Robot bricklayers, 3D printers and artificial intelligence could make Australian homes faster and cheaper to build, but even a dramatic reduction in construction costs would have a limited effect on prices in expensive cities such as Sydney, new research argues.
The seventeenth report in The Balance Sheet research series estimates that the physical construction of a new house accounts for about one-third of the price of a typical house-and-land package, leaving much of the cost beyond the reach of building technology.
Its indicative breakdown assigns about $38 of every $100 to land, $33 to construction and the remaining $29 to taxes, infrastructure charges, development finance, margins and professional costs.
“More than half of a new house is not a house,” the report finds. “It is land scarcity and the cost of permission.”
Within the $29 attributed to government and other costs, the report estimates about $9 goes to GST on the new dwelling, $5 to infrastructure levies, $4 to stamp duty, $7 to developer margin and finance and $4 to professional and marketing fees. The figures are presented as an indicative construction and vary between cities and individual developments.
That cost structure places a limit on what advances in construction technology can do for buyers. The report calculates that if automation eventually halved construction costs, the price of a typical Sydney house-and-land package would fall by about 17 per cent. Even eliminating the building cost entirely would reduce the package price by only about one-third.
“Technology cuts the marginal cost of a dwelling, planning sets the number, and land captures the difference,” the report finds.
There is already evidence that new technology can substantially reduce construction time.
Perth-based FBR has used its Hadrian X robotic blocklaying system in the United States, completing the walls of a Florida house in a single shift during a demonstration program.
New South Wales completed its first 3D-printed social housing project in Dubbo last year. The two homes took 20 weeks to deliver, less than half the usual 40-week construction period cited by the NSW government, with the concrete structures printed in 16 days.
Technology is also being applied before construction begins. Sixteen NSW councils were selected to trial artificial intelligence tools designed to reduce delays and errors in development applications. The state receives nearly 60,000 development applications each year, with councils responsible for most residential assessments.
The federal government has also committed $54 million to expand prefabricated and modular construction, an area where Australia continues to lag countries with more established factory-built housing industries.
Those changes come as the conventional construction sector continues to struggle with productivity.
The Productivity Commission found last year that Australia was completing about half as many homes per hour worked as it did in 1995. After allowing for larger and higher-quality homes, labour productivity in housing construction was still 12 per cent lower.
The Balance Sheet report also points to longer building times, putting the average at 10.4 months compared with 6.4 months a decade earlier.
The Productivity Commission has argued that modular construction, improved technology and fewer regulatory barriers could help increase housing output. That gives automation an important role in addressing labour shortages and reducing construction delays, even if the effect on the final purchase price is more limited.
For every $100 spent on a new home, the report estimates just $33 goes towards actually building it, compared with $38 for land and $29 for taxes, infrastructure charges, finance, margins and other costs
The Balance Sheet draws a distinction between improving the efficiency of construction and changing the economics of land.
“AI has so far digitised the property economy’s paperwork, not its product,” the report finds, “because the product is mostly land and permission, and neither responds to software.”
Central to that argument is Reserve Bank research published in 2018 examining the effect of zoning restrictions on housing prices.
Using 2016 data, RBA researchers estimated a zoning effect of $489,000 for the average Sydney house, equivalent to 42 per cent of its total value at the time. Measured against the estimated cost of the physical inputs needed to supply the house, the zoning effect was 73 per cent.
The RBA researchers cautioned that the calculation did not mean Sydney house prices would simply fall by that amount if zoning restrictions disappeared. The research nevertheless found planning restrictions were a major contributor to housing costs and to differences between Australian capital-city prices.
The Balance Sheet combines that research with construction costs and state charges to argue that technological improvements will have their greatest impact where land accounts for a smaller share of the final price.
Under its hypothetical scenario in which AI, robotics and prefabrication halve construction costs, buyers in cheaper land markets would receive a larger proportional benefit than buyers in Sydney.
Adelaide, for example, would see a greater percentage reduction because construction represents a larger part of the overall package. In Sydney, a larger share of the value sits in land before construction begins.
The report also points to Sweden, where prefabricated construction is widely used, as evidence that industrialising homebuilding does not by itself guarantee cheap housing. Its argument is that factory construction can reduce labour requirements and improve delivery times without removing restrictions on where and how much housing can be built.
Government charges present another limit. The report estimates GST, stamp duty and infrastructure charges directly account for roughly $18 of every $100 in its new-home cost model.
Stamp duty is singled out because improvements in construction or property technology have no direct effect on the tax charged when property changes hands.
“The transaction stack’s biggest line, stamp duty, is a policy choice no algorithm can refactor,” the report finds.
The findings do not dismiss the potential of robotics, prefabrication or artificial intelligence. Faster construction could allow more homes to be completed with the same workforce, reduce delays and help governments meet housing targets.
Their impact on affordability, however, depends on what proportion of a home’s price actually comes from building it.
The report argues that in Australia’s most expensive housing markets, technology can improve the construction process without removing the scarcity reflected in land prices or the costs imposed through planning and taxation.
Its assessment is that the most useful role for new construction technology may therefore be increasing the speed and volume of housing once development has been approved.
On the underlying constraint, the report puts its position simply: “what is scarce is legally buildable land, not structure.”
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