Infrastructure boom keeps Australian construction afloat, but labour shortage looms large

24 June 2024

Australia’s construction sector continues to experience strong investment by federal and state governments to support the country’s growing population demands. While the need for more infrastructure and housing across markets continues to grow, high construction costs (US$2,613 per m2 in 2023 up to US$2,724 per m2 in 2024) and skilled labour shortages create challenges and are slowing investment from the private sector.

The International Construction Market Survey (ICMS) 2024 report, from global professional services company Turner & Townsend, shows an imbalance of labour supply and demand across the region, a shortage of housing supply, and elevated construction costs are the biggest challenges facing the sector.

From a national perspective, average hourly wage growth has remained low over the last 12 months (US$64.9 in 2023 to US$65 in 2024), however, the expectation across markets is that stronger wage growth is ahead. Australia remains the third most expensive region for construction labour costs, behind North America and Europe.

Recent construction union agreements in Queensland, Western Australia and Victoria include significant construction wage increases over the next five years, with negotiations currently underway in New South Wales proposing even larger increases. These agreements enhance existing labour challenges for the sector and are expected to contribute to higher project costs in the years ahead.

The biggest challenge facing the sector is the imbalance of labour supply and demand across markets. The report shows Queensland’s construction market is facing immense pressures, which are expected to intensify in the years ahead as major projects for the Brisbane 2032 Olympic and Paralympic Games get underway.

In other markets, New South Wales and Victoria are experiencing some cooling due to subdued private sector investment and higher construction costs, which is helping toimprove the supply of labour. However, warming markets like Queensland and Western Australia are being constrained from drawing on interstate or international resources dueto a lack of dwelling supply to house a larger workforce. Major projects, particularly in regional locations, are being faced with higher costs for local labour or having to supply accommodation for workers, which is adding to project costs.

Governments are focused on increasing investment into infrastructure that will unlock new growth regions and increase housing supply across the country. These new regions are expected to generate new opportunities for the private sector, which should drive a stronger outlook for the construction sector in the second half of the decade.

Public and private collaboration will be key to meeting government targets such as National Cabinet’s 1.2 million new homes being built in the next five years.

In the coming years, both private and public sector investment to support the net-zero transition (clean energy production and transmission) will help to generate a sizeable volume of construction activity across the energy and industrial sectors. Additionally, demand from the country’s strong population growth should support greater growth across the sector over the second half of the decade.

Julian Kerwood, Head of Real Estate, ANZ at Turner & Townsend, commented:

“Over the past 12 months, the Australian construction market has performed better- than-expected in the face of challenging market conditions, namely critical skilled labour shortages and significantly higher construction costs.

“Addressing the near-term challenges for the construction sector will require prompt action to increase housing supply across the regions to enable the construction workforce to migrate to where the demand is. The long-term success of the construction sector will require collaborative efforts to identify future sectors of growth and focus on targeted training programs to upskill the local workforce or attracting international skills to the region.”

“Cost escalation continues to remain high across Australian markets, driven by labour supply shortages and construction union wage increases. However, the stabilisation in building material costs has meant that average cost escalation for the region is forecast to be around 3.7 percent in 2024, which is 1.9 percent lower than last year.

“The work being done by governments to address key areas such as housing supply and clean energy production and transmission is shaping a much stronger outlook for the sector. These policies should attract support from the private sector and open the door for new opportunities for growth in the years ahead.”