According to the Rider Levett Bucknall (RLB) 4th Quarter 2024 Construction Market Update for Australia, the Australian construction industry faces a complex and challenging landscape as we approach 2025, with economic, logistical, and labour-related hurdles impacting growth.
Ewen McDonald, Director of RLB Oceania Research & Development said, “While the Australian economy is projected to grow by 2.1% in 2025, up from 1.2% in 2024 (driven by a recovery in consumer spending and strong government expenditure), the construction sector is grappling with significant issues.”
He added, “Skilled labour shortages are a significant concern, driving up wage costs and creating intense competition for available workers in addition to many key challenges moving forward.”
- Interest rates: High borrowing costs are discouraging new construction projects, as developers and homeowners face higher financing expenses. This leads to a slowdown in construction activity and dampens investment
- Material costs & supply chain issues: Although some material prices have stabilised, ongoing supply chain disruptions continue to affect the availability and cost of essential construction materials, adding pressure to already high project costs
- Labour shortages: The construction industry is facing a persistent shortage of skilled workers. This drives up wages, delays projects, and reduces the ability to meet growing demand, making it challenging to maintain project timelines
- Decline in building approvals: The reduction in building approvals, caused by economic uncertainty and rising construction costs, signals a slowdown in new projects, further exacerbating labour and material shortages
- Economic uncertainty: Broader economic instability, including global economic conditions and domestic policy changes, is contributing to cautious investment in property, with developers delaying or cancelling projects
- High construction costs: The ongoing increase in construction costs—spanning materials, labour, and compliance—makes many projects financially unviable, contributing to a reduction in construction activity
Ewen continued, “Moving forward, government support will be crucial in mitigating these challenges. Policies aimed at boosting housing supply, improving infrastructure, and supporting training programs for apprentices will play a key role in stabilising the industry.”
He added, “Additionally, the adoption of digital technologies such as Building Information Modelling (BIM), drones, and AI for project management and design offers an opportunity to increase efficiency.”
“Sustainability is also a key focus, with well-designed, sustainable buildings in demand due to both regulatory demands and consumer preferences,” he noted.
Regional Escalation:
- Sydney grapples with contractor insolvencies, rising labour costs, and high construction demand, but government infrastructure spending continues to support the market
- Melbourne is seeing some stabilisation in pricing, with eased supply chain risks, but labour availability remains an issue
- Adelaide and Darwin are struggling with labour shortages and limited competition, which inflates project costs
- Perth and Gold Coast are experiencing high market volatility, with labour and supply chain issues contributing to cost escalation
- Brisbane faces challenges with low productivity and skilled labour shortages, which extend project durations. The risk of industrial action and insolvencies remains high
RLB TENDER PRICE INDEX ANNUAL % UPLIFTS AS AT Q4 2024
| AUSTRALIA | 2023 | 2024 f | 2025 f | 2026 f | 2027 f | 2028 f |
|---|---|---|---|---|---|---|
| ADELAIDE | 5.1 | 6.5 | 5.0 | 4.5 | 4.0 | 3.5 |
| BRISBANE | 8.0 | 7.2 | 5.6 | 5.1 | 5.1 | 5.1 |
| CANBERRA | 4.5 | 4.0 | 3.75 | 3.5 | 3.0 | 3.0 |
| DARWIN | 5.5 | 5.5 | 5.0 | 4.5 | 4.0 | 4.0 |
| GOLD COAST | 10.5 | 7.5 | 5.0 | 5.0 | 5.0 | 5.0 |
| MELBOURNE | 8.0 | 5.0 | 4.0 | 3.5 | 3.5 | 3.5 |
| PERTH | 5.8 | 5.2 | 4.9 | 4.5 | 4.0 | 3.7 |
| SYDNEY | 6.0 | 5.5 | 4.5 | 3.5 | 3.5 | 3.5 |
| TOWNSVILLE | 5.0 | 7.0 | 6.0 | 5.0 | 4.0 | 4.0 |
Ewen concluded, “Despite the ongoing challenges, the Australian construction industry has opportunities to navigate these turbulent times.”
“By leveraging technological advancements, focusing on sustainable practices, and benefiting from government support, the industry can remain resilient and continue to adapt to the shifting economic and market conditions. The next two years will be crucial for the construction sector, requiring careful strategic management to overcome obstacles and harness opportunities for growth,” he said.
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