Australia’s productivity crisis deepens as construction costs defy global trends
Housing productivity has fallen by more than 53 per cent over the past three decades – it now takes twice the effort, resources and cost to deliver the same level of housing output as 30 years ago.
Material prices across Australia continue to climb, even as global material markets soften under weaker demand.
Is this an anomaly – or a symptom of something deeper? For long-time observers of Australia’s construction sector, the answer is clear: it’s the latter.
The Productivity Commission’s 2025 report shows housing productivity has fallen by more than 53 per cent over the past three decades – it now takes twice the effort, resources and cost to deliver the same level of housing output as 30 years ago.
This is alarming for a nation gripped by a housing crisis.
We are witnessing the cost of this productivity collapse in real time, as housing projects consume more labour and time per unit of output, leading to inflated costs and extended project timelines.
This has ripple effects across the construction supply chain, as material suppliers are forced to adapt their operations to inconsistent demand – inevitably pushing prices of materials higher.
Compounding the problem are persistent skills shortages and a rise in construction insolvencies, which introduce greater unpredictability into the construction sector.
Without decisive intervention, the sector risks being locked in a downward spiral of higher costs, inefficient delivery, and an ever-widening housing deficit, which means fewer homes for future Australians.
Material costs reflect deeper systemic failures
Quarter-on-quarter price movements are a clear indicator of the sector’s underlying productivity challenges.
Structural steel rose 0.75 per cent despite global oversupply, while rebar fell just 1.05 per cent – a modest reprieve given the flood of surplus from Chinese manufacturers.
More telling are the price shifts of locally intensive materials: concrete surged 2.52 per cent this quarter and 6.57 per cent year-to-date, plasterboard jumped 4.30 per cent quarterly and 6.48 per cent annually, while bricks climbed 6.41 per cent over the year despite a 1.13 per cent quarterly decline.
There are, however, a few bright spots.
Diesel prices have fallen 6.53 per cent this quarter, dropping 9.80 per cent year-to-date to pre-pandemic levels as global demand weakens and production increases. Copper pipes, up 6.68 per cent this quarter, are rising due to genuine demand from electrical trades rather than delivery inefficiency.
Looking ahead, construction cost escalation is expected to stay elevated through 2027.
Brisbane leads with forecasts of 7.00 per cent in 2025, easing slightly to 6.50 per cent by 2027 as public infrastructure and Olympic-related projects level out.
Sydney and Melbourne sit around 4.50 per cent on the back of slower pipelines, while Perth tracks at 5.75 per cent in 2025, easing to 4.75 per cent by 2027.
Across all markets, escalation remains well above pre-2021 levels, driven by persistent material, labour, and regulatory pressures.
At the project level, factors such as project size, risk profile, and location will continue to influence escalation rates – making tailored quantity surveyor assessments all the more critical for accurate forecasting and risk management.
It’s evident that international price drops are not flowing through to local markets, because domestic inefficiencies now dominate final costs.
Steel and timber may be cheaper globally, but if projects run 50 per cent longer and require double the labour, those savings quickly evaporate through extended site overheads and wage costs.
The same productivity drag hits locally intensive inputs like concrete, bricks and plasterboard. As plants and kilns run longer – or stop and start to meet uneven demand – energy and labour costs accumulate over time, which transfers over to markets to erode developer margins.
Construction costs won't fall until productivity rises
Our forecast shows that on the current trajectory, meaningful cost relief remains many years away.
This prolonged period of pressure will test every part of the industry, from major developers to small subcontractors – and many are already buckling.
Construction insolvencies surged 21 per cent to a record 3,595 cases in 2024–25, a clear sign that elevated costs are breaking companies, dragging down national productivity, and pushing housing targets further out of reach.
Federal efforts to cut approval red tape, modernise practices, and promote modular housing may provide some relief, but the real breakthrough will come when productivity is treated like a core project input – something to be designed, procured, and measured alongside materials and labour.
That means rethinking delivery models: smaller project footprints to reduce material intensity (and thus, costs), standardised designs to cut trades time, expanded use of offsite manufacturing for labour-heavy components, and digital workflows to streamline planning and management.
Until this productivity crisis is addressed head-on with radical ideas like the above, the sector will keep working harder, paying more and delivering less.
The question for the quarters ahead is whether construction leaders will finally commit to redesigning delivery models – or risk remaining stuck in the same cost spiral?
That’s something worth exploring fully as a next piece, because it’s not just an industry issue – it’s one that affects every Australian now and in the future.
