How Local Manufacturing Can Strengthen Australia's Economy and Housing Affordability

The Decline of Local Manufacturing in Australia

Back in the 1960s, Australia's suburbs were full of factories, and manufacturing made up around 25% of the nation's GDP. Today it's just over 5%.

So, What Happened?

Several factors have contributed to this decline:

• Globalisation and Cheaper Imports: As trade barriers lowered, Australia faced stiff competition from countries with lower production costs.
• Policy Shifts: Reductions in tariffs and changes in government support made it challenging for local manufacturers to compete.
• Technological Changes: Automation and advancements in technology altered the manufacturing landscape, requiring new skills and investments.

Why Does This Matter?

This isn't just about numbers. It's about livelihoods and national resilience:

• Job Losses: Fewer manufacturing jobs mean fewer opportunities for skilled and semi-skilled workers.
• Economic Vulnerability: Relying heavily on imports can expose us to global supply chain disruptions, as seen during events like the COVID-19 pandemic.
• Loss of Expertise: As industries shrink, so does the knowledge base, making it harder to revive sectors in the future.

The Housing Affordability Crisis

What's Going On?

For many Australians, owning a home feels further away every year. Here's why:

• Skyrocketing Property Prices: Over the past few years, house prices have surged dramatically. In cities like Sydney and Melbourne, median house prices have climbed well over the million-dollar mark, making it nearly impossible for average earners to enter the market.
• Stagnant Wages: While property prices soar, wage growth has remained relatively flat. This disparity means that even as people save, their purchasing power diminishes in comparison to the rising costs.
• Higher Interest Rates: The Reserve Bank lifted rates sharply in 2022 and 2023 to fight inflation. Even with some cuts since, repayments take a much bigger slice of household income than they did a few years ago.
• Limited Housing Supply: Australia simply isn't building enough. In 2024 the country built about 62,000 fewer homes than needed to keep up with population growth (PropTrack).

The Human Impact

These aren't just numbers on a page:

• Delayed Life Milestones: Many young Australians are postponing major life events like marriage or starting a family due to housing insecurity.
• Increased Rental Stress: With home ownership out of reach, more people are renting, leading to heightened demand and, consequently, increased rental prices. This puts additional financial strain on households.
• Mental Health Concerns: The stress of housing instability can lead to anxiety, depression, and a sense of hopelessness among affected individuals.

Linking Manufacturing to Housing Affordability

Manufacturing might not be the first thing you think of when it comes to housing affordability, but the two are closely linked.

Building Materials: The Cost Factor

A significant portion of construction costs comes from building materials like steel, timber, and concrete. When these materials are imported, prices can fluctuate due to global market changes, shipping costs, and currency exchange rates. By producing more of these materials locally, we can stabilise prices and reduce construction costs, making homes more affordable.

Prefabrication: Speeding Up Construction

Local manufacturing enables the production of prefabricated building components. These are sections of a building made off-site and then assembled on-site, significantly reducing construction time. Faster construction means more homes built in less time, helping to address housing shortages.

Job Creation: Boosting the Economy

Revitalising manufacturing creates jobs, not just in factories but also in related sectors like transportation, logistics, and retail. More employment opportunities lead to increased household incomes, enabling more people to afford homes.

Economic Stability: A Stronger Foundation

A robust manufacturing sector contributes to a more balanced and resilient economy. It reduces reliance on volatile sectors like mining and provides a steady source of income and employment. Economic stability is crucial for maintaining affordable housing markets.

Enhancing Economic Resilience Through Manufacturing

Economic resilience is a nation's ability to absorb a financial shock and recover. Manufacturing helps in several ways.

Absorbing National Debt

National debt is a bit like a mortgage on the country — and just like a household, a nation’s ability to manage debt comes down to how much it earns and how reliable that income is. A strong manufacturing sector boosts the nation’s income by expanding GDP, creating stable jobs, and generating tax revenue from a broader base. That gives governments more room to invest in essential services without endlessly racking up debt or relying on one-off cash grabs.

For far too long, Australia has treated housing as both a store of personal wealth and a national cash cow. Every time there's a budget shortfall or the economy softens, housing becomes the go-to lever. Pull up property prices, and you get a spike in:

• Stamp duty
• Capital gains tax
• Land tax
• Development and infrastructure charges

It’s a sugar hit that helps plug holes in the budget — but it's also one of the main reasons first home buyers are increasingly locked out of the market. Housing affordability has become a casualty of a revenue strategy.

