Can Australia's construction sector cope with expected global turbulence?
Brisbane has the Olympics to prop up its construction sector but the rest of the country may or may not be as prepared for global economic volatility.
Turbulence is widely expected for Australia’s economy in this coming quarter and through 2025, casting a long shadow over construction costs and the future of most developers.
There is a general air of uncertainty over how things will pay out globally in the coming months. Notably, the impact of China’s recent economic stimulus on its real estate and construction sectors remains unclear.
If successful, however, it could boost demand for Australian raw materials, potentially driving up domestic prices for developers.
Meanwhile, escalating trade tensions between the US and China, coupled with the threat of potential tariffs, are adding volatility to already unstable global markets. If the situation escalates, it could disrupt shipments of essential materials such as steel and timber, straining supply and jeopardising the feasibility and costs of current and future projects.
These global challenges are also tightening the margins for local developers, with even the most established firms operating on slim margins of 2-3 per cent, due to rising material costs and inflation.
This has a significant impact on business continuity – and the construction industry accounts for 26 per cent of all insolvencies in the country.
Not all is gloom and doom.
Our most recent data indicates that cost escalation pressures are easing across major Australian cities, although the decline is slower in Brisbane due to pressure from construction for the Olympics.
Recent shifts in geopolitics and macroeconomics have brought greater uncertainty to Australia’s construction industry.
They have, however, also provided a unique opportunity to tackle long-standing gaps within the sector.
Enterprising leaders have already begun turning these external factors into a compelling case for investments in workforce upskilling, innovative construction, and climate sustainability measures – all key pillars for building a resilient foundation for future growth.
This solid foundation will enable the industry to better manage rising material prices and construction costs, meet the growing demand for housing, and adapt to the evolving dynamics of global and domestic markets.
But to realise this potential, industry leaders must commit to embracing an opportunistic mindset, a readiness for change, and a commitment to decision-making based on transparent and comprehensive market insights.
Material prices stabilise, but uncertainty reigns
Our market analysis indicates that construction material prices have largely remained subdued due to sluggish demand – with a few exceptions.
Copper prices have notably surged this quarter by 4.5 per cent, driven by demand from electrical, automobile and renewable sectors.
The prices of essential materials like bricks (0.85 per cent increase), structural timber (1.2 per cent increase), and plasterboard (0.4 per cent increase) have largely levelled after significant price hikes earlier this year.
This trend is largely linked to slowdowns in residential construction – though global market conditions and emerging demand from abroad could reverse this trend for Australian developers.
Industry data shows moderate growth and stabilisation across key construction and housing indicators.
The Consumer Price Index rose 2.8 per cent annually, with housing costs and financial services experiencing notable increases.
Construction sector output prices continued climbing, driven by labour shortages, while wage growth remained steady at 3.5 per cent.
Meanwhile, building approvals increased 4.4 per cent monthly, yet still lag behind the government’s ambitious target of 1.2 million homes by 2029.
While the stabilisation of material costs provides some relief, the industry still faces significant cost challenges from rising construction output prices, financing and insurance hikes and wage increases. Persistent labour shortages also eat into margins, as developers must offer competitive salaries to attract skilled tradespeople.
Opportunities to recoup costs and regain profitability may yet exist should the governments take steps to close the housing supply gap, but like everything else, this remains an uncertainty.
The more sensible approach for developers is to consider cost control measures, while investing in areas that will ensure business continuity in the coming year.
Skilled migration can’t do all the heavy lifting
Faced with numerous challenges beyond their control, industry leaders must focus on what they can influence: their people, innovation capacity and adaptability.
These fundamentals are essential for futureproofing the construction business and ensuring resilience in the face of ongoing disruptions.
Rather than relying solely on skilled migration to address labour shortages, the industry should invest in closing the skills gap within the existing workforce.
This includes enhanced education and training programs as well as initiatives to foster inclusivity and attract more women to the sector.
Additionally, adopting a ‘digital by default’ approach across all projects will enable firms to leverage advanced tools and data solutions for smarter planning, intelligent procurement and improved decision-making.
This shift also facilitates lean construction methods, which minimise waste, reduce inefficiencies and accelerate project delivery.
These measures not only yield cost savings and faster outcomes but also align the industry with broader sustainability goals, setting a path for long-term growth and competitiveness.
The economic outlook for the coming quarter may be cloudy, but Australian construction firms do have a clear path ahead.
By prioritising core business fundamentals and embracing digitisation, industry leaders can build the stable foundation that their business needs to successfully navigate the challenges and volatility of the year ahead.
