Australia’s construction sector faces uncertainty amid global and domestic challenges

Growing labour shortages, mounting insolvencies, disruptive trade wars, and now a shrinking Australian dollar – is there no end to the pressures that are battering Australia’s construction sector?

Uncertainty continues to be the flavour of this quarter, especially as the US-tariff situation continues to be a prolonged standoff of stiff policy retaliations and negotiations. Meanwhile, global shipments continue to decline – exports from major producers like China have slowed – with predictable impact on the global supply chain.

While steel prices have eased due to an influx of low-cost imports from China, prices for energy-intensive materials like concrete and bricks remain elevated.

The former has pushed the federal government to tighten anti-dumping regulations in an effort to curb oversupply – adding another layer of uncertainty for builders already under strain.

The next quarter is unlikely to offer any relief.

Construction productivity is expected to slump further, as cost pressures, labour shortages, and the collapse of major players like Roberts Co slow construction delivery and growth.

To navigate a future filled with unknowns, firms must look beyond headline numbers and understand the deeper drivers of cost and risk – which will provide the insight and agility needed to stay ahead.

Cost escalation is a lingering concern

After a much-needed easing from 2024 highs, construction cost escalation is expected to plateau in 2025, with slight variations across the four capitals.

• Sydney: 4.50 per cent in 2025, rising to 4.75 per cent in 2026
• Brisbane: 7.00 per cent in 2025, softening to 6.75 per cent in 2026
• Melbourne: Holding steady at 4.50 per cent
• Perth: 5.75 per cent in 2025, easing to 5.25 per cent in 2026.

This stagnation in costs reflects a mix of easing input costs and slowing activity.

Declines in key material prices – particularly steel and timber – have helped relieve pressure, while a slowdown in new residential projects is dampening demand for both materials and labour.

There is some variance in material costs, but trends point toward the red for the near term.

Prices of structural steel (-1.02 per cent) and rebar (-0.35 per cent) are trending downward, due to surplus from Chinese markets. Structural timber (-0.50 per cent) prices are kept stable due to slowing housing demand and a sizable local supply.

In contrast, surging energy costs are pushing the cost of concrete (1.21 per cent), plasterboard (0.88 per cent), and bricks (3.36 per cent) to new heights, while competing demand from industries like EV manufacturing and data centres have contributed to higher copper (2.85 per cent) prices.

Depending on how geopolitical tensions pan out, these trends could change quickly – introducing greater uncertainty into cost projections.

This volatility is already eroding risk appetite across the sector, as developers and tradies grow increasingly cautious about the long-term costs of new projects.

This air of caution has pushed Australia’s construction productivity to a historic low — contributing to the country’s worst productivity growth in 60 years.

Reversing this trajectory and getting the economy back on track will require directly addressing the barriers holding back progress and growth in the construction industry.

Productivity comes with a higher price tag

Construction productivity has declined by 12 per cent since 1995, while the broader economy has grown by 49 per cent over the same period, according to the Productivity Commission.

The Commission also reported that labour productivity in detached housing has fallen by 25 per cent and by 14 per cent in medium-density dwellings since 2001. Although higher-density construction saw brief gains (+5 per cent) over the last decade, that trend reversed sharply by 2022.

The cost of this productivity lag is now reflected in rising output prices.

The Australian Bureau of Statistics recorded a 0.2 per cent quarter-on-quarter increase in construction output prices and a 2.9 per cent year-on-year rise in the Producer Price Index (PPI).

Our firm’s own cost analyses show similar patterns, with a 0.2 per cent increase in index price growth over the last quarter.

Elevated output prices are caused by the ongoing trade skill shortage – largely in concrete and electrical work – and enduring wage pressures.

The construction Wage Price Index rose 0.7 per cent in the December 2024 quarter and 3.4 per cent over the year. With a shortfall of 197,000 infrastructure workers – according to Infrastructure Australia’s Market Capacity Report – competition for talent is bound to continue driving up wages, inflating project costs, and further squeezing builder margins.

With a growing number of construction companies becoming insolvent, that’s not a good look for Australia’s construction sector.

More than ever before, builders must rethink every aspect of their operations, from workforce management to supplier relationships, project costs, and more.

Success in the coming years will depend on access to timely market data that will allow builders to anticipate cost escalations and identify risks with precision.

While global market forces remain beyond any single builder’s control, the above are levers within their reach.

Resilience in the face of the unknown is built by data-driven clarity and control from analytical insight – and Australia’s builders have an ever-closing window to obtain both to remain afloat and one step ahead.