To make matters worse, immigration is now being used as an economic tool to avoid recession — without the corresponding investment in housing, infrastructure, or urban planning.

During COVID, immigration slowed and the economy flatlined. So what happened next? We opened the taps, dramatically increasing population growth to keep demand (and GDP) ticking upward.

But here's the problem: if you boost population without boosting housing supply, you’re not just creating economic activity — you’re creating pressure. More renters, fewer available properties, rising prices, and a generation priced out of both ownership and stability.

This isn't a dig at immigration — Australia is a nation built on it.

The issue is using immigration as a tool to inflate revenue and growth figures, without addressing the systems that support a growing population.

It’s a short-sighted policy that prioritises numbers on a spreadsheet over long-term national resilience.

If we’re serious about managing national debt responsibly, we need to stop relying on housing and immigration as blunt economic instruments. That means diversifying the tax base through manufacturing and value creation — not by bidding up house prices and squeezing younger Australians out of the economy they’re supposed to inherit.

Securing Supply Chains

The COVID-19 pandemic exposed the fragility of global supply chains. By investing in local manufacturing, we reduce our dependence on international suppliers, ensuring that essential goods remain accessible during global disruptions.

Leveraging Fiscal Strength to Rebuild Manufacturing

Australia's government debt is modest by developed-world standards. On the IMF's general government gross debt measure, we sit at around 50% of GDP, compared with roughly 120% for the United States and over 100% for Canada.

That gives Australia room to invest in long-term nation-building without the pressure of unsustainable debt.

Here's the opportunity: by issuing government bonds, Australia can raise capital to rebuild its manufacturing base and invest in large-scale infrastructure. This isn't reckless spending. It's a tool most advanced economies use to fund growth, and Australia's strong credit rating keeps borrowing costs low.

Our economy is uniquely positioned to support this strategy. We’re backed by world-class mineral resources that provide a reliable stream of export revenue and global demand. The banking sector is robust and well-regulated, providing stability even during international financial upheavals. And importantly, Australia’s buoyant real estate market, supported by a solid loan book and ongoing demand, reinforces the broader economy, ensuring liquidity and consumption remain strong.

In other words, we’re not just “printing money” — we’re borrowing against a solid economic foundation. By directing this borrowing into manufacturing, we can diversify the economy, reduce reliance on housing-driven revenue (which, as we've discussed, is unsustainable), and build long-term resilience. This approach positions Australia to not only weather future global shocks but also to reclaim our place as a nation that makes things — not just flips properties.

The Same Goes for Cars

It isn't just building materials. The Nissan and Premcar partnership building the Patrol Warrior in Melbourne, and world-class 4x4 exporters like ARB, REDARC and TJM, show we can still design and build products the world wants. With government backing, a joint venture to build 4x4s and utes here again, as a partial answer to the loss of Holden, isn't as far-fetched as it sounds.

Government Initiatives and Policy Directions

Two current federal policies touch on this directly: the Future Made in Australia plan and the Help to Buy scheme.

Future Made in Australia: Reviving Local Manufacturing

Future Made in Australia is a plan to grow domestic manufacturing, particularly in renewable energy, critical minerals and clean technology. With $22.7 billion committed over a decade, the government aims to:

• Attract and Enable Investment: Encouraging private sector participation to scale up manufacturing capabilities.
• Promote Renewable Energy: Positioning Australia as a leader in renewable energy production and technology.
• Strengthen Economic Security: Reducing reliance on imports and enhancing self-sufficiency in critical industries.

Help to Buy: Making Home ownership More Accessible

Help to Buy is a shared equity scheme for first home buyers. Under it:

• Government Contribution: The government provides up to 40% of the purchase price for new homes and up to 30% for existing homes.
• Lower Deposits: Buyers can secure a home with as little as a 2% deposit.
• Reduced Mortgage Repayments: With the government's equity stake, monthly mortgage payments are significantly lowered.

What If Manufacturing Hadn't Declined?

Imagine Australia had kept a strong manufacturing sector. We'd have a more balanced economy, less exposed to the boom and bust of commodity prices. More Australians would be in well-paid, stable jobs, spread across more regions, which would ease the pressure on capital-city housing. Locally made building materials would have kept construction costs steadier. And when COVID hit, we'd have been far better placed to supply our own needs, from medical supplies to construction materials.

Where to From Here

Rebuilding local manufacturing isn't nostalgia. It's a way to steady the economy, create jobs and bring down the cost of building homes. It needs policymakers, industry and communities to treat it as a long-term priority, not a slogan.

