Australia Construction Industry – April 2025 Recap

May 4, 2025

April saw mixed signals for builders and developers. On one hand, cost pressures showed signs of easing: core inflation slowed sharply (Australia’s trimmed-mean CPI fell to ~2.9% in Q1, a three-year low) and the RBA is widely expected to cut rates in May. In fact, ABS data showed new home building costs rose only 1.4% in Q1 2025 – the smallest quarterly gain since 2021. On the other hand, industry activity remains soft. Residential work starts are down and approvals skewed toward apartments rather than houses, even as skilled trade shortages persist. In short, fundamentals are turbulent: demand for new homes is rising but supply is tight, materials and labour remain in flux, and macro policy (inflation, elections) is in play. Below we highlight April’s key developments and practical lessons for construction firms.

Residential Activity and Housing Trends

Low commencements. Latest ABS figures (Dec 2024 quarter) show dwelling commencements fell 4.4% (q/q) to about 41,900, with private home starts down 6.1%. That follows an historically low 2024: HIA reported only 168,050 new homes began last year – the lowest annual total in over a decade. HIA’s economists warn the industry is “at the bottom of a cycle” and is even losing skilled workers to other sectors. In practice this means contractors are often scrambling to staff projects, and many trade hires end up in infrastructure or mining rather than housing.

Approvals and market mix. There are early signs demand is shifting toward higher-density housing. Altus Group notes December 2024 approvals were up 12.2% year-on-year overall, but that rise came entirely from multi-unit projects (apartment approvals +15.2%) while detached-house approvals fell 3.0%. This split reflects cautious buyers and tight lending: it’s cheaper for developers to stack units, and city renters still need homes. Builders should take note: over-relying on speculative detached home projects may be risky, whereas inner-city infill or build-to-rent may offer steadier pipelines.

Implications. With housing starts near decade-lows, firms must plan conservatively. Key takeaway: assume tighter margins and slower pick-up. Preserve cash buffers in case demand stalls further. Diversify your project mix (balance residential, commercial, civil) so you’re not overexposed to any one segment. Be ready to act if incentives appear: for example, HIA argues that measures like waiving fees or lender’s mortgage insurance (LMI) for new-home builders could quickly boost starts. Construction teams should watch for policy changes in coming months (see Outlook below) that might spur new residential activity.

Material Costs and Supply

Easing commodity prices. Input costs have leveled off. The ABS reports that building-material input prices fell 0.1% in Q1 2025 – the first quarterly decline since 2012. Notably, steel product prices dropped 1.8% in the quarter (about –6.2% year-on-year). Infrastructure Australia’s Market Capacity Report concurs: after two years of double-digit cost inflation, material price growth slowed to about 4–5% in 2023–24, aided by those lower steel prices. Even global forecasts are muted – Altus Group notes global steel demand is expected to rebound only ~1.2% in 2025, keeping prices “subdued”.

Ongoing pressures. Despite the recent softening, materials remain expensive by historical standards. Altus data show Australian building output prices still up ~4.3% year-on-year (q4 2024) due to prior inflation. Concrete and aggregates could be next to firm up if construction demand rises. Major materials (steel, cement) are also subject to policy shifts: for example, Boral recently won $15 million in federal funding to boost alternative fuels and raw materials at its cement plant (aiming to raise alternate inputs to 23%). In practice, builders should diversify suppliers and hedge purchases. Lock in pricing on big buys (steel, timber, cement) now if possible, and explore substitutes (recycled content, engineered wood). Work with creditworthy vendors, and consider bulk-buy cooperatives if you can. Finally, keep inventories tight to avoid sitting on surplus when costs fall.

Labour and Workforce

Skills shortages persist. Trades remain in critically short supply. Although ABS reports show national unemployment hovering around 4.1% (historically low) and construction wages rising ~3.5% p.a., those averages mask local gaps. Infrastructure Australia finds trade and engineering shortages have likely peaked in capital cities but will intensify in regional areas as new renewable-energy projects commence. Indeed, many firms report workers leaving suburban projects for big-city or resource jobs.

