Construction activity across Australia has softened, driven by shifting sectoral demand. Public infrastructure spending remains a key driver of the industry, but investment seems to be easing as governments reassess project pipelines in response to cost pressures and market capacity constraints.

The 2025-2026 federal budget priorities indicate that there will be a stable infrastructure agenda, with funding for state infrastructure projects set at AU$15.2bn, which is slightly below the AU$15.6bn allocated for 2024-25. Nevertheless, the government remains committed to its AU$120bn 10-year infrastructure investment pipeline, concentrating on nationally significant projects. This includes an additional AU$17.1bn in funding over the decade for road and rail initiatives, which will sustain activity in the sector.

A substantial pipeline of major public projects remains active across the country, particularly in transport, utilities, health and defence. Investment in renewable energy is also accelerating, driven by increasing private sector participation. By the end of the decade, energy and utilities projects are expected to dominate engineering activity in the pipeline.

On the private side, high interest rates, inflation and rising construction costs have moderated investment across all building construction sectors, leading to a softening in activity. While the initial interest rate cut in February 2025 has yet to yield a noticeable impact on private construction activity in Q1, ongoing uncertainties in global trade and the broader economy may encourage the RBA to adopt a more supportive stance. Should this occur, a recovery in private sector activity may follow as interest rates ease at a faster pace than originally anticipated.

Skilled labour shortages remain a key challenge for the construction industry. To address this issue, the 2025-2026 federal budget includes the Housing Construction Apprenticeship stream within the new Key Apprenticeship Program, which provides support for apprentices and employers. Additionally, Free TAFE has been made permanent from 2027, and the Priority Hiring Incentive has been extended.

Looking ahead, private sector building activity is projected to accelerate toward the end of the decade. This growth will be driven by increased private sector investment in residential and energy projects, supporting a broader recovery in the construction industry.

The outcome of the federal election has brought a degree of stability to the pipeline following Labor's victory. However, infrastructure was not a focal point of the campaign, with few significant election commitments to large-scale projects. The most notable policy distinction between the two parties was in the energy sector. With Labor securing re-election, existing policies are expected to continue, alongside new initiatives such as the $2.3 billion cheaper home batteries program.