enhancing victoria’s economic performance and productivity · enhancing victoria’s economic...

Submission to the Premier’s Jobs and Investment Panel

Enhancing Victoria’s Economic Performance and Productivity

Discussion Paper June 2017

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ABOUT THE HOUSING INDUSTRY ASSOCIATION............................................................................................................... 3

1. INTRODUCTION ....................................................................................................................................................... 4

2. ENHANCING PRODUCTIVITY IN THE HOUSING SECTOR ............................................................................................ 4

3. RESPONSES TO THE PANELS PROPOSED REFORM DIRECTIONS ................................................................................ 7

4. PART 2 REGULATION ............................................................................................................................................... 7

5. PART 5 CONSTRUCTION ......................................................................................................................................... 16

6. CONCLUSION .......................................................................................................................................................... 18

Housing Industry Association contact: Fiona Nield

70 Jolimont Street EAST MELBOURNE, VIC 3002

of 18 | HIA Submission on Enhancing Victoria’s Economic Performance and Productivity Discussion Paper June 2017

ABOUT THE HOUSING INDUSTRY ASSOCIATION

The Housing Industry Association (HIA) is Australia’s only national industry association representing the interests of the residential building industry, including new home builders, renovators, trade contractors, land developers, related building professionals, and suppliers and manufacturers of building products. As the voice of the industry, HIA represents some 40,000 member businesses throughout Australia. The residential building industry includes land development, detached home construction, home renovations, low/medium-density housing, high-rise apartment buildings and building product manufacturing. HIA members comprise a diversity of residential builders, including the Housing 100 volume builders, small to medium builders and renovators, residential developers, trade contractors, major building product manufacturers and suppliers and consultants to the industry. HIA members construct over 85 per cent of the nation’s new building stock. HIA exists to service the businesses it represents, lobby for the best possible business environment for the building industry and to encourage a responsible and quality driven, affordable residential building development industry. HIA’s mission is to:

“promote policies and provide services which enhance our members’ business practices, products and profitability, consistent with the highest standards of professional and commercial conduct.”

The residential building industry is one of Australia’s most dynamic, innovative and efficient service industries and is a key driver of the Australian economy. The residential building industry has a wide reach into manufacturing, supply, and retail sectors. The aggregate residential industry contribution to the Australian economy is over $150 billion per annum, with over one million employees in building and construction, tens of thousands of small businesses, and over 200,000 sub-contractors reliant on the industry for their livelihood. HIA develops and advocates policy on behalf of members to further advance new home building and renovating, enabling members to provide affordable and appropriate housing to the growing Australian population. New policy is generated through a grassroots process that starts with local and regional committees before progressing to the National Policy Congress by which time it has passed through almost 1,000 sets of hands. Policy development is supported by an ongoing process of collecting and analysing data, forecasting, and providing industry data and insights for members, the general public and on a contract basis. The association operates offices in 23 centres around the nation providing a wide range of advocacy, business support including services and products to members, technical and compliance advice, training services, contracts and stationary, industry awards for excellence, and member only discounts on goods and services.


1. INTRODUCTION

The comments in this submission are provided in response to the Discussion Paper released by the Premier’s Jobs and Investment Panel titled “Enhancing Victoria’s Economic Performance and Productivity” in June 2017. From the housing industry perspective, there are many factors which affect productivity in the industry and the delivery of housing. Key economic policies for improving efficiency include reforming taxation of the industry across all levels of government, reforming and reducing building and planning laws and barriers, cutting red tape, creating a fair and productive workplace, reducing the inequity and inefficiency entrenched in the current model for funding new housing infrastructure, fostering small business, and enabling more training for a skilled workforce in the industry. Addressing these matters and facilitating sufficient housing supply to meet demand should be a key focus of any productivity inquiry and reform agenda for the State Government. HIA outlines in this response the contribution of housing to the economy and some key initiatives that will ensure continued growth in the housing sector. HIA would be pleased to provide the Panel with further information on any of the matters raised in this submission.

