AUSTRALIA construction MARKET OUTLOOK

Market conditions remain mixed

Public investment and data centre development continue to support construction activity, but market conditions remain mixed across sectors and regions.

Market conditions and outlook

Construction activity remained broadly stable through the first half of 2026, although growth continues to be uneven across sectors and regions. Public investment and data centre development are supporting overall activity, while cost pressures, capacity constraints and global uncertainty continue to restrain broader market performance.

Data centres underpin private sector demand

Data centres remain a key driver of non-residential construction, supported by strong investor demand and a substantial pipeline, particularly in New South Wales and Victoria, helping to offset weaker conditions across other commercial building sectors. A wave of project starts in early 2026 continues to underpin current activity levels and the forward pipeline.

However, growth is increasingly constrained by infrastructure limitations, including power availability, water supply and access to suitable industrial land, alongside emerging community concerns.

Infrastructure pipeline and energy transition

Infrastructure construction remains the largest component of the national pipeline, underpinned by sustained government investment. While transport infrastructure continues to dominate, investment priorities are diversifying toward renewable energy, transmission networks and energy storage. The Federal Budget maintains funding for major transport projects, with a focus on progressing existing commitments rather than announcing new projects.

Water and utilities investment strengthens

Water infrastructure is a growing area of activity, driven by population growth, urban expansion and the need for greater climate resilience. Investment is focused on water treatment, desalination, dams and network upgrades to support long-term supply security. Queensland, New South Wales, South Australia and Western Australia are expected to remain key centres of water infrastructure delivery.

Housing supply constrained by delivery challenges

Underlying demand for housing remains strong, supported by population growth, supply shortages and ongoing affordability pressures. However, delivery is constrained by elevated construction costs and tighter financing conditions, limiting the pace of new housing supply. While government housing initiatives are expected to provide support over the medium term, the timing and scale of impact remain dependent on improvements in project feasibility.

2026-2027 Federal Budget: implications for the construction sector

The Federal Budget introduces a shift in housing policy aimed at directing investment toward new housing supply rather than existing residential property. Changes to Capital Gains Tax (CGT) and negative gearing are expected to reduce the relative attractiveness of established housing investment while supporting new residential development, Build-to-Rent, and institutional housing projects.

These measures may support residential construction activity over the medium term. However, the impact is likely to emerge gradually. In the short term, heightened policy uncertainty may weigh on new project commencements as investors and developers assess the implications of policy changes, shifts in interest rate expectations, and broader geopolitical instability. Potential RBA responses to persistent inflation are also likely to reinforce this cautious approach. Beyond these near-term considerations, construction costs, planning and approval processes, labour availability, productivity challenges, and financing conditions continue to influence project feasibility and delivery timeframes.

These measures may support residential construction activity over the medium term..

Beyond housing, infrastructure funding remains focused on advancing existing transport projects, providing continuity in the project pipeline rather than generating significant new construction activity.

Overall, the Budget is expected to influence the allocation of investment within the housing market, with any increase in construction activity likely to depend on how effectively supply-side constraints can be addressed.