Poor productivity in the construction sector is part of the reason it costs a third as much again to build a standard home in Auckland compared with Melbourne or the Gold Coast.

But the Productivity Commission has little to offer by way of solutions other than a "keep up the good work" message to an industry/government partnership set up last year to address the issue.

The commission's report on housing affordability, released yesterday, noted that productivity growth in the New Zealand construction sector had flatlined over the past 20 years, underperforming other sectors here and its peers in Australia and Britain.

It highlights three factors behind that: the difficultly of achieving economies of scale, skill shortages, and too little innovation. It contrasts a "cottage industry" dominated by small, often one-man firms building mainly customised standalone dwellings with Australia, where large firms, building more than 100 homes a year, have twice the market share and more than a third of the homes built are multi-unit dwellings.

"The industry accepts it has a problem with productivity," commission chairman Murray Sherwin said. And it understood it has big surge in work ahead in the rebuilding of Christchurch, the repair of leaky homes and pent-up demand from the slump in residential building over the past three years.

"There aren't many levers we or the Government can pull in some of these areas, other than working with the industry to support it as it comes to conclusions about what it needs to do," Sherwin said.

Little could be done about those characteristics of the market which reflected consumer preferences or New Zealand's smallness.

Some of the larger firms argued that with economies of scale through standardisation and a modular approach, they could reduce construction costs 20 to 30 per cent, he said.

But developers had told the commission there were very few opportunities for large-scale projects - with the rebuilding of Christchurch a possible exception.

On skill shortages, the commission noted that the construction sector's cycle tended to swing around more than the underlying economic cycle, making continuity of employment difficult and incentives to train and to be trained erratic.

It counsels against any attempt by the Government to run its procurement of construction in a counter-cyclical way, preferring transparency about its future needs.

Submitters had told the commission that pathways into and within the industry were unclear and it was hard for young people to get good information about training and career options.

The commission suggests the status quo has the balance wrong between productivity-enhancing innovation and the uptake of new materials and techniques on one hand and prudent regulation on the other.

The leaky homes problem had understandably injected a lot of risk aversion into the regulatory framework, Sherwin said.

"But stopping or impeding innovation is very expensive in the long term as well."

It was important to improve the "feedback loop" so lessons from those who tried new things was swiftly and widely disseminated within the sector and reflected in regulatory practice.

The commission concluded that the Building and Construction Sector Productivity Partnership could implement initiatives to improve skill and innovation rates in the industry. It sees no need to change the tax regime, arguing housing is less tax-privileged than it is often made out to be.

By Brian Fallow Email Brian