Construction Industry Capacity and Worker Shortages

  Infrastructure Australia's estimates of demand and supply 

 

In the 1930s, when economic statistics were being developed, manufacturing industries were of particular importance, because their share of the economy was two or three times larger than today and they drove the ups and downs of the business cycle. Two important factors in measuring manufacturing output were inventories and capacity utilisation. Before modern logistics and just-in-time management, increases and decreases in inventory levels indicated weakening or strengthening of demand and were important leading indicators. 

 

Capacity utilisation is the percentage of current capacity being used, calculated as the current level of output divided by the maximum possible output by 100 (actual output/potential output x 100). It will not be 100% because at any one time not all equipment will be used, so allowance is made for the setup, maintenance and downtime machinery and equipment needs. For capital intensive industries like manufacturing and utilities this is obviously an important factor. Other commonly used metrics are: production throughput (how much product can be made in a given time); equipment utilisation (how much of the available machinery is actively used); and overall equipment effectiveness (how effectively equipment is being utilised, considering availability, performance, and quality).

 

This post first looks at measuring industry capacity and the issues involved in doing this for construction. Then Infrastructure Australia’s Infrastructure Market Capacity report’s estimates of the five year project pipeline and supply side issues in materials and the workforce identified in their industry survey are given, before the construction workforce estimates of future supply and shortages are discussed. 

 

Measuring Industry Capacity 

 

Capacity is the level of output that can be produced with current resources over a set period. There is a long-run series for the US: ‘The Federal Reserve Board constructs estimates of capacity and capacity utilization for industries in manufacturing, mining, and electric and gas utilities. For a given industry, the capacity utilization rate is equal to an output index (seasonally adjusted) divided by a capacity index. The Federal Reserve Board's capacity indexes attempt to capture the concept of sustainable maximum output -- the greatest level of output a plant can maintain within the framework of a realistic work schedule, after factoring in normal downtime and assuming sufficient availability of inputs to operate the capital in place.’ There are separate indexes for each industry, and within manufacturing for iron and steel, automobiles, and semiconductors. Figure 1 has the indexes for the combined total and manufacturing, showing how utilisation rises and falls with the business cycle. 

 

Figure 1. US industry capacity utilisation

Source: FRED

 

The US series do not include service industries. Estimating total capacity and capacity utilisation for service industries such as health, professional services like accounting and legal, or personal and household services, is more difficult. In service industries the main limiting factor in output is typically taken to be the number of workers available or billable hours as a share of total hours worked. 

 

Capacity Utilisation in Construction

 

Construction is a hybrid industry where capacity is concerned. A lot of machinery and equipment is used, although how much varies across different types of work, and the industry is labour intensive compared to manufacturing, although the machinery and equipment capital stock per employee is among the highest of all Australian industries [1]. The industry requires a range of specialised skills and uses many subcontractors, so capacity is largely determined by the availability of labour, skills and expertise. This is very different to the physical limits of a manufacturing plant with its fixed and easily quantifiable physical capital. 

 

Construction is project-based and output is variable. Because output is affected by factors like weather, regulations, materials supply, and project timelines, it is difficult to define the maximum potential output for the industry compared to the continuous production processes in manufacturing. Further, the industry is fragmented, with many small firms and the subcontractors, which makes collecting consistent data on production capacity difficult. 

 

A 2015 Reserve Bank of Australia research paper on firm-level capacity reported on discussions with firms in the Bank's business liaison program that suggested the interpretation of ‘capacity utilisation’ varies considerably across different industries. The paper said: ‘construction contractors generally regarded ‘capacity utilisation’ to be of some use, primarily citing some form of labour utilisation. The focus of a ‘typical’ construction contractor in the liaison program is the time spent on each project, particularly in the detached housing market. Construction subcontractors that provide and operate capital equipment (e.g. cranes) tend to measure utilisation as the share of time that their equipment is in use.’

 

This brings us to Infrastructure Australia’s Infrastructure Market Capacity reports. The latest in November was the fifth, and looked at public infrastructure demand and market supply capacity over the five years 2024-25 to 2028-29. ‘It provides an updated health check and analysis of our national construction market’s capacity to deliver public infrastructure works’ by analysing and modelling total infrastructure demand by sector and project type, with a focus on public infrastructure, labour and skills supply and shortages, materials supply and costs, and industry productivity trends. Infrastructure Australia is an independent statutory body that provides research and advice to Australian Governments.

 

Because the Market Capacity report is primarily directed at policy makers and public sector decision-makers, it does not get the wider attention it deserves. It is a very good source of industry data, covering both demand-side and supply-side factors in a detailed and thorough analysis of the Australian construction industry that captures data on work done and the labour force from the Australian Bureau of Statistics (ABS), the project pipeline from government departments and GlobalData, a private provider, and modelling by consultants Nous on workforce and skills demand and supply. In the 2025 report, results from three surveys are included, one of 200 firms by Infrastructure Australia followed up with 20 interviews, and another of 134 members of the Civil Contractors Federation. There are six Appendices explaining the methodology and classification systems used.

