China, Trump and tradies: confronting Australian home building's great uncertainties

Despite worsening conditions since the previous quarter, there is hope for Australia’s construction sector.

The Reserve Bank’s recent cash rate cut to 4.1 per cent – its first since 2020 – offers a modest boost to the sluggish housing market.

While this may ease financing costs for construction firms in the short term, the softening of the labour market will slow the rate of escalation in some sectors.

The Trump administration’s tariffs have led to predictable results: escalating global trade tensions, volatile commodity prices, and greater economic volatility.

While Australia isn’t yet a direct target of these tariffs, local industries are feeling ripple effects, as affected trading partners like China may curtail demand for Australian exports such as raw minerals.

An increase in imported manufactured goods from China means steel prices are expected to stay subdued.

The downturn in commodity demand subsequently impacts national revenues and tightens investment appetites for domestic infrastructure projects that are critical for Australia’s construction industry.

There’s no doubt that we’re at a crossroads.

To successfully navigate this climate, the sector should focus on factors within their control.

By sticking to the fundamentals and utilising market data analysis to inform decisions, developers can forge a more certain path ahead – and remain resilient through these uncertain times.

Building sector uncertainty

Insolvency remains a monumental challenge for Australia’s construction sector.

In the first seven months of this financial year, 1,999 construction firms were declared insolvent. This was 26 per cent higher than the same period in 2023-24 (1,583) and 69 per cent higher than 2022-23 (1,182).

This surge of insolvencies introduces uncertainty to planning and disrupts project timelines – creating risks of delays and elevated costs as firms compete over a shrinking pool of subcontractors and skilled tradespeople.

Adding to the pressure are the recent liquidations of major material manufacturers like GFG and Oceania Glass.

Competitive pressure from cheaper Chinese imports is expected to rise due as Trump’s tariffs diverts excess supply to Australian markets, placing even greater financial strain on domestic manufacturers of high-quality construction material.

These challenges could not have come at a worse time, as approvals for high-density dwellings rose by 0.7 per cent in December 2024.

While this injects some much-needed demand into the housing market, its impact on the construction sector remains minimal, as labour shortages and costs threaten to delay delivery of new homes.

Despite these headwinds, strong population growth and a resilient job market continue to drive demand for real estate and construction across various sectors and regions.

Success in 2025 will depend on agility and the ability to leverage market data to pinpoint emerging opportunities and respond swiftly to shifting demand.

Construction costs continue to fluctuate

Construction cost escalation is expected to remain high, with trends varying across state markets. Costs in New South Wales and Victoria are stabilising as infrastructure spending slows, while Perth continues to see sharp increases amid its ongoing property boom.

Queensland remains under cost pressure, driven by an infrastructure backlog, deadlines for the Brisbane Olympics and reconstruction efforts following recent natural disasters.

On a positive note, quarter-on-quarter material prices show encouraging signs of stabilisation. Steel demand is projected to rebound by 1.2 per cent after dipping in 2024, though prices for steel (-0.52 per cent) and rebar (0.85 per cent) are expected to remain subdued.

Concrete prices remain high (2.71 per cent YoY) due to the impact rising energy costs have on energy-intensive cement production.

Prices, however, are expected to soften over the years as demand declines due to economic and a linear infrastructure slowdown.

Brick prices have increased this quarter (3.25 per cent) and annually, driven by rising prices in natural gas – which fuels brick kilns – and transportation.

Other materials, like structural timber (0.10 per cent), plasterboard (0.78 per cent) and copper (0.12 per cent) show signs of stability over the quarter, due to lower or levelling demand and an influx of supply. Diesel prices have fallen significantly (-2.24 per cent) to pre-pandemic levels, offering some relief for transportation and logistics costs.

Meanwhile, wage pressures continue to drive construction costs up.

The Wage Price Index rose 1.1 per cent in the third quarter of 2024 and 3.5 per cent year-on-year, contributing to a 0.4 per cent increase in output prices and a 4.3 per cent annual rise in the Producer Price Index.

The key factor? A persistent shortage of skilled workers and tradies across Australia – which shows no signs of a resolution anytime soon.

Construction data a key tool

Uncertainty may be the flavour of the coming months, but construction firms should focus on what they can control and influence.

By leveraging market insights, firms can gain clarity on cost movements, identify emerging opportunities, and make strategic, data-driven decisions.

The construction sector doesn’t just have to survive these fluctuations – it can thrive by embracing a more agile, data-driven approach.

In an industry continuously shaped by change, data remains the one constant, offering the visibility needed to build resilience for the months ahead.