2. ENHANCING PRODUCTIVITY IN THE HOUSING SECTOR

In the context of this submission and increasing productivity in the Housing Industry, HIA provides some background to the current levels of activity and the contribution of the sector to the Victorian economy. 2.1 Current Building Activity in Victoria While activity in Victoria remained at elevated levels in 2016, the number of starts retracted by 4.5 per cent from the 2015 peak. By virtue of being amongst the largest residential building markets in the country, this decline provided the second largest drag on commencements nationally in 2016. The official cash rate is likely to remain low for the foreseeable future which would ordinarily be supportive of residential building activity. More restrictive guidelines from APRA with regard to residential mortgage lending, along with imposition of the ‘bank levy’ announced in the Federal Budget are likely to mean that the actual borrowing costs for households and businesses will be coming under upward pressure. Victoria is continuing to attract a strong inflow of migrants from both interstate and overseas. As a consequence, the state’s population has been growing at a healthy rate, posting growth of 2.1 per cent over the year to September 2016. This ranked as the fastest growth amongst the eight states and territories, and was the only state to outperform the rate of population growth nationally (1.5 per cent). Victoria’s unemployment rate of 5.9 per cent in June is a little above the national rate (5.6 per cent), but overall the state’s labour market appears to be in reasonable shape. Indeed, job creation has been particularly strong in Victoria. However, like most other jurisdictions, growth in part-time employment has outpaced growth in full-time employment and there is an unsatisfactory degree of


underemployment (i.e. where workers are ready and willing to work more hours than they currently are), and real wage growth is minimal. The next phase of the residential building cycle will be very interesting in Victoria. The apartment market has had an unprecedented run over the last decade as Melbourne’s CBD has grown. There is no doubt that this evolution has been one of the big factors driving population growth and job creation. Amid speculation of an apartment oversupply, the experience of recent buyers (with regard to valuations, accessing credit, rental yields and duration of vacancy) when they take possession will provide valuable insights for proponents of projects that are currently under consideration. As a determinant of residential building activity, the home price growth cycle in Victoria has progressed into a difficult phase. With affordability already stretched to its limits in many parts of the market, price growth has tightened somewhat. Further price growth may result in greater caution amongst those considering buying or building a new home. On balance, the short term outlook for residential building in Victoria remains positive. HIA expects that around 64,000 dwelling starts will be recorded during the 2016/17 year by the time the data is finalised. While we anticipate that the number of commencements will recede from the high levels posted over the last couple of years, the level of commencements should remain healthy in the longer term context. The total number of commencements is forecast to decline by 10.8 per cent in 2017/18, and then by a more pronounced 18.4 per cent in 2018/19. While these appear to be large falls, our forecast would still see the cycle bottom out at around 46,600 starts in 2018/19. In relation to previous cycles, this would be a solid level for a cyclical low. After reaching an expected record high of around 33,000 starts in 2015/16, multi-unit dwelling commencements are expected to have fallen by around 11.6 per cent in 2016/17. Looking ahead, a cyclical downturn in multi-unit dwelling starts is projected to unfold over the next few years. A decline of 12.5 per cent is forecast to occur in 2017/18, ahead of a more pronounced decline of 30.7 per cent in 2018/19. Multi-unit commencements in Victoria are projected to post a third consecutive annual decline in 2019/20, albeit by a modest 3.0 per cent as the easing cycle peters out. This trajectory would take activity down to 17,200 commencements, which would represent the low point of the cycle. The outlook for detached house commencements is more favourable than the multi-unit market. While demand for detached houses remains high the strained affordability equation rules out many would be buyers. After three successive years when the state has posted improving levels of detached house commencements through to 2015/16, we expect that there was a modest softening in 2016/17. Looking ahead, we anticipate detached house commencements to continue declining from the earlier highs. A forecast decline of 9.3 per cent in 2017/18 is anticipated to be followed by a further decline of 8.5 per cent in following year. If more households than expected overcome the affordability challenge and investors retain their appetite for residential property in the face of the tighter credit environment there is probably some upside to this outlook. Looking further ahead, it is projected that the low point of the detached house building cycle will occur in 2018/19 (28,900) and modest improvement of 2.3 per cent is forecast for 2019/20.


