As Australia’s housing crisis continues, modular and prefab construction is emerging as a potential solution. Daniel Williamson talks to industry professionals and academics to understand its promises – and its limits.

With the number of articles focusing on Australia’s looming housing crisis, it’s fair for readers to be feeling overwhelmed and tired of the issue. The country doesn’t have enough homes, and the National Cabinet’s declaration to build 1.2 million by 2029 back in 2023 seemed like a cruel joke.

In 2024, Australia saw a housing shortfall of 62,000 homes, while in 2023, the country had a deficit of 110,000. On top of this, the lack of skilled tradespeople is also threatening the nation’s ability to reach its ambitious housing targets. This is alarming for obvious reasons, but after the re-elected Albanese Government pledged $54 million into prefabricated and modular housing, I believe the discussion is now at its most crucial stage.

This backing by the Federal Government in prefab and modular housing makes it clear that leaders are beginning to see the real value of these methods in solving such a prominent issue. According to the James Hardie Modern Homes Forecast 2025, “prefabricated and modular construction methods are getting increasingly recognised as they serve vital solutions to Australia’s evolving housing landscape.”

So, what is prefab and modular housing? Prefab and modular housing is far from a recent innovation or concept.

The first recorded modular home was in the 1600s when a fisherman from England wanted to bring his home across the Atlantic to America. To do so, the fisherman dismantled his home into movable sections and hauled it all onto a boat and then reassembled the parts upon his arrival. Then the American Gold Rush would drive people to rural areas to make some coin, and the modular practice of home building would begin to become a more viable solution.

Fast-forward to today, and the same basic principle is being used to solve a much more modern crisis.

At its core, the prefabrication model is the basic process of producing standardised components or the whole of a structure externally and then assembling the entire edifice on-site.

Prefab homes can be built in a fraction of the time compared to traditional homes, as the time needed to assemble the parts on-site is significantly shorter than the time needed for traditional builders to build a regular stick-built home.

They are also more affordable, due to the use of fewer materials as well as significantly less labour work required. Nowadays, prefab homes are also designed and constructed to be energy efficient and healthier, using non-toxic materials and clever passive solar designs.

It has led to some appealing and thoughtful innovations from companies. Take, for example, James Hardie’s Stria Cladding Fine texture, a 14mm fibre cement board with an embedded fine render texture and sharp v-groove profile. Resistant to fire, moisture and pests, it’s engineered for fast, cost-effective construction and complements a range of architectural styles, making it ideal for modular builds where time and materials are at a premium.

The recent $54 million commitment signifies that leaders no longer consider it to be a fringe concept – it’s becoming a critical part of Australia’s broader housing strategy to overcome the housing crisis and build more homes quickly and efficiently.

NXT TEC.’s chairman and managing director, Natasha Di Ciano, says this commitment is a positive step towards embracing more innovative and successful building methods: “I think it’s important that we take a step forward and recognise that there are more innovative building solutions, as opposed to traditional construction methods.

“We are clearly in a severe housing crisis; we don’t have enough homes, and I believe prefabrication is an important step to getting houses built for those who need it the most.”

“Prefabrication”, Natasha adds, “can dramatically reduce building timeframes” – her company, NXT TEC. recently completed a fully assembled, turn-key home in just five weeks, compared to the two to three years it can take through traditional building methods. Their technology, which includes a full structural system from the foundation to the rooftop, is being licensed to other builders, enabling quicker, controlled manufacturing builds close to the construction site.

prefabAUS founding director and Advanced Offsite Group managing director Damien Crough welcomes the funding with support from James Hardie: “This investment is a positive step toward modernising Australia’s construction sector, improving housing affordability and addressing critical supply shortages.

“As demand for housing continues to grow, prefabrication must play a central role in delivering more homes, more quickly. This funding signals that the government recognises the importance of offsite construction and we look forward to working collaboratively to drive innovation and expand the industry.”

Beyond speed and affordability, prefabricated construction is also reshaping the way tradespeople work. Rather than replacing the role of the builder, prefab is offering new career opportunities and pathways, particularly in manufacturing, logistics, installation and upskilling.

“The future is automation and robotics in the construction industry,” Natasha says.

“We’re starting to upskill workers into new disciplines. It’s not just hammer-and-nails anymore, it’s sequencing, tech integration and advanced manufacturing processes.”

Damien echoes this sentiment, noting that rather than replacing traditional builders, prefabricated and modular construction offer new opportunities for upskilling within the industry.

“Builders can leverage these methods to expand their skill sets, embrace new technologies and meet the evolving demands of the housing market,” he says.

Melbourne University professor in civil engineering and board member of PrefabAus, Professor Tuan Ngo, claims that modular building methods will not eliminate traditional building roles, and will help improve productivity, which he claims has been a low point in the industry over the past 30 years.

“If building companies continue to stick to traditional methods, we will not be able to meet our housing targets,” he says.

“Modular construction and prefabrication provide a different mindset and a different way of doing things. These principles do not replace the jobs of tradespeople, rather, they can help them to do things more efficiently.”

Prefab sites are often safer, less exposed to weather delays and offer clearer career pathways – something that the traditional sector has struggled to deliver upon.

Yet, despite the promising advancements in prefabricated construction, Australia’s housing ambitions face a significant hurdle: A critical shortage of skilled tradespeople. The national shortage of builders has seemingly hindered the Housing Industry Association’s (HIA) target of 1.2 million homes over the next five years, which requires the trade workforce to grow by 30%.

This is over 80,000 additional tradies required.

PrefabAus aims to expand the modular prefab industry market share to 30% by 2033 – a leap that will require major workforce and regulatory coordination.

However, while industry leaders and government bodies are beginning to embrace prefab construction, widespread adoption still faces notable challenges, particularly around regulation, financing and entrenched building norms.

HIA chief executive for industry policy Kristin Brookfield believes that current building codes and regulatory frameworks are designed for traditional construction, which has subsequently led to difficulties and obstructions to the implementation of off-site building techniques.

“Our current building codes, standards, planning and building regulations and financial systems were created with traditional homes and construction methods in mind,” she says.

In September 2024, the HIA, in conjunction with the Pre-Fab Innovation Hub, delivered a project to identify and address these barriers and provide recommended solutions and alternatives to current regulations. This included the introduction of national terminology for off-site construction and formal planning recognition of modular homes as viable dwellings.

This year has seen some encouraging signs. The Commonwealth Bank of Australia (CBA) has partnered with prefabAUS, the peak body for Australia’s off-site construction industry, to support the growth of the prefabricated housing sector.

CBA group executive for business banking, Michael Vacy-Lyle, says that prefabricated construction has so many benefits and will have an active role in tackling Australia’s housing shortage. Michael agrees with the HIA opinion that to date, everything about construction has been created with traditional, on-site work in mind and the need for change is clear.

The sector is also offering long-term opportunities for job growth, particularly in manufacturing, logistics, digital design and systems engineering.

Prefabricated and modular housing likely won’t be the only solution to the country’s housing crisis, but recent investment and innovation in the space suggest it will likely play a more central role in the years ahead.