Industry stress. Financial strain is high among smaller builders. IA data show construction accounted for 27% of all insolvencies in FY2023–24 (over 80% of those were small businesses, mostly in residential). Consistent with this, the Access Group reports ASIC-recorded construction insolvencies jumped 36% in 2024. This suggests firms underbid or failed to meet contract costs. In such an environment, labor costs and availability must be front-of-mind. Builders should proactively manage crews (cross-train trades, offer retention bonuses, or consider employing directly rather than via precarious subcontracting). Anticipate overtime or penalty-rate loadings in quotes, and use productivity-boosting techniques (e.g. Lean construction, pre-assembly) to do more with less labour.

Implications. There’s no quick fix for labour tightness – expect high competition for good workers. Plan projects with generous time buffers and contingency for labor shortfall. In tendering, only accept projects where you can source the needed crew. Also consider recruiting from adjacent industries or overseas, if regulations allow. Workforce development (apprenticeships, training partnerships) will pay off, but the benefits are longer-term. In the meantime, firms should treat skilled staff as precious assets and invest in keeping them through project completion.

Technology and Productivity

Digital adoption accelerating. With traditional productivity lagging, tech is rapidly moving from a luxury to a necessity. In 2024 Australian builders invested on average only 25% of their new-capex on digital tools (vs 30% in Hong Kong) – and that is changing quickly. The industry message in April was clear: transformation is baseline. For example, expert panels highlight emerging uses of AI to optimize quantities, detect design clashes, and even link material price forecasting to procurement planning. Firms running on spreadsheets or siloed documents are at a competitive disadvantage.

Workflow systems. A practical response is to standardize workflows and data. Digital project-management platforms, BIM collaboration, and AI-driven analytics can cut rework and speed decisions. Custom workflow solutions (for instance, software platforms like Holistc™ that knit together checklists, approvals, and field reports) are especially useful on complex jobs. Holistc™ (for example) offers tailored systems so that site teams follow the same verified processes every time – reducing costly errors and delays. More broadly, embrace any automation that reduces manual paperwork. Cloud-based document control, mobile timesheets, and digital permit-tracking make small but cumulative gains in efficiency.

Implications. Every dollar spent on productivity tools is effectively increasing your available manpower. Start with high-impact areas: e.g. digital estimation vs manual takeoffs, or an integrated cost-scheduling tool vs disjointed spreadsheets. Seek platforms that integrate (so data flows from drawings to budgets to field reports). Train staff on these tools – the benefits only materialize if people actually use them. In short: in 2025 a “construction CRM” is as important as a backhoe. Firms should view technology investment as an insurance policy against labour inflation and market volatility.

Policy, Regulation & Sustainability

Codes in flux. Regulation remains a wildcard. Most notably, the National Construction Code 2025 is still unsettled. In March the Australian Building Codes Board notified industry that no final decision has been made on NCC 2025 content or timing. Contractors cannot assume the new code will simply activate in mid-2025; for now they must continue under NCC 2022 standards. (Draft proposals included 17 major changes to energy efficiency, fire safety, etc., but their fate is uncertain.) Builders should watch for updates – the preview edition is now delayed – and factor potential code changes into long-term contracts as “change-in-law” clauses.

Environmental trends. Climate policy is increasingly affecting construction. April’s news included a push in the cement sector: the Cement Industry Federation is urging a carbon border adjustment (import tax) on foreign cement to protect local producers. Boral also secured government funding to upgrade its NSW cement plant for higher alternative fuel use (aiming to double waste-derived inputs by 2028). Meanwhile, energy efficiency regs are tightening (e.g. Victorian and NSW standards for new homes). Action item: use greener materials and record embodied carbon where possible. Firms that anticipate the sustainability direction – for example by specifying higher recycled content or low-carbon concrete mixes – will stay ahead of both policy and market (as clients demand ESG compliance).

