An incomplete picture of construction productivity

Stephen Pearse , 12 June 2025

ACA NSW/ACT Advocacy Spokesperson, Stephen Pearse, responds to CEDA’s recent report Size Matters: Why Construction Productivity is So Weak, arguing that its narrow focus on dwellings per construction worker overlooks cost factors and the differences between high-rise and single-dwelling construction.

The independent public policy think tank, CEDA – the Committee for Economic Development of Australia – recently released its report on productivity in the Australian construction industry, Size Matters: Why construction productivity is so weak.

The report argues that the dominance of very small businesses in Australia’s construction sector is a key factor contributing to its low productivity. The report highlights that 98.5% of Australian construction companies have fewer than 20 employees, with 91% being microbusinesses of fewer than five employees. According to CEDA, this fragmentation limits the sector’s ability to achieve productivity gains through innovation, investment, and economies of scale.

While the report identifies important issues in construction productivity, the analysis presents an incomplete picture that overlooks critical market dynamics and potential solutions.

The Limits of a Single Metric

The report’s key metric – dwellings per construction worker – provides a narrow view of a complex industry. This measure fails to account for:

• Cost per dwelling: higher productivity means little if it comes at unsustainable cost premiums
• Dwelling type and format: the fundamental difference between high-rise multi-residential projects delivered by Tier 1 builders versus single-dwelling suburban houses built by smaller Tier 3 and 4 contractors.

The apparent productivity advantage of large firms becomes less surprising when we consider that they are building high-volume projects with repetitive elements, guaranteed critical path workflows, and access to specialised workforces. This is not necessarily a model that can or should be universally applied.

Market Transformation and Regulatory Impact

Australia’s construction landscape is already transforming. Our accelerating shift towards higher-density living should naturally lift productivity as markets adapt to new housing formats. However, this transition has created significant disruption:

• Many mid-tier NSW builders exited the market when necessary changes were made to the regulations to improve quality and address consumer confidence.
• The ongoing tension between advocates of suburban sprawl and higher-density development has led to policy uncertainty.
• Political resistance to high density and the absence of practical middle alternatives continues to drive demand for single-lot housing and smaller contractor services.

These regulatory and market shifts, combined with economic cycles, have fragmented the industry in ways the report does not fully address.

The Missing Middle: A Pathway Forward

The real opportunity lies not in forcing all construction into large-scale operations, but in developing solutions for the missing middle – the 3-6 storey housing segment that could bridge the gap between high-rise development and single dwellings.

Pattern Book Construction: A Proven Solution

An economical pathway exists through pattern book-style construction for mid to low-rise housing, offering sample designs, construction details, and systems. This approach, currently under partial development by the NSW Government, needs to provide:

• Repetitive, well-designed models that enable efficient workflows
• Regulatory certainty through pre-approved designs and construction approaches
• Scalability that allows Tier 3 and 4 builders to grow while maintaining their market position
• Adaptability through simplified construction systems and detailing that meet the codes and allow patterns to adjust to site specifics.

For this model to succeed, we need:

1. Strategic site identification: Finding locations where mid-rise development is both appropriate and financially viable.
2. Regulatory reform: Streamlined approval processes for pattern book designs and systems in designated areas, providing the certainty and repetition that builds contractor confidence.
3. Skills development: Training programs that enable smaller contractors to implement standardised systems effectively.

Building Sector Diversity, Not Consolidation

The construction industry will always require diversity. Single-dwelling and alteration specialists serve essential market needs that large contractors cannot efficiently address. Rather than viewing small firms as inherently problematic, we should focus on creating the conditions that enable all segments of the construction industry to thrive and contribute to solving Australia’s housing challenges.

The goal should be to establish pathways for Tier 3 and 4 builders to grow, deliver improved efficiency, and drive innovation within their market segments.

After all, today’s Tier 1 contractors started as Tier 4 operators.