The Australian Construction Industry Outlook 2025

Material prices stabilised in some regions, but inflationary pressures on wages and compliance costs kept overall construction expenses high, forcing many developers to delay or scale back projects.

Adding to these challenges, new regulatory shifts, such as the latest climate-related financial disclosure requirements are set to impact mid-to-large-scale construction firms, requiring businesses to adapt to stricter compliance measures in the coming years.

Against this backdrop, 2025 presents both challenges and opportunities for the sector.

In this article, we’ll explore the key trends shaping the industry and what lies ahead for Australian construction.

Australia’s largest commercial contractors are showing signs of recovery as cost pressures ease and loss-making projects wind down.

Financial reports show profitability and margins improving across major firms, with companies like Hutchinson Builders, FDC, and Georgiou Group posting significant revenue and profit growth. Stabilising material prices have also contributed to a more manageable cost environment, helping large builders regain financial footing.

However, this recovery is at risk. Smaller subcontractors and suppliers continue to struggle, with construction insolvencies rising 18% year-on-year to 1,431 cases. Many firms are still attempting to trade their way out of mounting debt, prolonging financial instability in the sector.

As reported in The Australian Financial Review, the knock-on effect is already evident, with subcontractor failures slowing apartment development on the Gold Coast in 2024 and beyond, costing larger firms millions in unexpected losses.

As 2025 unfolds, the divide between big and small builders could create further challenges. While major contractors benefit from improved conditions, the ongoing collapse of smaller firms threatens to weaken the supply chain, drive up costs, and prolong project delays across the industry.

As detailed in the Australian Construction Market Conditions Report by WT, Australia’s construction sector continues to grapple with elevated cost escalation. Economist Damon Roast comments that building costs expected to rise between 4.5% and 6% across most cities in 2025, while infrastructure costs are forecast to average 5.5%. Brisbane is set to experience the highest cost escalation at 6.5%, while Canberra is expected to see a more moderate increase at 3%.

Despite ongoing pressures, this level of escalation is unsustainable. Relief is on the horizon, as market conditions are expected to show signs of improvement by 2026, strengthening in 2027, with downward cost pressures anticipated from 2028.

Key factors influencing construction costs include geopolitical risks, China’s economic outlook, and Australia’s ongoing housing crisis. Additionally, addressing the ongoing labour shortages through increased training and skilled trade migration remains a critical goal for construction as a whole.

Roast also suggests that a structured, legislated long-term project pipeline from government bodies could encourage much-needed investment in the sector’s future resilience.

Read more about key issues in the Australian construction industry.

Australia’s construction industry is facing not just a labour shortage, but an increasing gap in skilled talent. While demand for key trades, such as electricians, plumbers, and carpenters, remains at record highs, the availability of qualified workers is shrinking.

This growing skills gap is making it harder to meet project timelines, driving up wages, and pushing construction costs even higher.

The issue is compounded by stagnating productivity, as hiring more workers is no longer a viable solution in an already stretched labour market. Many companies are turning to training programs and partnerships with educational institutions to upskill their workforce, but these measures take time to yield results.

The problem is set to worsen as demand surges. The federal government’s ambitious goal of building 1.2 million new homes over the next five years will require an additional 90,000 workers, far more than the current workforce can supply.

Meanwhile, the impact is being felt across the industry, with project deferrals reaching record levels, particularly in residential construction, where developers are abandoning projects at an unprecedented rate.

Australia’s construction industry is experiencing a stark divide: while government-backed infrastructure projects remain strong, privately funded residential developments are facing record levels of abandonment.

Despite signs of market improvement, volatile conditions, including high inflation, labour shortages, and rising construction costs, continue to undermine project viability, particularly in the residential sector.

According to the latest industry reports, project delays remain a critical challenge, affecting 74% of builders and 62% of developers. Stricter lending conditions and financial pressures from creditors have further complicated financing, leading to increased deferrals and cancellations.

Developers cite material and equipment costs, low margins, and regulatory compliance as key barriers to profitability. This is further compounded by the ongoing labour crisis facing Australia and the global construction market.

Meanwhile, government-funded projects are proving far more resilient, with over 8,000 active projects valued at more than $500 billion across federal, state, and local levels.

This growing disparity suggests that Australia’s construction industry is evolving into a two-speed sector in 2025, one where publicly funded infrastructure thrives while private developments struggle to break ground.

Industry leaders are calling for more data-driven feasibility studies and a reassessment of planning guidelines to ensure sustainable project decision-making in the years ahead.

Starting 1 January 2025, large and medium-sized Australian construction firms will be required to disclose their climate-related financial risks under the new Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024.

