Weak Australian dollar and high labour costs offset stabilising materials: Altus Group
Despite some price relief, Australia’s construction industry faces mounting insolvencies as productivity declines and wage pressures rise.
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A weak Australian dollar, rising labour costs, and ongoing tariff uncertainty under US President Donald Trump threaten to offset any benefits that construction operators might gain from stabilising material costs.
While some material costs have stabilised or even declined, persistent inflationary pressures from labour shortages and declining productivity are driving up overall costs, leaving developers wary of committing to new projects.
Altus Group, which provides asset and fund intelligence for the construction real estate industry, has warned that despite some price relief in materials, a persistently weak Australian dollar remains a significant concern — particularly for imported materials such as copper, which is widely used in electrical systems and infrastructure projects. The Australian dollar recently hit a near five-year low before lifting back above US63c.
“The foreign exchange rate is starting to have an influence, especially on copper-related products like switchboards and substations,” said Niall McSweeney, managing director of Altus Group.
“Most of these products are manufactured in China, but we are still seeing discounting on imports due to weak domestic demand in China, rather than tariffs being the primary driver.”
The new US tariff regime, which imposes a 25 per cent tariff on steel and aluminium imports, forms a cornerstone of President Trump’s “Make America Great Again” agenda. This policy is prompting manufacturers to move some of their production out of China to other parts of Asia, potentially affecting Australian construction operators.
Mr McSweeney cautioned against getting caught up in speculation about tariff changes and their potential pricing impacts.
“If a tariff war breaks out, the impact would be very sector-dependent for the construction market,” he said. “There’s a lot of noise around tariffs, but when you dig into it, domestic demand in China is faltering, which means they’re looking to push product into export markets. That’s why we’re seeing continued discounting on Chinese imports.”
Mr McSweeney said that the real concern for the local industry lies in whether this increased import discounting puts more pressure on Australian manufacturers, potentially leading to further insolvencies.
The construction sector remains the epicentre of Australia’s corporate collapses, with 1,943 construction firms going under in the financial year to January — up from 1,518 the previous year. The failure of key suppliers, including materials manufacturer Oceania Glass, underscores the ongoing financial strain in the supply chain.
Despite some inflation figures suggesting relief from energy prices, Mr McSweeney said that the construction industry has yet to feel the benefits.
“We’re still seeing energy-hungry materials like concrete and bricks rising due to energy costs,” he said.
“Steel prices, on the other hand, continue to come down due to import trends, but this is sector-dependent. In industrial construction, where there is a heavy reliance on structural steel, that’s a positive. In high-density residential construction, where concrete is more dominant, it doesn’t make a material difference.”
While major infrastructure spending has eased in New South Wales and Victoria, demand remains strong in Queensland, driven by preparations for the 2032 Brisbane Olympics and ongoing recovery efforts from natural disasters. Perth is also experiencing growth, with construction cost inflation forecast to rise from 5.5 per cent to 5.75 per cent this year, according to Altus. Meanwhile, Brisbane is expected to see the highest construction cost inflation for the fourth consecutive year, at 7 per cent.
Labour shortages remain one of the biggest obstacles for the sector, exacerbating cost pressures and delaying projects. Mr McSweeney said the problem isn’t just a lack of workers but a fall in productivity.
“Normally, when costs rise, you see an offsetting improvement in productivity,” he explained. “We haven’t seen that. In fact, we’ve actually gone backwards, which is a major risk. If we don’t improve productivity, rising costs will reach a point where projects become unfeasible.”
The decline in productivity could be attributed to several factors, including skills shortages, inefficiencies in the workforce, and delays in adopting new construction technologies. Without addressing these issues, the risk of projects becoming financially unviable increases.
Offsite manufacturing and prefabrication could help boost productivity, particularly in remote areas where a lack of tradespeople hampers housing construction.
“For places like North Queensland and the Northern Rivers in New South Wales, where there aren’t enough tradespeople available, fully prefabricated homes make sense. In urban areas, it’s less of a cost advantage, but modularisation and lean construction methods can still drive efficiency,” Mr McSweeney said.
A shift in government spending priorities is expected to have a significant impact on the sector in the coming year. Mr McSweeney speculated that governments might move away from large-scale infrastructure projects in the major cities of Sydney and Melbourne, which could help ease inflationary pressures on construction.
“That should also free up resources for other areas, but it remains to be seen whether it will be enough to address the affordability crisis in housing,” he said.
Originally published as Weak Australian dollar and high labour costs offset stabilising materials: Altus Group
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