The following is an edited transcript of a speech delivered to ASBEC’s annual general meeting by Assistant Minister for Productivity, Competition, Charities and Treasury Andrew Leigh on scaling up modern methods of construction.
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In Sydney’s Macquarie Park, a 20 storey student accommodation tower is being constructed using volumetric modular construction.
The project will contain 528 student rooms. By September, 12 levels had been assembled, approximately 13 weeks after the first modules arrived.
Each module is manufactured with its internal fitout and facade already installed. Work continues at the factory as the building rises onsite.
When completed, the project is expected to be Australia’s tallest volumetric modular building. It’s a different way of building.
According to the Productivity Commission, Australia builds around half as many homes per construction worker as we did thirty years ago.
Over those decades, manufacturing has become more automated. Digital design has changed what architects and engineers can do. Yet housing construction productivity has gone backwards.
Some of this reflects larger and more complex homes, alongside higher building standards. But even adjusting for that, there’s been a 12 per cent drop in building sector productivity over the past three decades.
Much of our construction industry still operates in ways that would have been recognisable to builders a century ago. Different trades arrive in sequence. Work is interrupted by rain. A delay in one part of the project cascades into another.
Modern methods of construction offer a different approach. Prefab wall panels, bathroom pods and complete modular units allow more work to happen in controlled factory environments.
A factory can standardise processes and invest in specialised equipment. Manufacturing can proceed while foundations are being prepared onsite, even when it’s pouring rain or blazing hot.
The Productivity Commission estimates that a 2 per cent increase in construction output could lift Australia’s GDP by around $5.7 billion.
The possibilities have been apparent for quite a while. In 2014, a nine storey Melbourne apartment building containing 34 homes was assembled in five days. 36 prefabricated modules were craned into place. The entire project took longer, but the assembly showed what was possible.
There’s also considerable promise in regional and remote Australia, where conventional construction can be prohibitively expensive.
Under the Housing Australia Future Fund, $71 million is supporting 117 crisis and transitional homes using modern construction methods. When construction time falls, people who urgently need secure accommodation can get it sooner.
A CEDA and Urbis report estimates that modern methods of construction can reduce building times by 20 to 50 per cent. At scale, construction costs could fall by around 20 per cent.
Right now, some modular developments still carry a cost premium of 10 to 20 per cent. In other applications, particularly regional construction and high density developments involving repeated unit designs, costs can already be around 10 per cent lower.
Part of the explanation is scale. Factories need a reliable flow of orders. Expensive machinery delivers its greatest benefit when production is steady. Standardisation works best when it’s incorporated from the beginning of a project.
Finishing a project earlier reduces financing costs. It also means rental income starts flowing sooner. For a developer, those savings can determine whether a project stacks up financially.
But achieving these gains requires changes to some of the rules governing construction. A completed module may arrive with structural elements already enclosed. Inspectors need reliable ways of establishing that these components meet Australian requirements.
Financing arrangements also need to catch up, since traditional construction finance often releases funds against progress achieved on-site. Factory manufacturing requires substantial spending before components reach the development.
The Albanese Government is providing $120 million through the National Productivity Fund to help states and territories place modern construction methods on an equal regulatory footing with conventional building. We’re also investing $4 million in nationally consistent definitions and a voluntary manufacturer certification scheme, with full commencement scheduled for mid-2028.
We’re supporting standardisation through the $39 million Kit of Parts initiative, which will make Australian-designed building components freely available. We’re also investing $135 million in Construction Centres of Excellence, helping workers develop skills in advanced construction technologies.
In August, the National Reconstruction Fund Corporation announced an investment of up to $120 million in Built Living, supporting a Western Australian facility designed to produce components for more than 2,000 apartments annually.
Australia has one national economy, but in construction we sometimes behave as though we have eight. A manufacturer investing in a new production line wants to serve customers across the country. Different regulatory interpretations can make that considerably harder.
One nationally certified product should be able to reach a national market. In October, building ministers agreed to pursue a simpler and more nationally consistent National Construction Code, including clearer pathways for innovative construction methods.
Today, significant prefabrication is used in only around 3 to 5 per cent of new Australian housing. Compare that with Sweden, where the great majority of detached homes incorporate prefabricated construction. Industry group prefabAUS has set an aspiration of prefabrication reaching 30 per cent of construction by 2033.
The goal is higher productivity and better homes. Modern construction methods are one way of getting there.
Over the next decade, I’d like to see modular housing regarded as an ordinary option for developers and homebuyers. I’d like to see Australian factories serving customers nationwide, supported by predictable demand. Factory manufacturing can also reduce material waste and improve thermal performance.
Today, a modular apartment tower still attracts attention because the technique is unusual. A decade from now, perhaps this kind of construction will be commonplace.
Australia has spent decades wrestling with the problem of how to build enough homes. Part of the answer lies in changing how we build them.