Government programs. Finally, keep one eye on policy support. The federal government’s housing targets and Infrastructure 2021 Plan mean continued funding for big projects, but details depend on election outcomes (expected May 2025). In April, major parties began pitching housing measures (see HIA’s calls above). Watch for any new infrastructure spending announcements, particularly in health, education or transport where greenfield projects can lift the work pipeline. Coordination between government and industry bodies (like Infrastructure Australia) will shape which projects go ahead.

Key Takeaways for Construction Firms

Diversify and hedge supplies: With volatile steel, timber, cement, etc., lock in prices where possible and cultivate multiple suppliers (including local/regional and recycled-material sources). Consider alternative designs (e.g. modular panels, prefabricated components) if raw-material costs spike.
Invest in digital workflows: Move projects onto integrated platforms. Even small builders can benefit from custom systems (like Holistc™ workflow software) that enforce standard checklists and centralize documents. This helps minimize rework and manage compliance amid changing codes.
Plan for labour constraints: Assume tight crews. Build longer schedules (or pay premiums for rush work) and train staff to cover multiple tasks. Use productivity methods (Lean, JIT procurement, etc.) to get more output per worker. Outsource only to reliable contractors with proven capacity.
Budget extra for delays: Global trade issues (tariffs, energy shortages) can slow materials. Include contingency (5–10%) for schedule and cost risk. Update estimates frequently based on latest quotes. Track inflation indices – e.g. ABS PPI or proprietary indexes – to catch signs of re-acceleration.
Stay on top of policy changes: Carve out contractual protections. For any new project, specify the code version and include “change in law” relief for emerging standards (energy, safety). Plan ahead for environmental rules (e.g. prepare documentation for EV charger requirements or gas appliance bans in new builds).
Leverage incentives: If government rolls out grants or incentives for new construction (e.g. housing grants, infrastructure stimulus), act quickly. Similarly, consider public–private partnerships or long-term off-take agreements for large developments to secure project funding and reduce market risk.

Outlook – Signals to Watch in May 2025

Monetary Policy: With core inflation back in the RBA’s 2–3% target band, markets are pricing in a 25 bp rate cut at the May meeting. A rate cut would ease loan costs for developers and buyers – monitor the RBA’s announcement (likely early May) for clues on future funding conditions.
Federal Election Impact: The national election (expected mid-May) will shape housing and infrastructure agendas. Watch for announced policy changes: for instance, cuts to first-home buying taxes or new home grants (as HIA suggests) would quickly boost residential demand. Also note any reprioritization of major projects or changes to grants (e.g. Infrastructure Investment Grants) that could alter pipelines.
Carbon/Environmental Policy: The government’s review on carbon leakage (e.g. import taxes on cement/steel) is expected to conclude around the May budget. Any such measure could increase the cost of foreign materials, favoring local supply. Firms should watch budget announcements for climate-related taxes or incentives (green infrastructure funds, energy-efficiency rebates) that affect construction costs.
Materials and Global Markets: On the commodities front, keep an eye on steel and lumber. Analysts note global steel prices may stay flat or soft in 2025, but tight shipping or trade actions could change that quickly. Likewise, any new tariffs or supply disruptions (e.g. from trade disputes) will ripple into local input costs.
Workforce Trends: Employment data for May (e.g. quarterly Labour Force release) will signal if labor tightness is easing or worsening. If unemployment ticks up slightly or workforce participation rises, that could relieve cost pressures; if not, expect continued wage-driven inflation in construction. Also watch migration policies – changes to skilled-visa programs could affect the trades pipeline.

Each of these factors – monetary policy, election outcomes, and commodity trends – will feed into project costs and timelines. Builders and developers should stay agile: diversify inputs, automate processes, and keep contingency buffers for both budget and time. By focusing on controllable factors (efficiency, risk management) while monitoring these signals, construction firms can navigate the uncertainties of the coming months and position themselves to capitalize on the eventual recovery.

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