2.2 Maintaining Housing Activity Levels

The housing industry operates within a complex and often conflicting regulatory environment developed by all levels of government. The following matters all significantly hinder the industry’s productivity and ability to deliver the number of homes across all levels of affordability and demographic demand:

business taxation that discriminates against legitimate contractors;

finance market controls;

foreign investment regulation;

migration policy;

complex planning and building regulation;

high taxes on land and new housing;

a lack of build ready residential land;

complicated and unwieldy industrial relations requirements; and

a shortage of skilled trades. By altering key policy settings, greater efficiencies can be achieved in the residential construction sector. There is a sound economic argument for altering the policy settings and to see productivity increases in housing. The housing industry is a strong contributor to the Australian economy. In 2011 HIA commissioned the Centre for Independent Economics (CIE) to undertake research to provide information on the extent of this contribution. A comprehensive analysis of the relationship between the residential sector, the construction industry, and the wider Australian economy was undertaken, encompassing the last 20 years. The analysis was conducted under a range of labour market conditions. The study demonstrated that improving productivity in the residential construction sector will not only grow output and jobs in the industry but, importantly, it will also have significant flow on benefits to the broader Australian economy - including increased national activity (GDP). The study also found that if governments were to remove inefficient taxes on housing there would be an even greater benefit. In investigating the interrelationship between different sectors and how productivity is increased in residential construction, it was found that as productivity increases in the housing sector, other costs are freed up allowing other sectors, such as manufacturing, to grow further. This provides an economic boost to those sectors as well. The CIE study draws the following conclusions around productivity in the housing sector and how

improving efficiencies would benefit Australia’s economy:

• 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 per cent productivity increase in the residential building industry will generate an

additional $260 million of GDP in Victoria each year, in a constrained labour market.

Under less than full employment, this figure increases to $345 million for Victoria alone;

• A 1.0 per cent increase in productivity of the entire construction sector is worth an

estimated $710 million of additional GDP to Victoria each year;


As mentioned, the CIE study found that inefficient taxes are over-represented in the housing industry. A reduction in inefficient taxes on housing, (as identified in the Henry Tax Review), would lower the cost of residential building by 1.0 per cent, and raise residential building activity by around 0.6%; and increase Victoria’s GDP by an estimated $235 million. There is a strong multiplier impact that healthy residential construction activity has on the broader economy, the number of jobs created and the total economic contribution of the industry to the economy, it is vital that Government’s policies are enabling the industry to further operate at a greater capacity to meet housing demand. HIA provides suggestions in these key areas under the key areas identified in the Discussion Paper. Finally, HIA notes that the discussion paper cites other reports that the estimate of the annual cost of administration, compliance and delay to businesses as a result of regulation is estimated to be between $2.4 and $6.4 billion.

The fact that it is difficult to estimate this cost, or indeed to assign the costs to specific government agencies, shows how significant a burden red tape is for businesses. It is also not clear whether the cost estimates adequately allow for the stress and uncertainty caused to small businesses by having to comply with regulation.

3. RESPONSES TO THE PANELS PROPOSED REFORM DIRECTIONS

HIA’s response will now focus on two sections of the discussion paper of most relevance to the housing industry being Part 2 – Regulation and Part 5 – Construction.

4. PART 2 REGULATION

The Panel’s view is that government, in collaboration with industry, should consider how best to increase flexibility in regulatory design and implementation through policy levers such as: 2.1 Improvements to the structure of regulators and continuous improvement of regulator

practices and business interactions, with specific measures including: • increasing regulator collaboration and coordination, potentially through co-locating,

consolidating or integrating: - regulators that undertake onsite inspections and audits; - sector-focused regulators, to broaden the scope of regulators; - consumer protection and essential services regulatory functions; and - licensing and registration bodies. • establishing a whole-of-government regulator performance framework, building on

existing tools (such as Ministerial Statements of Expectations for regulators) and supported by:

- a regulator code of conduct and principles; - one single regulatory advisory body responsible for working with businesses and regulators

to strengthen overall regulator capability; and - a requirement for all regulators to actively seek feedback from business.


• improving use of guidance material and technology to make it easier for business to find and provide information to regulators; and

• improving the timeliness of decision making through reform of approvals, notifications

improving the timeliness of decision making through reform of approvals, notifications and licences.

HIA Comment on 2.1

Structure of Regulators

The domestic building industry is regulated by legislation and regulation that is administered by the

Victorian Building Authority (“the VBA”) and Consumer Affairs Victoria (“CAV”). The Department of

Environment Water Land and Planning (“DEWLP”) also administer legislation and regulation which

applies to the housing industry and the Department of Justice (“DOJ”) also has significant input into

housing industry regulation through the industry’s interaction with the Victorian Civil and

Administrative Tribunal.

With regard to building matters, the VBA and CAV are responsible for the administration of different

legislation, being the Building Act (“BA”) and the Domestic Building Contracts Act (“DBCA”) and

Australian Consumer Law respectively. There is not necessarily a clear distinction in responsibility

despite the clear allocation of administrative responsibility. For example, failure to comply with

progress payment and deposit requirements in the DBCA can result in disciplinary action against a

builder under the BA.

