The nation's supply of new housing has been restricted for 30 years due to falling productivity which is contributing to the issue of unaffordable housing, a report by the Productivity Commission says.
The body estimates physical productivity in housing construction has sunk to the point where the nation is completing half as many homes per hour worked as it was in 1995.
Federal and state governments have committed to building 1.2 million homes across five years - about 240,000 homes each year - but in the 12 months to June 2024, only 176,000 homes were built.
Productivity is being stifled by complicated and slow approval processes, a lack of innovation, an industry dominated by smaller players and difficulty attracting and retaining workers, the report says.
Timelines for major housing projects can stretch beyond a decade and delays can continue as developers seek construction certificates, while frequent regulatory changes have a "chilling effect" on innovation and discourage firms from experimenting with new processes.
A lack of scale makes it harder for larger projects to progress quickly, with the largest four firms accounting for 12 per cent of the market share in 2017, and a lack of skilled workers impacts the ability to ramp up supply.
Productivity Commission Chair Danielle Wood said governments were right to focus on changing planning rules to boost the supply of new homes.
"But the speed and cost of new builds also matter," she said.
"The sheer volume of regulation has a deadening effect on productivity."
Three levels of government make rules on where, how and what the building should look like before industry groups and the community even get involved.
"The volume of planning regulations in some locales has increased markedly over past decades and can run into the thousands of pages," the report says.
It recommends governments consider establishing co-ordination bodies to speed up development and construction processes and standardise licensing systems to boost building across jurisdictions.
Governments should also establish an independent review of their building regulations and remove barriers to the development and update of innovative building techniques.
Master Builders Australia, the nation's peak building and construction body, welcomed the commission's "sensible" recommendations.
"Just like the housing crisis, there is no silver bullet to solving woeful productivity in the industry and it requires a co-ordinated and comprehensive approach by all levels of government," its CEO Denita Wawn said.
She noted construction costs have increased by 40 per cent in the last five years, and the time taken to build residential homes have increased by up to 80 per cent over the last 15 years.
"Productivity is more than an economic buzzword," Ms Wawn said.
"Every day we drag our heels on tackling the challenges faced in the industry, the longer we drag out the housing crisis."
Labor has promised to ban foreign investors from purchasing existing homes for at least two years, in a policy similar to one proposed by the opposition in 2024.
The government will also crack down on land-banking by forcing foreign investors to develop vacant land within a reasonable time frame, Housing Minister Clare O'Neil said on Sunday.
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