Frequently Asked Questions

1. How does local manufacturing influence housing affordability?

Local manufacturing can reduce the cost of building materials and construction, leading to more affordable housing options. By producing materials domestically, we can mitigate the impact of global supply chain disruptions and price fluctuations.

2. What are the risks of relying heavily on imports for construction materials?

Dependence on imports exposes the construction industry to global market volatility, shipping delays, and geopolitical tensions. These factors can lead to increased costs and project delays, affecting housing availability and affordability.

3. How can revitalising manufacturing help absorb national debt?

A robust manufacturing sector boosts GDP and tax revenues, providing the government with more resources to manage and reduce national debt. Economic diversification through manufacturing also enhances financial stability.

5. What is the "Future Made in Australia" policy?

Announced in April 2024, Future Made in Australia is a federal policy to grow domestic manufacturing, particularly in clean energy. It commits $22.7 billion over a decade to industries like green hydrogen, solar panel manufacturing and critical minerals processing. More at Treasury.

6. How do prefabricated homes contribute to solving the housing crisis?

Prefabricated homes are built off-site and assembled on-site, reducing construction time and costs. This method allows for quicker delivery of housing units, addressing shortages and improving affordability.

7. What role does manufacturing play in national security?

Domestic manufacturing ensures self-sufficiency in essential goods, reducing reliance on foreign suppliers. This capability is crucial during global crises, such as pandemics or geopolitical conflicts, enhancing national security.

8. How can individuals support the growth of local manufacturing?

Consumers can support local manufacturing by purchasing Australian-made products, advocating for policies that promote domestic industries, and raising awareness about the benefits of local production.

9. Are there environmental benefits to local manufacturing?

Yes, local manufacturing can reduce carbon emissions associated with long-distance transportation. Additionally, domestic production allows for stricter environmental regulations and sustainable practices.

10. What challenges does the manufacturing sector currently face?

The manufacturing sector faces challenges such as skill shortages, high energy costs, and competition from countries with lower production expenses. Addressing these issues requires strategic investments and supportive policies.

11. Do short political terms affect the long-term benefit of nation-building programs?

Yes. Australia's three-year federal terms push governments towards quick wins and headlines before the next election. That short-termism is a serious roadblock to long-term nation-building like large-scale infrastructure, housing reform or industrial revitalisation.

Now here’s the frustrating bit: defence programs routinely span decades. Multi-billion dollar submarine, shipbuilding, and weapons programs stretch across multiple election cycles and are broadly protected from political interference — once they’re approved, they roll on. Why? Because defence is treated as a bipartisan priority. Stability, continuity, and long-term planning are seen as essential to national security.

So why don’t we treat housing policy or manufacturing strategy with the same level of importance and consistency?

If housing affordability and domestic production are just as vital to national resilience — and they are — then they deserve the same long-term commitment. That means:

• Bipartisan support that survives leadership changes.
• 10- to 30-year planning frameworks, like those used for defence procurement.
• Independent oversight bodies, similar to Infrastructure Australia or the Productivity Commission, to keep the focus on evidence-based outcomes rather than political optics.

Imagine if we built manufacturing capability or public housing stock with the same multi-decade seriousness as our submarine fleet. We'd be in a much better position — economically, socially, and strategically.

While extending political terms to four years could help, the real shift needs to be in how we treat housing and manufacturing as national imperatives, not political footballs.

Further Reading

Why Canberra Needs Deficits – and Hot Property PricesMoney is just an IOU, so every federal surplus must come from our pockets. Modern Monetary Theory (MMT) shows why Canberra keeps the budget in the red and nudges house prices ever higher to shore up stamp duty, CGT and land-tax flows. Here’s how it works.How the Cantillon Effect Impacts Australian House PriceHouse prices soar while wages stagnate—but the real villain isn’t just supply and demand. The Cantillon Effect explains how money creation enriches banks and investors first, leaving everyday Australians scrambling. Here’s how it works—and how to protect yourself.Nationalise Minerals, Fix HousingAustralia is short almost 400 000 homes and counting. Meanwhile, WA’s mines alone will tip $11 billion into state coffers this year—and far more into private hands. If we taxed resources like Norway, we could fund 40 000 new dwellings annually and end housing supply issues within ten years.Boomer Bonds: How To Create Affordable Housing in AustraliaAustralia’s housing market has reached a tipping point. Discover an innovative solution—Boomer Bonds—that leverages property equity to fund affordable, community-focused housing while offering a win-win for all generations.