The dual regulator structure has not caused much difficulty in recent years but this has been

arguably more an outcome of CAV reducing its role in anticipation of the VBA becoming a sole

regulator – a reform that was eventually not implemented. CAV has in the past 18 months increased

its regulatory activity and the likelihood of domestic builders having to deal with two regulators is

increasing.

It should also be noted that the domestic building industry is also subject to regulation administered

by agencies such as DEWLP, Worksafe, the Environmental Protection Agency, Energy Safe Victoria,

and 79 local governments.

The Victorian Planning Provisions are nearing 20 years since their introduction. HIA is actively

engaged with the Smart Planning program that is looking at potential reform in this area. This

process is highly engaging with stakeholders and it seems that the Government is looking to

streamline planning matters for the benefit of users of the system and those who administer it.

Increasing regulator collaboration and coordination The regulation of building processes and technology is to a large extent driven by national processes

and codes. HIA encourages the Victorian Government to continue to contribute to this process and

to encourage national reforms that allow for new and innovative building technologies and

processes to be made compliant.


HIA notes that the DBCA is however a significant barrier to the adoption of innovative business

practices. While the consumer protection requirements of the DBCA are important they have been

entrenched for over 20 years with only the quantum of the cost plus contract limitation and major

domestic building contract threshold changing this year. The legislation reflects the building industry

over 30 years ago and does not accommodate changes in the building industry and the relationship

between builders and their clients.

As an example, the deposit and progress payment restrictions in particular impose major constraints

on domestic builders without necessarily protecting consumers. While domestic builders can use an

alternative to the prescribed progress payments, the process is difficult and there are many hurdles

for the builder that may prevent them successfully considering and using an alternative. A simple

failure to have documents signed in the correct sequence can prevent a builder using alternative

progress payments.

The difficulty of complying with the DBCA also encourages non-compliance by both builders and

owners. For example, anecdotal evidence indicates the cost plus contract restriction is often ignored

at the demand of owners who believe that a cost plus contract will result in a lower project cost.

HIA regards the DBCA as being an example of how well intentioned legislation can become

entrenched and retard the development of innovation in an industry. One major flaw with this

legislation is that it limits freedom to contract on the assumption that the government, and not the

parties to the contract, knows what should be the terms of a domestic building contract. Another

flaw is that the legislation assumes that what the government regarded as good regulation 30 plus

years ago is still good regulation now.

The State Government could:

1. Review the current allocation of responsibility between the VBA and CAV with a view to

reducing the overlap and duplication of regulatory responsibilities.

2. Undertake a complete review of the DBCA and associated legislation to ensure that it only

imposes necessary restrictions on the domestic building contracts and encourages

innovation.

Establishing a whole-of-government regulator performance framework Within existing frameworks, some consideration should be given to providing better systems and guidance around how the government develops new regulation as this can impact on productivity in the broader community. Wherever possible, there should be a presumption that new regulations will not add to the net compliance burden on business. The State Government could:

3. Undertake an annual review of the performance of regulatory agencies, with simplification and reduction of regulations a key performance indicator.

4. Implement standard Regulatory Impact Statement (RIS) methods and processes across all

jurisdictions to ensure that regulatory proposals are subjected to proper scrutiny.


5. Undertake an open, accountable process to assess whether government intervention is

actually appropriate. A regulator should be obliged to produce a public consultation document which identifies the issue to be addressed, assesses the range of possible non-regulatory and regulatory solutions and quantifies the likely costs and benefits of each option. Public comment should be invited for a set period of at least two months. The document should conform to a standardised format developed by appropriate authorities.

6. Ensure that regulators introducing new regulation be obliged to withdraw existing

regulations as an offset. An independent post-implementation review of major business

regulation should be undertaken within two years of introduction to test the accuracy of the

original RIS and to ensure that the presumed net benefits from regulation are being

achieved. The post-implementation review should report directly to Government and

released to the public.

7. Introduce sunset clauses for any new regulations and standards (no more than 5 years)

which trigger formal re-assessment of the appropriateness of the regulation rather than

automatic renewal of the regulation.