This legislation aims to enhance transparency and align Australia with global sustainability standards, with a phased rollout leading to full enforcement by 2028.

Who Will be Affected?

The new reporting rules apply to publicly listed and large private companies that meet specific financial thresholds or already report emissions under the National Greenhouse and Energy Reporting (NGER) scheme.

Many medium-to-large construction firms will be captured under this framework, requiring them to disclose emissions and climate-related financial risks. Smaller businesses below the reporting threshold are exempt.

How Will Sustainability Reporting Impact Construction Firms?

Affected construction companies must prepare detailed sustainability reports, including:

• Direct onsite emissions (Scope 1)
• Indirect emissions from purchased electricity (Scope 2)
• Supply chain-related emissions (Scope 3), which will be particularly significant due to material and logistics dependencies

Additionally, directors must sign-off on these reports, confirming compliance with the Corporations Act and sustainability standards. While a three-year grace period provides limited liability protection for reporting errors, misleading disclosures beyond this period could result in legal consequences.

For construction firms, these regulations introduce new compliance costs, stricter oversight, and a need for more advanced data collection processes. However, they also present an opportunity to improve sustainability practices, strengthen investor confidence, and future-proof businesses in an increasingly climate-conscious market.

Despite growing momentum toward sustainability, Australia’s construction sector remains one of the most carbon-intensive industries, with emissions increasing relative to its economic output.

While operational emissions have seen reductions through energy efficiency measures, embodied carbon, the emissions generated from materials, transportation, and construction processes, remains a critical challenge.

The sector is also responsible for 38% of all waste, with materials like steel and cement contributing heavily to its carbon footprint.

Climate change is already impacting the availability of raw materials, causing instability in supply chains and fluctuating costs. As infrastructure spending increases and housing demand rises, the need for sustainable materials and low-carbon construction practices is becoming more urgent.

The Decarbonising Infrastructure Delivery Policy

Recognising the urgent need for carbon reduction, the New South Wales government has introduced the Decarbonising Infrastructure Delivery Policy, set to take effect in April 2025.

This policy mandates that NSW government infrastructure projects assess and manage their 'upfront carbon' impact, which includes emissions from material production, transportation, and construction.

The policy applies to:

• Building projects valued over AUD 50 million
• Infrastructure projects valued over AUD 100 million

Key requirements include:

• Business Case Stage: Assessing whether upgrades or repurposing can replace new construction; estimating upfront carbon emissions; incorporating carbon management plans.
• Planning and Procurement Stage: Encouraging innovation by inviting bidders to propose low-carbon solutions; integrating carbon reduction targets into procurement criteria.
• Construction and Completion Stage: Mandatory carbon reporting and tracking of emissions throughout the project lifecycle.

While initially limited to NSW government projects, this policy signals a broader shift in industry expectations. Contractors bidding for government work will need to comply with stringent carbon measurement and reduction strategies, using low-carbon materials, energy-efficient construction methods, and alternative fuel sources.

As sustainability reporting and carbon reduction policies expand, construction firms across Australia should prepare for increased regulatory requirements, rising investor scrutiny, and growing demand for greener building solutions.

As the Australian construction industry continues to evolve, innovative new technology such as ERP systems are becoming essential for future-proofing businesses in a rapidly changing landscape.

By integrating emerging technologies such as BIM and Digital Twins, ERP solutions enable construction firms to enhance project efficiency, reduce risks, and improve data accuracy.

For small and medium-sized enterprises (SMEs), these solutions act as a catalyst for digital transformation, addressing challenges such as limited skills and resources. By centralising data and automating key processes, digital systems empower teams to fully leverage technological advancements, fostering greater competitiveness and long-term resilience.

With construction costs escalating and labour shortages persisting, construction companies undergoing digital transformations are finding that streamlining procurement, financial tracking, and project management is more critical than ever.

Access Construction helps Australian construction businesses move beyond spreadsheets and outdated systems with cloud-based solutions that streamline processes and drive growth.

Access Coins is a construction-specific ERP that centralises data, giving companies greater control over cash flow, reducing costs, and improving operational efficiency. It’s designed to empower construction teams by automating workflows, optimising resource allocation, and providing real-time insights to help make data-driven decisions.

In an ever-evolving sector, Access Coins helps construction businesses stay ahead of regulatory changes, continuously adapting to simplify compliance with new laws, ensuring a smooth transition for construction firms as they adjust to new requirements.

With Access Coins, construction businesses can tackle the challenges of 2025 with greater confidence, efficiency, and resilience, positioning themselves for long-term success while staying agile in the face of industry shifts.