New report says modern methods of construction are key to accelerating housing supply, reducing costs
Australia is facing a national shortfall of between 200,000 and 300,000 dwellings against the National Housing Accord target of 1.2 million new homes by 2029, and a leading economic think tank is arguing the country cannot build its way out of the crisis using the same methods that created it.
A 2026 report by the Committee for Economic Development of Australia (CEDA), titled Built Different: Modern Methods of Construction, produced in partnership with urban consultancy Urbis, urges federal and state governments to unlock modern methods of construction (MMC) – a suite of off-site and factory-based building techniques – as a material pathway to accelerating housing supply and reducing costs.
Modern methods of construction encompass a broad range of approaches that shift building activity, wholly or partially, away from the traditional on-site model. They include full or partial prefabrication, off-site manufacturing, modular or volumetric construction, 3D printing, robotics, and AI integration.
In practical terms, a modular home is built in a factory – often simultaneously with site preparation – before being transported and assembled on location. The result is a faster, more controlled build process that reduces exposure to weather delays, trades shortages and supply chain disruption.
Despite the technology being well established overseas, modular construction currently accounts for just 5% of new home builds in Australia, according to the latest available research in McKinsey and Company's 2019 Construction: From Projects to Products report. The CEDA report argues this figure needs to rise substantially.
The scale of the problem
Average construction times have risen 40% since the pandemic. A new standalone home now takes an average of 9.2 months to build – over 13 months in Western Australia – while a new apartment building takes 2.4 years to complete, according to the Australian Bureau of Statistics' Building Activity, Australia (2025).
Construction costs have compounded the problem. Since 2014-15, the average construction cost per dwelling has increased by 88%. For apartments, the rise has been even more pronounced – up 122% over the same period, approximately 2.8 to four times the rate of inflation, based on CEDA analysis of ABS Building Approvals data.
"Australia is not building enough homes, and the homes we do build are taking too long to complete," the CEDA report states. "Meeting Australia's housing needs will require building more and building differently."
The opportunity for the lending sector
The potential cost savings from scaled MMC adoption are substantial and directly relevant to home loan affordability.
According to McKinsey and Company, modular construction techniques could reduce construction costs by around 20% at scale. Applied to the current Australian market, a 20% reduction would save more than $116,000 on the construction cost of an average apartment – and more than $13.6 million on a typical Sydney apartment building of 117 dwellings.
Time savings are equally significant. MMC can reduce construction times by 20 to 50%, according to research cited by the OECD in its 2026 Economic Surveys: Australia. Applied to current timelines, that could cut house build times by 1.8 to 4.6 months, and apartment completion times by 5.7 to 14.4 months.
Faster builds mean faster settlement, fewer construction loan extensions, and – in a market where development viability is under pressure – the potential for more projects to proceed.
Finance is one of the core barriers
The report identifies regulatory complexity and misaligned finance structures as the primary obstacles to MMC adoption in Australia.
Loan structures in Australia are designed for traditional on-site construction, where staged drawdowns are tied to on-site progress milestones. Off-site manufacturing does not follow the same schedule, creating a funding gap that falls on either the buyer or the manufacturer. For smaller producers, carrying that burden is often not commercially viable.
"The primary reason finance structures have not kept pace with MMC is the limited scale of the industry, which reduces the incentive for lenders to develop MMC-specific products," the report states.
Two domestic lenders have begun addressing this gap. Keystart, the Western Australian Government's lending agency, offers one of the only dedicated modular home finance products in Australia, requiring a 2% deposit and offering staged payments to manufacturers across the production process. Commonwealth Bank of Australia has introduced a comparable product, allowing customers to access up to 60% of the contract price – or 80% for CBA-accredited manufacturers – before a home is installed.
The report notes that Keystart, as a Government Trading Enterprise, is not subject to the same commercial constraints as private lenders, allowing it to structure products around housing supply objectives. The CBA and Keystart models are currently exceptions in a market that has yet to develop standardised MMC finance products at scale.
CEDA's six recommendations
The CEDA report makes six formal recommendations across four reform areas.
On national targets, the federal government should set a specific MMC delivery target, with greater adoption in social and affordable housing used to lead demand certainty for manufacturers investing at scale.
On regulatory reform, the Commonwealth Treasury's current review of the National Construction Code – titled Modernising the National Construction Code – should deliver concrete changes to remove barriers to MMC. In parallel, the Australian Building Codes Board should publish nationally consistent MMC definitions as formal guidance. State and territory governments should also establish dedicated MMC approval pathways.
Read more: Tax changes alone won't fix Australia's housing shortage
On finance, the federal government should encourage standardised MMC finance products across the banking sector, while state and territory governments should consider low-interest finance for MMC manufacturing facilities.
On transport, the report calls on Transport Ministers, through the National Transport Commission, to deliver harmonised permit and escort requirements for prefabricated module transport under the next phase of Heavy Vehicle National Law reforms.
The 2026 federal budget announced new agreements with states and territories to support the uptake of MMC. Western Australia has signed up, and New South Wales has introduced new laws to encourage MMC adoption, including integrating it into the same approval system used for traditional buildings.
International precedent
The report points to international examples as evidence that rapid MMC adoption is achievable. Sweden has prefabricated an estimated 80% of new single-family homes. Japan manufactures around 40% of its apartments. Singapore has embedded MMC in its national development strategy, reducing entry barriers through subsidies and grants.
A case study from Calgary, Canada, demonstrates what is possible at project level. ATCO Structures, in partnership with Attainable Housing Calgary, delivered an 84-unit modular apartment complex in 275 days – completing a dwelling every 3.27 days, compared to 9.43 days per dwelling for a traditionally built complex constructed across the street at the same time, according to ATCO Structures project data.
"Modern methods of construction are not a silver bullet," the report says. "But they are a tangible, evidence-based pathway to increase housing supply faster than traditional construction methods can deliver."