The Panel’s view is at government, in collaboration with industry should consider how best to increase flexibility in regulatory design and implementation through policy levers such as: 2.2 Facilitation of business innovation by strengthening the drive towards flexible regulatory implementation in the short term and outcomes-focused legislative reform in the longer term, with the aim of promoting new thinking and ways of doing things. 2.3 Facilitation of new business models by working to address aspects of the regulatory framework that are getting in the way of innovation, including helping businesses test ideas using concierge services and regulatory ‘sand-boxes’ where appropriate (see Chapter 3: Digital transformation and disruption)

HIA Comments on 2.2 and 2.3 Flexible Regulatory Implementation and Facilitation of New Business Models In terms of new business models to improve the productivity in the housing industry, consideration should be given to the introduction to private certification in planning. This model significantly streamlined the building assessment process from the mid 1990’s and there is huge scope for it to significantly improve the way in which planning applications could be managed. Private certification in planning is a process that enables suitably qualified persons to determine compliance of an application with specified regulatory controls or standards. Certification of a planning application simply means that, in the opinion of a qualified professional, the application meets certain standards or requirements. Private sector planners could assist in a range of assessment tasks to enable local government staff to concentrate on more complex policy-related applications.


Some elements of the planning process could be potentially well suited to certification. These might include issues that do not require discretionary decisions and might include neighbour notification procedures or pre-lodgement assessment work or consideration of technical issues.

The certification process could operate on a user-pays basis and could be an option for applicants to elect to adopt. Many HIA members would prefer to incur this cost if it allows for a better understanding of requirements and efficiencies in the time following lodgement. This is because holding costs on land are high and the upfront costs associated with pre-lodgement or other certification methods will more than likely be less than land holding costs. There are several models of private sector involvement that could be considered ranging from pre-lodgement certification to full certification. The State Government should:

8. Support and facilitate the introduction of private certification in planning at all councils in to compliment the streamlining initiatives mentioned above. This is because there are large numbers of planning applications lodged with councils and there is often a long lag time between lodgement and even a preliminary consideration of an application by a planning professional.

9. Continue to support private building certification in Victoria’s Building Permit System on an ongoing basis.

The Panel’s view is that government, in collaboration with industry, should consider how best to improve local government’s regulatory role and functions through policy levers such as: 2.4 Streamlined local government regulatory services through increased decision-making consistency, strengthened regulatory capability and improved provision of information and guidance, with specific measures including: • allocating regulatory decision making to a separate entity (or entities), allowing local councils to focus on strategic planning, community engagement and policy setting; and • sharing regulatory expertise and experiences across councils, allowing for better decision making in shorter timeframes

HIA Comment on 2.4 The performance of local governments is a key factor in achieving increased productivity in the housing industry. In particular local governments are the key provider of planning services and there are many matters that require builder to interact and make submissions to local governments for approvals. Typical applications or interactions with local governments might be required for:

A single dwelling on a small allotment

Any application for more than one home on an allotment

Subdivision of land either prior to or after a home or small development has been built

Building of apartments


Boundary re-alignments

Use of a building

By laws and local laws

Asset protection

Building permit variations Many of the issues relate to the major delays and uncertainty that builders experience during these processes. Statutory Planning Matters HIA Members consistently report that the under-performance of local councils responsible for operating the statutory planning processes causes delays, inefficiencies, additional costs and general industry frustration. An increase in the number of proposals requiring planning approval, a lack of experienced planning staff, high turnover rates in councils, lengthy referral processes that often add little value to built outcomes and the capacity for “objections” all serve to stifle timely decision-making. At the same time, some local councils are duplicating matters - taking on responsibility for issues which are covered by other state based or national legislation, adding undue delays and complications to the local approval process. Delays in the planning process have a significant impact on the residential building industry, in particular the operational competitiveness of residential building companies. When poorly administered, local councils planning and building processes negatively affect the cost of housing. Building companies and the land owners face compounding holding costs whilst awaiting the necessary approvals. Whilst the State Government is undertaking the “Smart Planning process” the outcomes are just being formulated. To date there has been a lack of willingness by Councils to either reduce the number of matters requiring approval or to seek additional assistance to their heavy workload through the use of private planners who would be able to certify that an application meets the requirements of Council - allowing for assessment to be undertaken more efficiently. Adding to the regulatory burden is the fact that most single dwellings on smaller lots require a planning permit. This permit requirement places administrative burden on the system and unfairly disadvantages development of smaller blocks – because they are captured by the planning permit process whereas a single dwelling on a larger allotment is not. The cost of single dwelling development on a smaller block is therefore significantly impacted by the administrative delay associated with obtaining a planning permit, (and subsequent permits for any alteration to the structure) where a single dwelling on a larger lot is not. The primary purpose of a residential zone is to facilitate the construction of houses and this purpose should not be disadvantaged by the planning system. As it stands, if a planning permit is required for a single dwelling or an extension on a small lot, the development is subject to notification requirements and third party review rights. Unless otherwise required by other provisions, such as an Overlay, these processes do not apply when a lot larger than the minimum adopted area (generally either 300 square metres or 500 square metres) is developed.


