As Australia’s construction sector continues to navigate economic uncertainty, the conversation is shifting. While inflation and interest rates dominate headlines, industry leaders are turning their attention to a deeper, more persistent issue: shortage of labour. In this landscape of inconsistent costs, understanding the real drivers behind construction budgets has never been more critical.
The Australian construction industry continues to grapple with rising costs, but it’s not just about inflation, interest rates, or even materials. According to Darryl Bird, Queensland Partner, the most pressing challenge impacting budgets today is clear: labour. While interest rates and inflation get most of the headlines within the industry, Darryl explains that these economic factors are “compounding the problem that we’ve already got”. Construction costs were already under stress due to systemic issues, mainly, labour. He notes that issues like material supply, which caused disruption and uncertainty through COVID, is now something the industry is managing more effectively and has subsequently settled into “a new norm”.
BuildSkills Australia, the national skills body for construction workforce development, reported in March 2024 that 90,000 new tradespeople would be needed by the year’s end. However, Australian Bureau of Statistics (ABS) indicated that by November 2024, the industry only managed to hire over 50% of the target. Source: BuildSkills Australia, 2024; ABS, 2024
The market, he says, is adjusting to these new norms with greater resilience than during the disruptions of COVID. Inflation and global trade tensions are creating unpredictability in material access and pricing. But not all international trends are negative. As Darryl notes, U.S. tariffs on imports may offer unexpected advantages: “With a government focussed on turning towards more internal manufacturing, the application of international tariffs by the U.S. may provide opportunities for Australia to access more materials from countries like China and India. It may actually have the reverse effect to what has been described to us in the press,” Darryl suggests.
Across the country, cost pressures vary by state and sector. Victoria’s residential market is showing signs of increased competition and more stable pricing. While residential markets like Melbourne are seeing competition return, Darryl points out that in Queensland, “we’re seeing the most risk going forward is in the upper end of town, in the more commercial construction space.” He adds, “The demand on the local contractor and labour pool in this space is where we’re going to see most challenges.” While the media focus at the moment is on productivity and getting more from our existing workforce, we need to be aware that workforce also need to expand to meet future demands.
The current cost risk isn’t from timber or steel, it’s from people. “Labour by far,” Darryl states, when asked about the industry’s top concern. While material price hikes are often visible and publicised, he warns that these figures are often misunderstood, “When you work material supply price increases through the entirety of a construction project or contract sum… the impact on the bottom line cost is watered right down.” In contrast, labour costs impact all trades, all projects and every site, and “remains a problem right across Australia… it’s not a challenge that can be quickly and easily solved.”
Adding to the complexity, Darryl explains that “it’s not just about direct labour cost, but also availability and the cost impost of getting labour and keeping resources on site … it can be difficult and unpredictable.” Unlike materials, which can be budgeted, managed and pre-ordered, labour availability can shift overnight due to competing projects and opportunities available to our contractor and subcontractor pool in this market. Whilst this challenge is difficult to mitigate completely, we must be prepared from project inception. “We observe a lot of time, effort and cost wasted in a development project exploring design concepts that are just not feasible in this market,” Darryl says. The key is early involvement of Quantity Surveyors who can provide data-led insights, cost-led design advice, and guide clients toward feasible delivery models from day one. “As a QS our value is best realised at that early stage… leveraging the data and experience we have to provide reliable cost information and alternatives at the very start,” he explains. Mitchell Brandtman is also increasingly called on to help navigate risk throughout construction. The earlier a QS is involved, the more opportunity there is to implement risk mitigation measures and avoid costly mistakes. If that opportunity for early engagement is missed: “The snowball’s already rolling down the hill…, the problems are there already,” Darryl warns.
One way the industry is looking to address labour shortages, is through the growth of Modern Methods of Construction (MMC), including modular and prefabricated systems. Whilst this sector once battled market acceptance and cost premium hurdles these challenges have eased, “MMC is becoming a much more attractive option than it once was… it’s becoming more popular because construction and manufacturing largely occurs in a warehouse, you’re not subject to rain, inclement weather conditions.” Local manufacturers are delivering high quality products that meet Australian standards and aesthetic expectations, and the cost gap between traditional and modular is narrowing. He emphasises that MMC doesn’t just mean full prefabricated buildings: “There’s modular components – wall and structural systems, bathroom pods, stair systems – that reduce on-site labour pressures.”
The Construction Industry Training Board (CITB) highlights the quantifiable benefits of modular construction, noting it can accelerate project timelines by up to 50% and reduce on-site labour by up to 80%. Source: CITB
Despite the challenges, Darryl sees signs of optimism, “I think the sentiment in the industry has certainly changed… people are more focused on solutions and tackling the industry challenges.” For developers, that means thoughtful designs, smarter delivery methods, early QS engagement, and close collaboration with all parties, “Looking at delivery partners that can solve problems or establish risk mitigation measures nice and early… the builder is a big part of that.” Asking, “What works for you? How does that work for us?… Having proactive and collaborative conversations with builders, subcontractors and suppliers about the collective challenges will enable the team to be better equipped to navigate issues like labour availability and volatility and create more certainty amongst the delivery team.” This approach leads to more thoughtful decisions, fewer surprises, and outcomes that help balance cost, time and quality. Alternate procurement methods, where “risk can be shared and addressed in an appropriate way” rather than transferred blindlyin a challenging market, is another opportunity identified by Darryl.
The message is clear, managing construction cost inflation in Australia isn’t just about tracking economic headlines. It’s about tackling the root cause, labour shortages, and planning smarter from the ground up and from project inception.
