Australia's housing pipeline is under pressure from every direction

Australia’s housing supply pipeline is being squeezed from multiple directions, with construction costs accelerating, skilled labour remaining scarce, new-home sales weakening and developers facing tougher decisions about whether projects can still stack up financially.

The pressure is emerging just as governments and the private sector attempt to increase housing construction, raising concerns about how quickly new projects can move from approval to completion.

Ray White Group’s Chief Economist, Nerida Conisbee, said the construction industry was confronting another increase in costs after several years of significant inflation.

“Just as those pressures appeared to be easing, construction costs are accelerating again,” Ms Conisbee said.

The latest data shows new dwelling prices were 5.7 per cent higher in July than a year earlier, compared with annual growth of just 0.7 per cent in June last year.

The ABS attributed the increase to builders passing through higher labour and material costs.

House construction input costs rose 2.1 per cent in the June quarter and 3.8 per cent over the year, with electrical cable and conduit rising 11.2 per cent in three months, electrical equipment increasing 7.4 per cent and plaster products up 4.6 per cent.

Overall house construction input costs are now around 68 per cent higher than in 2012.

Ms Conisbee said the renewed pressure was coming at a difficult point for the industry, where insolvencies were already historically high and margins had been squeezed.

“The capacity to absorb another round of cost increases is limited,” she said.

A workforce stretched across the economy

Labour remains one of the industry’s biggest constraints.

The ABS continues to report shortages of skilled trades, including bricklayers, carpenters and concreters, while apprentice completions have fallen 38 per cent over the past decade.

Construction trades in training are also down 9.5 per cent since 2021, while just 38 per cent of advertised construction trade vacancies are being filled, compared with 66 per cent across all occupations.

The issue is not confined to residential construction.

Australia is simultaneously undertaking major transport, hospital, school, renewable energy, electricity transmission, resources and data-centre projects, many of which require the same workers and materials.

Ms Conisbee said the competition was particularly obvious in trades such as electrical work.

“A builder isn't simply competing with another builder for an electrician,” she said. “They may now be competing with a data centre, transmission project, mine or major infrastructure project, often with a much greater capacity to pay.”

National major-project activity is estimated to peak at around $80 billion in FY26, while Queensland’s construction pipeline over the next five years is estimated to be roughly double that of the previous five.

Put simply, Australia needs to build more homes while the capacity to build is already being heavily used elsewhere.

From approvals to actual homes

The number of approvals alone does not tell the full story.

Access Wealth Managing Director, Dory Senior, said the gap between approvals and actual delivery was becoming increasingly important, particularly as developers dealt with pre-sales and construction finance.

“Building approvals are obviously important, and I’d much rather see them rising than falling,” Mr Senior said.

“But an approval isn’t a completed home.”

According to the National Housing Supply and Affordability Council, quarterly approvals are now 26 per cent higher and commencements 15 per cent higher than immediately before the Housing Accord period.

Yet only around 308,000 homes had been completed during the first seven quarters of the Accord’s five-year timeframe.

A record 244,000 dwellings were under construction in the March quarter, but Mr Senior said the pipeline remained vulnerable if projects could not achieve the sales or financing required to proceed.

“Some projects will inevitably be delayed, reworked or abandoned if they can’t achieve the sales required to get out of the ground,” he said.

“If Australia desperately needs more housing, anything that weakens the delivery pipeline becomes a serious concern.”

New-home sales are already falling

The next warning sign is demand.

HIA chief economist Tim Reardon said new-home sales had declined for a fourth consecutive month in August, falling 10 per cent nationally during the month.

Sales were 19.3 per cent lower over the three months to August than in the previous quarter and 7.7 per cent below the same period a year earlier.

Every mainland state recorded a decline over the three months, led by Victoria at 27 per cent, followed by Queensland at 20.2 per cent, NSW at 17.5 per cent, South Australia at 10.8 per cent and Western Australia at 8.2 per cent.

Mr Reardon said the deterioration was significant and suggested the recovery in new-home construction at the start of the year had been interrupted.