Also to date there has been a faster assessment processes introduced (VicSmart) but its impact is limited to such minor matters that it does not alleviate this burden. The introduction of a small lot housing code in Melbourne’s growths areas has assisted but this is not generally appreciable in other areas. To improve statutory planning matters the State Government should:

10. Review the types of development that are captured by the planning system, with a view to

reducing the number of items.

11. Expand Victoria’s faster planning process “VicSmart” to include a wider range of matters –

including single dwellings, dual occupancy and matters where there is only one matter

triggering a permit. Some matters do not warrant a full merit assessment process and

should only be considered against the relevant criteria.

12. Remove the lot size trigger for planning permission for a single dwelling and utilise Part 4 of

the Building Regulations 2006 in addressing siting and design matters. A single dwelling

should be as of right on a single allotment in a residential or mixed use zone. In the event

that a dwelling does not fully comply with Part 4 of the Victoria Building Regulations, an

application could be made for the ‘report and consent’ to the relevant local council,

proposal. Appeal options could be heard under Victoria’s building legislation to the Building

Appeals Board.

13. Monitor the number and extent of overlays, which are the permit triggers for dwellings.

Overlays capture more types of development, bringing many single dwellings into the

planning permit system. These matters could be adequately addressed via the building

permit system.

14. Ensure compulsory adoption by councils of some form of private certification in planning -

particularly pre-lodgement certification. This is allowing a private planner to certify that the

application is complete and meets the minimum requirements as set out in the planning

scheme.

15. Curtail the powers of local government to use planning and other controls as de facto

building regulations. State legislation should be amended to prohibit local governments from

imposing requirements on the industry which are additional to, or conflict with building

regulation. These inconsistent local government controls add to the administrative burden

associated with small businesses keeping up to date with residential building requirements.

Local Government Procedural matters

To increase productivity and outcomes from local government staff in the assessment of planning applications the State Government should:

16. Implement an agreed list of basic information to be provided with all development

applications to provide a consistent checklist of requirements for councils and requirements for applicants.


17. Provide better consistency as to which applications require a Council division as opposed to

which can be made under delegated powered by Council officers. Currently this situation varies between councils so one matter which is considered by Councillors may in fact be approved by Council officers under delegation in the neighbouring municipality. Also a standard provision would prevent Councillors being able to call in developments at their discretion

18. Introduce provisions which would disallow third party objections to be lodged after the specified notice period.

19. Restrict councils to assessing matters against documents which actually form part of the planning scheme as opposed to those that don’t. Council officers will often refer applicants to “preferred” outcomes rather than those actually specified in the Scheme.

20. Introduce incentives or penalties for local councils and referral authorities that do not with statutory timeframes. The statutory timeframes in the Planning and Environment Regulations are regularly not adhered to and there are currently no penalties around this.

21. Introduce a thorough cost benefit process prior to altering a Planning Scheme. Planning Scheme amendments are used to vary certain aspects of planning schemes. When a planning scheme amendment is undertaken, there is no process undertaken to justify it. Many of the changes made to planning schemes surpass building regulation and negatively affect housing affordability. On the other hand the when a new development impacts a region positively, it should also be reported to assist with the decision making.

Strategic Planning Matters In terms of strategic matters in the planning system there are a number of ways to increase productivity. At the heart of any healthy system of housing supply is the need for an adequate residential land supply in urban areas to accommodate population growth. To improve land supply and productivity in the housing industry the State Government should:

22. Maintain abundant land supplies including short, medium and long term land supply in the pipeline for detached housing sites in conjunction with medium and high density opportunities.

23. Set clear land supply targets for authorities to ensure land supplied for housing in both greenfield and infill sites are maintained.

24. Address the excessive and inefficient taxation burden on housing through stamp duty reductions.

25. Restrict any further development contributions being levied on housing, particularly those which levy for community infrastructure items that should be funded by general taxation measures.

