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Residential construction – building the economy

An economic report prepared for the Housing Industry Association (HIA) has quantified the significant national economic potential of increased activity from the residential construction sector. Source: Timberbiz

Compiled by the highly regarded Centre for International Economics (CIE), the report Construction and the Wider Economy: a general equilibrium analysis considers the relationship between the construction sector, residential building and the broader economy.

“This analysis demonstrates that improving productivity in the building sector will not only grow output and jobs in that industry but importantly, will also have significant flow on benefits to the broader Australian economy,” said HIA Managing Director Shane Goodwin.

“Improved productivity in building frees up resources which allows other sectors, such as manufacturing, to grow further meaning everybody wins.”

The study draws the following conclusions –
· For every dollar generated by a 1.0% productivity increase in residential building, there will be an additional $4.19 of GDP created in the wider economy;
· A 1.0% productivity increase in the residential building industry will generate an additional $863 million of GDP a year, in a constrained labour market. Under less than full employment, this figure increases to $1.15 billion;
· A 1.0% increase in productivity of the entire construction sector is worth an estimated $2.36 billion of additional GDP a year;
· A reduction in inefficient taxes on housing, as identified in the Henry Tax Review, to lower the cost of residential building by 1.0% would raise residential building activity by around 0.6%; and increase GDP by an estimated $780 million.

“The key lesson from the report is that there are substantial economic gains that can be achieved from reforms by government to increase productivity and better target the way Government collects revenue.

“It is also important to note that the analysis has been conducted under a range of labour market conditions, with the headline results assuming full employment and a tight labour market.

“Where there is less than full employment, improvements to the broader economy are amplified, so these gains are actually the minimum return we can expect to achieve from government reform in this area,” Goodwin said.