Skills Shortage in Australia's Construction Industry: A Looming Crisis

It’s already an issue high on the national agenda - the skills shortage that Australia’s construction industry is currently facing. 

The issue has repeatedly been blamed for impeding the industry’s ability to get more houses on the ground. But it’s set to worsen, according to an emerging report.

The Intergenerational Report was released by the Albanese government last week, and it warns that population growth is shrinking, and consequently, our skills shortage could worsen.

According to the report, population growth is forecasted to drop to 1.1 percent over the next 40 years, taking GDP growth with it. GDP growth has fallen from a predicted 2.6 percent per annum to 2.2 percent.

The Housing Industry Association (HIA) highlights that the drop in projected population growth could be bad news for Australia’s housing crisis.

“The downward revision to Australia’s future economic growth is driven by a projected decline in population growth to just 1.1 per cent per annum over the next 40 years, compared to 1.4 per cent over the previous 40 years, and 1.6 per cent in the 15 years before the pandemic.

“Slowing population growth, combined with the added pressures of an ageing population, will make it harder to find the skills we need.

“Shortages of skilled labour have constrained the home building industry for much of the past 20 years. We need to look at ways to boost the housing sector’s capacity to ensure we are able to meet the Australian Government’s recently announced housing targets,” said HIA’s senior economist, Tom Devitt.

Earlier this month, the Albanese government announced ambitious new housing targets to combat the housing shortage plaguing the nation. They announced that 1.2 million homes would be built in the five years from July 2024. 

But critics have voiced doubts that the construction industry will actually be able to facilitate these builds, as labour shortages have hampered the sector over the past few years.

According to a report by Master Builders Australia, the peak industry body estimates that workforce growth and replacement in the four years to November 2026 will mean the industry needs to gain around half a million workers to keep up with demand. 

Majority of these workers are expected to replace the predicted 7.8 percent of the workforce that leave the construction sector every year, according to the report.

HIA’s Tom Devitt says we should look to skilled overseas migrants to fill in the gaps, as our ageing population relies on a shrinking workforce to build the homes needed.

“Skilled migration will not only help us meet our housing demands. It will also help mitigate the effects of Australia’s ageing population on economic growth, productivity and living standards.

“This report highlights that going forward, not only do we need to build more houses, but we need to become more efficient at doing so. Key to doing that will be removing existing barriers to housing investment and homeownership,” said Mr Devitt.

The issue of housing supply has been under the spotlight as affordability has diminished at unprecedented rates.

Renters and first home buyers have borne the brunt of rising house prices and increasing interest rates, with landlords hiking up rents to maintain the profitability of their investments.

Rising mortgage payments are also hurting the household budgets of the 35 percent of Australians with a mortgage.

But those in stable housing situations are the lucky ones, with reports of housing stock falling dismally short in some capital cities. 

Stories of international students ‘hot bedding’ have emerged, and prospective tenants have reportedly been offering 20 percent over the asking price of rentals, in a desperate bid to secure a home.

Increasing housing stock is the obvious answer, but a more efficient utilisation of available land and existing infrastructure has been identified as a priority, rather than adding to urban sprawl. Mr Devitt echoed this sentiment.

“Higher density housing development needs to do more of the heavy lifting to meet our housing needs. This requires planning reforms that support faster delivery,” said Mr Devitt.

“Allowing more people to live close to jobs and transport will have significant benefits in terms of productivity and economic growth, as well as facilitating the efficient use of existing infrastructure. 

“We can’t afford to keep waiting decades to bring new homes on the ground. The predicted slowdown in economic activity in the IGR must not impede the delivery of the 1.2 million homes National Cabinet committed to last week. 

“Australians have a right to choose where they live, what they live in and, most importantly, be able to find that home at a price they can afford.” 

And while it's up to all levels of government to help this ambitious home building target along its way, the burden will more than likely be financed by mum and dad investors. 

According to AFR, over 80 percent of rental properties are owned by mum and dad investors, who have been subjected to increasing disincentives in the form of tax and fees. 

But to help the housing crisis, the government should instead look to incentivising property investment, especially in the new build sector. 

When property investment is encouraged for the single biggest group of housing providers, Australia might actually have a chance of meeting these ambitious housing targets. Until then, it’s a scarce chance.