26. Provide the community-wide infrastructure that supports residential building rather than place that responsibility back onto industry and ultimately onto home owners and renters.


27. Identify surplus government land for residential development and facilitate its release in a timely manner.

28. Make new housing supply and housing affordability an objective of state planning legislation.

The Panel’s view is that government, in collaboration with industry, should consider how best to improve accessibility and lower costs for business and government procurement through policy levers such as: 2.5 Better business experience with government procurement and improved efficiency of procurement practices and processes, with specific measures including: • establishing a single, consolidated supplier-facing portal that:

- holds consolidated information about procurement opportunities and registered businesses;

- allows lodgement and tracking of documentation; and - improves transparency of selection criteria and processes and feedback mechanisms.

• consolidating government procurement processes, while maintaining departmental or agency autonomy over procurement that will:

- standardise procurement specifications, increasing consistency and enabling opportunities for business to - innovate through greater use of incentivised and outcomes focused contracts;

- enable consolidated payments systems; - allow improved monitoring, evaluation and reporting, including government

objectives pursued through procurement practices; and - manage a supplier facing portal and engagement with suppliers, including training

and education initiatives, feedback and dispute resolution.

HIA Comment on 2.5 HIA notes that many government procurement processes are complicated and very intimidating to a small business. The request for tender or EOI process can be too challenging for a small business to complete. Quoting for work such as maintenance or minor building works can be too difficult for a small business. A small business will usually be able to measure the cost of preparing a tender of EOI but be unable to measure or see a likely benefit when the chance of success is small. While the government procurement processes are intended to ensure government obtains value for money it is difficult to see how this is achieved if a number of potential suppliers find the procurement process too difficult and therefore do not compete for the work. There is also a doubt about the government’s adherence to the principle of value for money and not just accepting the lowest priced tender.


While HIA in principle could support a consolidated government procurement process it believes that such a process is likely to create another layer of government, and probably regulation that will add more complication and detail to the procurement process. It is unlikely that a centralised process will simplify the procurement process. It is also likely that some government agencies will find reasons to depart from or add to the consolidated process to meet their actual or perceived needs. HIA also regrets to advise that some government agencies sometimes refuse to allow builders to use building contracts that comply with the DBCA. The DBCA requires that a major domestic building contract be used for any domestic building work over $10,000 unless a clear exemption applies. Some agencies seem to be of the view that if they pay for domestic building work on land they don’t own they may ignore the DBCA. The State Government should

29. Support a simplified and standardised government procurement process to make it easier

for small businesses to engage and participate.

5. PART 5 CONSTRUCTION

The Panel’s view is that government, in collaboration with industry, should consider how best to ensure the supply of skilled workers through policy levers such as: 5.1 Encourage upskilling of the current workforce and development of a larger pipeline of new apprentices for the sector, with an emphasis on skilled tradespeople for future projects, with specific measures including: • advocating for improvements to the system of verifying construction trade qualifications and experience to reduce the time and expense to employers and provide more accurate information; • exploring ways to better capture skills and training acquired on the job to help with recognition of skills within the local industry; • encouraging the uptake of construction industry careers and training as well as retention, where appropriate, in particular for those groups with low participation rates (including women), through information and awareness campaigns that highlight the opportunities for well-paid and skilled careers to help attract new recruits and overcome low vocational education completion rates; • exploring long-term strategies for encouraging education completion and engagement of apprentices in collaboration with industry and education institutions.

HIA Comment on 5.1 HIA agrees with the Panels summary of the actions required to see a better uptake of apprentices. Whilst apprenticeships continue to provide a viable vocational training avenue for a proportion of people who want to acquire skills they can apply in the industry – there are a number of reasons why they are not always the preferred training pathway among the building trades. Where the completion of an apprenticeship is mandatory for working in a trade like electrical or plumbing, they are effectively the only avenue to employment in the residential building industry. In many other


