Federal Budget measures target construction workforce shortages and productivity challenges

The Australian construction industry is currently grappling with significant productivity and workforce challenges, particularly in relation to housing supply. Addressing these issues is crucial to meeting the nation’s housing targets and ensuring affordability.

Productivity challenges in housing construction

Decades of stagnant productivity growth have hindered the housing construction sector’s ability to meet increasing demand. The Productivity Commission’s recent report highlights that this prolonged poor performance across the sector has constrained the supply of new homes, contributing to rising housing costs. Several factors have contributed to these productivity challenges, including:

• Regulatory burdens: Complex and lengthy approval processes delay project commencements and increase costs. Streamlining these procedures is essential to enhance efficiency
• Limited innovation: The sector’s slow adoption of innovative construction methods, such as prefabrication and modular building, has hampered improvements in productivity and supply
• Bespoke building practices: A preference for customised designs over standardised approaches prolongs construction timelines and limits the benefits that can be gained by scaling up standardised plans.

In response to these challenges, the Australian Government’s 2025–26 Federal Budget has introduced several measures aimed at enhancing productivity in housing construction:

• National Productivity Fund: An allocation of $900 million has been announced to incentivise states and territories to implement reforms that promote competition and efficiency. Notably, $120 million is designated to encourage the adoption of modern construction methods by reducing regulatory barriers
• Investment in prefabricated and modular housing: A commitment of $49.3 million has been made to assist state and territory governments in developing programs that promote prefabricated and modular home construction, which can significantly reduce building times
• National certification for offsite construction: An investment of $4.7 million will help develop a voluntary national certification process for offsite construction, aiming to streamline approvals while ensuring high-quality standards.
• National licensing for electrical trades: The Government will work with states, territories, businesses and unions to design a national licensing scheme for electrical trades people. This will improve matching of workers to jobs, and improve productivity as a result.

Workforce challenges in the construction industry

The construction sector also faces critical workforce shortages that threaten housing supply objectives, as the Housing Industry Association estimates that an additional 83,000 skilled workers are required to meet the government’s housing target. Key challenges felt across the construction workforce include:

• Skills shortages: A lack of qualified tradespeople in areas such as bricklaying, tiling, plastering, and carpentry is slowing housing development and increasing costs
• Aging workforce: A significant portion of skilled workers are approaching retirement, creating a gap in experienced professionals
• Attracting new talent: The industry has continually struggled to attract younger workers, exacerbating labour challenges caused by skills shortages and the aging workforce.

To address these workforce challenges, the government has announced several initiatives including:

• Increased apprentice incentives: The maximum incentive payments for eligible housing construction apprentices will be doubled from $5,000 to $10,000, effective 1 July 2025, to attract and retain talent in the industry
• Priority Hiring Incentives for employers: Employers hiring apprentices in key trades may be eligible for up to $5,000 through a Priority Hiring Incentive, encouraging businesses to invest in training new talent. The budget includes funding to extend this scheme for an additional six months until December 2025.

The Budget didn’t take action towards accessing more workers from overseas or improving skills recognition to make migrants productive more quickly. With the infrastructure and housing construction pipeline, alongside expected increases in defence spending that will compete for many of the same skills, we will need to make use of domestic and overseas workers.

Conclusion

Addressing the intertwined productivity and workforce challenges is essential to meet Australia’s housing supply goals. The government’s comprehensive approach, encompassing regulatory reforms, investment in innovative construction methods, and workforce development initiatives, aims to revitalise the construction sector. More action to access overseas workers would be welcome. The Federal Government can’t do everything - land release is also a key constraint on housing construction, and action is needed from State Governments to enable improvements.