“Sales of new homes fell nationally by 10.0 per cent in the month of August,” Mr Reardon said.

“This is a tangible and significant deterioration in market conditions and confirms that the recovery in new home building that was underway at the start of the year, has been interrupted.”

Weaker sales do not immediately translate into weaker commencements.

“There was a substantial volume of work in the pipeline when these pressures emerged,” he said.

“But today’s new home sales are tomorrow’s housing commencements.”

Mr Reardon said the decline in sales through the middle of 2026 would mean fewer homes commencing construction in 2027, even though population growth and the existing housing shortage would continue to generate demand.

“The new home market cannot absorb further interest rate increases on top of the tax increases announced in this year’s Federal Budget,” added Mr Reardon.

That observation will likely be put to the test soon enough.

As of Monday (21 September), all of the ‘big four’ banks are now forecasting a rate rise on 29 September.

Tax changes add another layer of uncertainty

Industry groups are also warning that proposed changes to the taxation of discretionary trusts could affect development activity.

Polling commissioned by the Housing Industry Association, Master Builders Australia, Property Council of Australia, Real Estate Institute of Australia and Urban Development Institute of Australia found more than 60 per cent of small and medium residential and commercial developers expected the proposed changes to affect the timing or viability of their projects.

Among those expecting an impact, 37 per cent said one or more projects could be cancelled.

HIA managing director Jocelyn Martin said the combination of weaker new-home sales and the proposed tax changes was creating additional pressure.

“New home sales have fallen for the last four months, after the taxation changes for investors in the federal budget,” Ms Martin said.

“New trust rules for builders and developers will see now see viability of other projects under threat. Australia cannot tax its way to 1.2 million homes.”

Denita Wawn, Chief Executive, Master Builders Australia, said the consequences could extend beyond developers.

“At a time when we have a housing supply crisis, these changes would hamstring the very businesses that are central to the solution,” Ms Wawn said.

“The consequences of this poor policy will not only impact these businesses, it will also flow onto home buyers and renters.”

Property Council of Australia Chief Executive, Mike Zorbas, said the industry was already dealing with weak buyer confidence and project feasibility.

“Almost one in four property and development companies believe one or more of their projects will be cancelled as a result of the government’s new taxes,” Mr Zorbas said.

“Housing supply depends on market confidence, investment and projects stacking up commercially.”

Investors are also changing what they buy

The pressure on housing construction is unfolding alongside a shift in investor behaviour.

Mr Senior said some investors were showing greater interest in commercial property, meaning a retreat from established residential property would not necessarily translate into more money flowing into new houses and apartments.

“We shouldn’t assume every investor who steps back from established residential property will redirect their money into a new house or apartment,” he said.

“Some of that capital may leave residential property altogether.”

At the same time, he said investors needed to look beyond short-term market sentiment and consider how Australians would actually live in the years ahead.

Affordability, demographics and changing urban form were likely to increase the role of smaller lots, townhouses, terraces and higher-density housing, he said.

That shift could create opportunities for projects that reflect the realities of future housing demand, even as the broader development pipeline faces higher costs and tougher feasibility hurdles.

A supply problem becoming harder to solve

The demand for more homes is clearly there but the greater challenge is whether projects can move from planning to construction and from construction to completion while builders face higher costs, developers confront tighter viability thresholds and the industry competes with major projects for scarce labour.

REIA President, Jacob Caine, said the impact of weaker developer confidence could extend beyond individual businesses.

“Projects delayed or cancelled today mean fewer homes reaching buyers and renters tomorrow,” Mr Caine said.

“With Australia already facing a serious housing shortage, government policy should support investment and housing delivery, rather than create further uncertainty for the businesses supplying new homes.”

Oscar Stanley, National President, UDIA, put the issue more bluntly.

“Housing is built on confidence and capital, if we keep making both harder to find then eventually the homes disappear from the pipeline,” Mr Stanley said.

Astute property investors should watch that pipeline closely.

A decline in new project starts today may not immediately show up in the number of homes available to buyers or tenants. But with population growth continuing and construction capacity constrained, a smaller flow of new housing could add to supply shortages further down the track.