fields of work common on residential building sites, the proportion of workers who have completed an apprenticeship varies considerably but might be in the 40-50% range. The significant variability in these numbers implies that the apprenticeship system and the training behind it, is not meeting the needs of the majority of workers in the residential building industry. The majority are developing their skills on the job without the assistance of the vocational training system or are completing qualifications such as certificate 4 to assist with achieving a building licence. The undertaking of an apprenticeship is intrinsically tied to the national Industrial relations system so in many cases there is minimal ability to vary these provisions to attract more entrants into the residential building industry. Whilst the legislation re-instating the Australian Building and Construction Commission will support and foster productivity across the construction industry, addressing the current efficiency constraints within the Australian Workplace Relations system would also improve the residential construction sector’s productivity and have wider economic benefits. The current regulatory framework adds very little to resolving complex issues associated with apprenticeships and in fact often adversely impacts attempts by business and industry to address them. An apprenticeship is a unique form of employment. It is based on a legal contract - the contract of training - involving three parties; the apprentice, employer and a training provider. Significantly, the contract of training is but one part of the legal or regulatory framework that impinges on apprenticeships. The ‘contract of training’, which provides for a program of structured training, operates within the Workplace Relations framework which does not adequately ‘fit’ with this form of engagement - like trying to force a square peg into a round hole. A similar view was expressed by the findings of the Expert Report - A shared responsibility - Apprenticeships for the 21st Century (the ‘Apprenticeship Expert Panel Report’):

‘The workplace relations system does not complement the Australian Apprenticeships system, which has created potential barriers to the system being able to deliver maximum productivity…’ … ‘There is currently a lack of integration between the Australian Apprenticeships system and the workplace relations system. We note particularly the inconsistencies in modern awards on a range of issues related to apprenticeship and traineeship wages and conditions. … The workplace relations framework needs to complement and support the VET system, be responsive to the needs of industry and encourage the take-up and completion of apprenticeships and traineeships.’ 1

The challenges posed by the Australian apprenticeship system are not novel, yet the lack of co-ordinated and dedicated evolution in this space is a source of constant frustration posing broader deleterious consequences. For example, apprentice commencement and completions in the residential construction industry are directly impacted by workplace relations policy and legislative settings, notably, increases in rates of pay for apprentices as a result of the 2013 Apprentice Wage Decision2 have only compounded the decline in apprentice commencement rates. A downturn in apprenticeships, in

1 A shared responsibility - Apprenticeships for the 21st Century’. Final Report of the Expert Panel, 31 January 2011 p.9-10. 2 Modern Award Review 2012 – Apprentice, Trainees and Juniors [2013] FWCFB 5411


turn, impacts on the availability of skilled trades in the industry and the overall ability of the sector to meet housing demand. This view was shared by the findings of the Apprenticeship Expert Panel Report:

‘The Australian Apprenticeships system will require significant improvement to performance, such as retention, completion outcomes and its impact on productivity and innovation, if Australia is to respond effectively to the challenge of competing in a global marketplace. A skilled and flexible workforce that can meet these challenges will be critical to Australia’s future standard of living.’3

Simplifying procedural complexities and duplication with regard to the interaction between the training contract and industrial relations system, and ensuring the Modern Awards support employment opportunities for young people and people who wish to develop new skills by introducing junior rates of pay, are just some examples of measures that would support skills development in the residential construction industry and positively impact on the industries productivity.

6. CONCLUSION

The housing industry operates in a complex regulatory environment and there is plenty of scope for the State Government to assist with productivity gains. There are many policy levers. However, with the right policy changes, the industry could operate more efficiently and better contribute to increasing housing supply. The Victorian Government should continue to recognise that productivity in the housing industry is vital to the economy of the state. A continuing undersupply of land and housing stock combined with a complex regulatory environment are all inhibitors to the industry performing well. Policy levers should focus on matters that would see an increase in the supply of housing to meet demand. More onerous regulation in areas such as planning building including water, energy efficiency, can have a similar effect on the efficient supply and cost of new housing. With further policy changes likely to increase the stringency in energy efficiency, climate change, life cycle assessment and accessibility, there will be a considerable, unnecessary and unjustified cost flow on to new housing.

Increasingly, new regulatory controls, additional red tape and increased regulation stringencies are often politically motivated, rather than responsive to a proven market failure. Regulatory impact statements are often inadequate, fail to demonstrate cost-benefit justification and ignore the flow on impact on new housing supply, the price of established housing, housing affordability, employment and the economy more broadly. Existing legislation for domestic building contracts needs to be reviewed and updated to reflect current building practices and allow greater flexibility for future innovation.

The Government needs to implement a productivity agenda to support and enable industry to meet overall housing supply targets by creating the right environment to incentivise a wide variety of housing to be built in the marketplace. In doing this, it will be also improving housing supply and therefore housing affordability for all households in Victoria. HIA would be pleased to expand on any matters contained in this submission.

3 Ibid p. 8.

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