Glints of construction sector optimism amid curse of hidden building costs
Newly released reports reveal that the home building and construction sectors are emerging from post-Covid gloom but hidden government costs are weighing heavily on the price of a new home.
The overall mood in the construction sector is brightening but hidden costs continue to hamper attempts to overcome the country’s chronic shortfall of new housing.
A resurgence in confidence, revealed in the latest Royal Institution of Chartered Surveyors (RICS) Global Construction Monitor for the final quarter of 2024, comes in the face a growing number of insolvencies hitting the sector.
The Construction Sentiment Index, a key indicator of overall industry activity, rose to +17 in the fourth quarter of 2024, up from +8 in the previous quarter.
It was a resounding vote of confidence for industry that, to those trying to have uncompleted homes finished or to even find one, can appear to be struggling.
The optimism of the index pointed to higher levels of activity across various construction sectors, with improvements in profit margins, business enquiries and employee numbers.
Infrastructure was one of the most buoyant areas, with its index rising to +26 from +19, while energy projects, water and waste management and transport infrastructure recorded the most positive findings.
Rising construction costs and labour shortages have been cited as major issues, a fact borne out by the construction index, but government charges are the hidden cost beyond the remit of industry to resolve.
A Gold Coast construction and engineering company crunched the numbers behind Australia’s soaring house prices and determined that the root issue lies beyond construction sites.
Skills shortages, particularly for quantity surveyors, managers, and skilled trades, are becoming increasingly acute but James Elliot, Managing Director, Red Dog Group, said government-imposed charges are the less recognised factor driving up housing prices.
“You’ll find government fees and taxes account for roughly 46 percent of the final price, which makes it harder for Australians to afford their own homes,” Mr Elliot said.
“For a 375-square-metre block priced at $450,000, buyers are paying approximately $45,000 in GST, $43,000 in council and related fees, $5,000 in planning charges, and another $5,000 in water and sewage connection fees.
“On top of that, there’s around $19,000 in stamp duty in Queensland, a figure that climbs higher in Victoria and New South Wales.”
In Australia, government fees for building in 2025 include application fees, permits, inspections, and other regulatory fees.
Mr Elliot says these costs aren’t just impacting new home buyers; they’re affecting the entire market.
“There needs to be a serious conversation about these charges if Australia genuinely wants to address housing affordability,” he says.
“Developers also have their own challengers; to subdivide and sell a parcel of land, they must pay stamp duty on the larger parcel and capital gains tax (CGT) on each individual block sold.
“If the land is sold within 12 months of purchase, CGT can be as high as 50 percent, which would amount to $225,000 on of $450,000 piece of land.”
Building approvals rise but targets remain distant
Building approvals in January rose 6.3 per cent, well above market expectations of a much weaker result. While both detached housing approvals and units rose in January, the overall uptrend seen over the last year continues to be largely driven by large increases in high-rise units.
Oliver Hume Chief Economist Matt Bell said apartment project activity has benefited from some freeing up of labour as it rolls of larger government infrastructure projects as well as some easing in construction materials prices.
Unit approvals in the last three months are up nationally nearly 30 per cent, with NSW approvals alone nearly doubling over the same period. The rise in detached house approvals has been much more muted, increasing 1.6 per cent in January following 4 consecutive months of decline.
“The fact remains that with total dwelling approvals now running at about 175,000, this is still an annual shortfall of around 65,000 dwellings compared to the national housing accord target requiring the country to build 240,000 homes per year to June 2029,” Mr Bell said.
“Because we’ve not come close to hitting this target in the first few years of the Housing Accord, that annual requirement is now closer to 300,000 new dwellings.
“The only way we’re getting anywhere near this target is for increases in new dwellings in both infill and greenfield housing markets.
“This means faster release of new land, better planning incentives for new development (and consequences for those local governments that get in the way) and funding for supporting infrastructure.
“Without these, the national housing shortage is only going to get worse, squeezing those who are least able to afford the rising prices failure will lead to.”
Michael Dyer, Economist for Oxford Economics Australia, said they expect further modest improvement over 2025, however, an elevated dropout rate to commencements looked set set to persist near term.
“Cash rate cuts are now in play.
“This is set to aid the release of pent-up housing demand, supporting a more meaningful double-digit recovery from 2026.
“Supply policy traction will also become increasingly tangible, however, a speed limit will likely be applied on the recovery by utility connection bottlenecks and trade labour shortages.”
Greater adoption of digital construction technology
Data released Monday (10 March) State of Digital Adoption in the Construction Industry 2025 report released by Autodesk, showed signs of further industry optimism, marked by a significant increase in investment in new technology driving growth in the sector.
The construction industry has seen a substantial rise in the adoption of digital technologies over the past year. Businesses now use an average of 6.9 technologies, up from 5.0 in 2024.
The survey of construction businesses across Australia and Asia-Pacific, revealed that 74 per cent of construction businesses are optimistic about the year ahead, up from 65 per cent in the previous year.
“Our industry here in Australia has one of the highest digital maturity levels across the whole Asia-Pacific region,” said Sumit Oberoi, Senior Manager, Construction Strategy and Partnerships, Asia Pacific at Autodesk.
“Forward-thinking construction businesses are benefitting from the many transformative advantages technology brings, not only to their bottom lines, but to the quality of construction outcomes around the country, which ultimately serves the interests of all Australians.
“The near doubling of investment in new technology in just two years is a sector-wide vote of confidence in what tools like AI, construction cloud management, building information modelling (BIM), digital twins and others can bring to construction businesses.”
