Capacity and Capability of the Construction Sector in Australia

In Part 1 of the Atlas Housing Download, we showed that Australia’s housing shortfall is increasingly structural, driven by strong population growth and a slower supply response.

Part 2 shifts the focus to the construction sector itself, specifically its capacity and capability to deliver housing at scale.

The key question is whether the sector can translate demand into supply, both efficiently and at scale. We examine capacity and capability, and how these factors shape the sector’s ability to respond to rising demand.

1. Capacity – More Firms, More Workers, but Fewer Homes

At first glance, the construction sector appears to be expanding:

• The construction workforce has grown from 1.05 million (2016) to 1.26 million (January 2026) (+20%).
• The number of firms increased from 358,000 to 431,000 over the same period (also +20%) (IBISWorld, 2026).

But the output of the sector tells a very different story:

• Dwelling completions have fallen from peaks of around 55,000 per quarter to roughly 43,000 today.
• Over the longer term, productivity has declined sharply, with dwellings delivered per construction worker having halved since the 1970s, falling from 0.32 to around 0.14.

So, while more people are working in construction, fewer homes are being delivered per worker.

Figure 1: Dwelling Completions per Construction Worker

This disconnect is even more apparent when viewed against population growth.

• Relative to population growth, the number of housing completions has been trending down for decades.
• Historical peaks in housing delivery, exceeding 1,000 dwellings per 1,000 residents in the 1970s and early 1990s, have not been matched for over 30-years.
• Since the 2000s, completions have generally remained within a narrower range of around 400–700 dwellings per 1,000 additional residents, indicating a sustained weakening in delivery.

Figure 2: Change in Dwelling Supply per 1,000 Population Growth¹

2. Capability – A Fragmented Industry

The issue isn’t just how many workers the sector has but how the industry is structured. Around 80% of construction businesses employ just 1-4 people. Comparatively, just 3% businesses in the sector are ‘medium and large’ businesses (i.e. firms with 20 or more employees).

Compared to the Mining and Manufacturing industries, the Construction sector is disproportionately made up of micro-businesses (fewer than 5 employees).

Figure 3: Firm Size Distribution by Industry

• This fragmented structure is further reflected in how employment is distributed across the industry.
• Micro firms accounted for 43% of construction employment in 2023–24, down slightly from 47% in 2020–21.
• Over the same period, the share of employment in medium and large firms has increased, while small firms experienced a temporary rise before declining.
• As at 2024, employment shares were 62% for micro and small firms, 24% for medium firms, and 14% for large firms.

Table 1: Percentage Share of Construction Employment

However, this distribution of employment does not translate proportionately into economic output.

• Despite accounting for 43% of employment, Micro firms pay only 20% of total wages and salaries.
• Small firms have broadly aligned shares, accounting for 19% of employment and 21% of wages.
• In contrast, medium and large firms contribute disproportionately more to wages, with 24% and 14% of employment translating to 33% and 26% of wages, respectively.

A large share of the workforce remains concentrated in smaller, less productive firms, reinforcing how fragmentation limits the sector’s ability to achieve scale, invest, and improve productivity.

Figure 4: Proportion of Employment, Income by Construction Firms (2024)

3. Capability – Falling Productivity

This structural challenge is reflected in the sector’s productivity performance.

• Physical productivity, measured as dwellings completed per hour worked, has declined by 53% over the past three decades.
• Labour productivity, measured by gross value added per hour worked, has fallen by 12% over the same period.
• In contrast, labour productivity across the broader economy has increased by 49%.

This divergence highlights a widening productivity gap between construction and the rest of the economy.

Figure 5: Construction Productivity Trends

As Figure 6 shows, over the 20 years to 2022:

• Construction labour productivity growth was negative, while most other industries recorded positive gains.
• Construction wages have continued to rise, despite limited improvement in output per hour worked.

Figure 6: Productivity Growth (2002-2022)

The result is a sector that is becoming more expensive without becoming more efficient. This reflects deep structural constraints, including fragmented industry structure, limited standardisation, low levels of investment and innovation.

These are among the factors that constrain the sector’s ability to scale, adopt new technologies, and deliver productivity improvements over time.

Why Capability and Capacity Matter

Capacity and capability are an important determinant of how quickly housing demand can translate into completed homes.

When firms remain small, the output per worker is constrained, as is productivity. This leads to issues in scaling up delivery, even when approvals and demand exist.

As capital cities around our country grow, there is a growing focus on infill development. Tall buildings are naturally more complex than single dwellings to build.

If only 3% of construction firms employ 20 or more employees, this raises the uncomfortable but relevant question - does the construction sector have the depth of capability and capacity needed for the big build response nationally?

It seems Australia’s housing shortfall is not just a planning problem — it is a delivery problem.

Even if planning systems unlock more supply, the construction sector must be able to respond. Without improvements in productivity and industry capability, increasing approvals alone will not translate into more homes.

But these outcomes are not driven by industry structure alone. The regulatory environment plays a critical role in shaping how housing is designed, approved and delivered and ultimately, how much it costs to build.

Next Instalment

Part 3 examines regulatory change in building requirements and how these changes have affected construction costs and housing delivery.

References

¹Data for 2020 and 2021 is excluded due to the impact of COVID-19 border closures on Australia’s population growth rate.

ABS (2024). Australian Industry

Australian Constructors Association (2023). Nailing Construction Productivity

CEDA (2025). Size Matters: Why Construction Productivity Is So Weak

De Valence, G. (2026). Firm Size and Construction Productivity

IBISWorld (2026). Industry Report: Construction in Australia

Productivity Commission (2025). Housing construction productivity: Can we fix it? - Commission Research Paper