A $40 million plan to develop modular construction methods is the federal government's latest pledge to build homes faster and cheaper. 

Australia is banking on a Scandinavian-style solution to its housing problems.

The government has promised $39.3 million for a trial of modular, premade building components - similar to IKEA flat-pack furniture - which could speed up construction times while driving down costs.

Housing Minister Clare O'Neil said Australia needs to think outside the box when it comes to getting homes built faster.

'Most homes use the same basic components - walls, windows, roofs, bathrooms, kitchens,' she said ahead of a major speech defending controversial changes to tax concessions for investors.

'So instead of designing everything from scratch every single time, we can standardise some parts of the process and make construction more efficient.'

Ms O'Neil has taken inspiration from Sweden, the home of furniture giant IKEA, where about 80 per cent of detached homes are built using prefabricated parts, compared to just five per cent in Australia.

The funding announced on Thursday will go towards a 'kit of parts' - a system of home components which can be built off-site and assembled like a supersized IKEA flat-pack. 

The system is the brainchild of Building 4.0 CRC, an industry-led research group partly funded by the federal government. 

It is open-source, meaning businesses across the country can participate without relying on a single proprietary company. 

Ms O'Neil said the federal funding would help the states and territories with pilot projects, design work, technical advice, training and supply chain development.

'When parts are designed to work together efficiently, you can build things faster, cheaper and more reliably,' she said.

National Shelter, a housing advocacy nonprofit organisation, said the funding would help tackle one of the most stubborn barriers to delivering modern construction methods at scale.

'There is simply no pathway to meeting our future housing needs without the adoption of new and innovative housing,' the body's chief executive Jackson Hills said.

The government also wants more social housing to be made from prefabricated parts as this would create a pipeline of work for the so-far nascent industry in Australia.

Labor hopes prefabricated buildings could help make housing more affordable, with new dwelling prices rising an average of 4.7 per cent in the year to April, according to Bureau of Statistics figures released on Wednesday.

The Commonwealth Bank expects home-building costs to peak at eight per cent by September.

Building 4.0 CRC chief executive Mathew Aitchison said his organisation would work with governments and industry to help roll out the kit of parts.

'While many industries around the world have transformed over the last 100 years, we still make buildings very much the same as we have previously, and in that same period costs have gone up and productivity has continued to fall,' he said.

The announcement came as Labor continues to face criticism for changes to tax concessions for property investors introduced to parliament on Thursday.

Opposition housing spokesman Andrew Bragg called it a 'crazy policy', saying Treasury's analysis found it would reduce housing supply by 35,000 homes.

While he supported the government encouraging prefabricated and modular construction, the overstuffed National Construction Code was making it too difficult to build cheap homes, he said.

'In Australia, it is illegal to build a cheap house,' he told ABC Radio.