, would you come up with the current status quo? Probably not. We aren’t utilising our rare resource of tradies nearly well enough.

Think about how much workers spend driving from site to site. They spend their precious working hours driving rather than plastering. The system can’t afford such inefficiencies. At least in theory, prefabricated housing would fix this and other problems.

On site construction doesn’t allow for optimised use of construction material – we waste a lot of material that still needs to be paid for. Extreme weather conditions slow down on-site construction. Prefab housing could fix these issues while utilising labour more efficiently.

Quality control would be much easier too. Granted we need a new type of worker who assembles the prefab elements on site. The problem here is that setting up prefab at scale is expensive to begin with. Are any of our big builders willing to take up that risk? Surely superannuation funds could bankroll such a venture?

Recent policy was very favourable towards built-to-rent properties, and I expect similarly generous tax reductions for prefab housing very soon in an attempt to speed up housing development while driving down construction costs.

 Could build, won’t build

When we talk about new housing, we must remember that development is a low-margin game – it’s easy to go bust. Now that we have a housing shortage across the whole market, which developer in their right mind would volunteer to build housing for the bottom quarter of the market?

A state-owned housing developer could operate in this space easily since they can do so without a profit incentive, and build on free (if publicly owned) or cheap (no taxes) land. I see no political appetite whatsoever to establish such a state-owned developer.

The topic is much more complex than I could possibly do it justice in a 1000-word column. I hope you gained a sense of the momentum, the goodwill to increase supply, that is building up.

Even in an ideal scenario, these changes take years to lead to a paradigm shift. In the meantime, the government also tries to optimise the utilisation of the existing housing stock.

This will be our topic for next week’s column. In the meantime, I am very happy to be challenged on any of my forecasts here. The goal is to collectively set up Australia for a future where housing is affordable for all.

Demographer Simon Kuestenmacher is a co-founder of The Demographics Group. His columns, media commentary and public speaking focus on current socio-demographic trends and how these impact Australia. His latest book aims to awaken the love of maps and data in young readers. Follow Simon on Twitter (X), FacebookLinkedIn for daily data insights in short format.

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