Construction across sectors hitting record highs now and by decade’s end as economy slowly gains momentum

Australia’s economy: Momentum ahead despite tariff uncertainty

Australia’s economy is entering a period of transition. Despite uncertainty around global tariffs and sluggish business investment, growth is expected to gradually gain momentum through the rest of this year and into 2026.

Some sectors are already showing resilience, particularly as Australia accelerates efforts to decarbonise its electricity network. At the same time, lifting weak productivity growth will be critical to ensuring higher living standards in the years ahead.

These themes headlined the Oxford Economics Australia bi-annual Construction Outlook Conference series, held in September in Sydney, Melbourne and online. Across both events, our economists unpacked the major macroeconomic outlook and sectoral trends shaping the year ahead – from real estate and housing to climate and sustainability.

This year’s conferences offered delegates timely insights into the opportunities and risks facing the Australian economy, with more detailed research and analysis to be shared in the months ahead.

What are the construction sector trends underpinning the next upturn?

At Oxford Economics Australia’s September 2025 Construction Outlook Conference, housing and construction took centre stage as economists outlined a strong pipeline of activity across residential, social, and commercial sectors.

Lower interest rates, rising real wages, limited advertised stock, and first-home buyer incentives are laying the groundwork for a strong year in residential property prices. According to Senior Economist Maree Kilroy, “Units, especially at the more affordable end of the market, are poised for significant growth. We see the battered Melbourne market modestly outperforming near term as the city plays catch-up.”

With pent-up demand being released, dwelling starts are forecast to rise 30% cumulatively to 239,800 by FY2030. Kilroy noted that while living sector assets such as student accommodation, build-to-rent, retirement, and land lease are thriving, “typical mass market house & land packages and infill apartment development will need to do the heavy lifting to meet housing targets.”

Beyond housing, a surge in data centre investment-particularly in Western Sydney and Melbourne, is expected to offset weaker demand for traditional assets like office. Public building activity will also remain strong, supported by hospital projects and infrastructure linked to the 2032 Olympics.

As Head of Building & Property Forecasting, Timothy Hibbert highlighted, total building activity is expected to climb 20% by FY2030, reaching a record $190.3 billion (FY2023 constant prices). However, he cautioned that trade labour shortages remain the most significant downside risk to this outlook.

The message from this year’s conference was clear: Australia’s built environment is entering a new phase of expansion, with housing demand, data centres, and public infrastructure driving record activity over the decade ahead.

How are shifting investment drivers shaping the construction outlook?

At the September 2025 Construction Outlook Conference, Oxford Economics Australia highlighted that while the economy remains constrained, momentum is beginning to build.

Adrian Hart, Director of Construction and Infrastructure Consulting, explained: “The economy is not firing on all cylinders by any stretch, but it is slowly regaining momentum. This is still a weak, not strong, economy, with offsetting drivers keeping overall economic growth constrained. But over the coming year, private investment will gradually re-accelerate and, towards FY2030, it will become the principal driver of growth in the economy.”

Hart noted that road and rail projects, traditionally driven by public funding, have slowed sharply. They are now being replaced by growth in utilities and non-residential buildings, such as data centres, health, manufacturing, and airports – areas increasingly funded by the private sector.

For businesses and government, this shift in investment drivers will demand new skillsets, materials, supply chains, and contracting methods. While overall growth in construction will remain moderate, sectoral shifts and regional challenges risk creating skills mismatches that could add pressure to costs and deliverability.

Regionally, Queensland and Western Australia are poised for more synchronised growth across both public and private investment. While this could fuel a surge in economic activity, it may also amplify capacity risks and construction costs, unless productivity improves substantially.

Where are the next growth opportunities in the engineering construction market?

Work on the publicly funded transportation boom has now peaked, with engineering activity increasingly shifting towards the utilities sector. Electricity construction is already at record levels as Australia pushes ahead with decarbonising the power network.

As Dr Nicholas Fearnley, Head of Global Construction Forecasting, explained: “Work to upgrade the transmission network is driving significant growth in wind and solar farms. However, the lack of investment in the transmission network in Western Australia is seeing activity in the state lag behind the rest of the country.”

Electricity construction is expected to remain strong as the nation works towards its 2030 climate target, with activity projected to reach $16.7 billion by FY2030. Mining investment is also set to expand, supported by several major iron ore projects, pushing activity to $40 billion by FY2030. Meanwhile, water infrastructure is on the rise, underpinned by Sydney Water’s capital works program, which will lift activity to around $5 billion by FY2030.

This changing composition of engineering construction – moving away from transportation and towards utilities and mining – is also shifting the geography of activity, from urban centres to regional areas.

Dr Fearnley noted the challenge this brings: “This amplifies labour shortages and industry capacity issues, as it is difficult to get people to move to regional areas when they already have jobs. Having a long-term guaranteed pipeline of work in regional centres so workers can build careers and settle with families will help with this challenge.”

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