 

The Project Pipeline

 

Since 2021, Infrastructure Australia (IA) has built a national project database with the location, cost, stage (pre-construction, under construction, completed), schedule, funding and type. Appendix A explains the bottom-up approach used by IA to produce their ‘portfolio’ of monthly project activity, based on expenditure at the stage of each project for all projects in a ‘project typecast’, with cost breakdowns for each project typecast over the four resource categories of plant, labour, equipment and materials. There are 83 typecasts that make up 22 ‘master sectors’ that are aggregated into the four ‘infrastructure’ sectors of buildings, transport, utilities and resources.

 

Figure 2 has the breakdown of project types. Between 2024–25 and 2028–29, IA estimates total construction work of $1.14 trillion, comparable to ABS total construction activity between 2020–21 and 2024–25 of $1.4 trillion. Buildings are 62% of expected expenditure, transport 17%, utilities 16%, and resources 5%. Public spending is 28% of the $1.14 trillion total. 

 

Figure 2. Construction pipeline by sector 2024–25 to 2028–29

Source: Infrastructure Market Capacity, p. 20.

 

The project database has six categories of projects: the Major Public Infrastructure Pipeline (MPIP, with projects over $100 million in New South Wales, Victoria, Queensland and Western Australia and over $50 million elsewhere), smaller public projects, road maintenance, mining, private, and housing. Of the $1.14 trillion total for 2024–25 to 2028–29, the MPIP is $242 billion (22%) and $66 billion (6%) is small capital projects. MPIP is up 14% from the 2023-24 report, driven by new housing, health and energy transmission projects. Within MPIP, transport at $192 billion is the largest category (53%), buildings are $77 billion (32%), and utilities are $36 billion (15%). Of the $716 billion in buildings, $116 billion is public investment, with $77 billion in the MPIP’s $242 billion and $48 billion in the $62 billion of smaller projects.

 

Using those six categories plus Defence, Figure 3 has IA’s forecast of annual construction spend from their project database, against ABS total construction activity for 2016-2025 (that includes private sector construction work not in the database). IA notes their forecast ‘uses cost estimates with limited certainty about future escalations’, with ‘forecast construction volumes peaking in 2027 at levels comparable to current ABS-reported activity.’ Peak investment is in 2027. There is $63 billion (27%) of activity outside the eight capital cities, with increasing regional demand in Queensland, Northern Territory, South Australia, and New South Wales. 

 

Figure 3. Forecast construction spend

Source: Infrastructure Market Capacity, p.19.

 

The demand-side project pipeline is for total construction, but the purpose of the report is about ‘capacity to deliver public infrastructure works’ and the MPIP. In the projected peak year of 2027, the MPIP is expected to be a bit more than $50 billion out of an industry total of around $250 billion of work. 

 

Figure 4. Major public infrastructure pipeline spend by sector 

Source: Infrastructure Market Capacity, p.21.

 

The Energy Pipeline

 

With the recent attention given to the politics of net zero, the IA’s forecast for renewable energy projects of transmission lines, solar, wind, and pumped hydro is relevant [2]. The report says: ‘As the net zero transition accelerates, the scale of energy infrastructure investment continues to grow. Irrespective of how it is funded, the pipeline for projects to build transmission, solar, wind and pumped hydro is now $163 billion for the five years from 2024-25 to 2028-29.’ This demand profile suggests workforce demand will be rising sharply from 2026.  Although most energy projects are privately funded and not counted in the MPIP, governments have $15 billion in transmission projects in the five year projection. 

 

Figure 5. Energy infrastructure pipeline

Source: Infrastructure Market Capacity, p. 28.

 

Reducing barriers to renewable energy projects by ‘accelerating approvals and smoothing supply chains’ is required. IA cites analysis from Infrastructure Partnerships Australia that 58% of the 298 energy projects included in their database ‘as having a low to moderate likelihood of being delivered to the project schedule.’ Of the organisations surveyed by IA in 2025, 47% said delays in obtaining planning and environmental approvals were among the greatest risks to project delivery. However, organisations reported disruptions to project delivery are driven primarily by cost of materials (64%), cost of labour (63%) and labour and skills shortages (59%).

 

Supply of Construction Materials 

 

IA’s Industry Confidence Survey suggests supply of key materials affects project delivery. Figure 6 shows respondents views on major or significant threats to successful delivery: 38% highlighted supply of timber and timber products, 32% steel or steel products, 30% sand or quarry products, 28% concrete or cement, 27% precast concrete, and 25% equipment and glass products.

 

Figure 6. Supply chain risk factors

Source: Infrastructure Market Capacity, p. 36.

 

There is a section that focuses on supply of fabricated steel products. IA estimates 26.6 million tonnes of structural steel will be needed over the five years 2024– 25 to 2028–29, of which the MPIP  will need 3.6 million tonnes. ‘As the estimated national steel fabrication capacity is approximately 1.4 million tonnes per annum, meeting this demand will require a combination of locally produced and imported steel.’ Imports are priced 15-50% below domestically produced products, and have been ‘rising rapidly in recent years’, but may not meet the quality and safety standards of locally made products. ‘Lack of traceability and certification makes it difficult to track material compositions, manufacturing processes and quality control procedures, which increases the risk of using substandard products.’ 

 

Workforce and Skills

 

This is the most important part of the report. In October 2025, Australia’s infrastructure workforce was 204,000 workers, with 62% trades workers and labourers, 26% engineers, architects and scientists, and 12% project management professionals. Note this is not restricted to employment of construction workers. IA estimates a shortage of 141,000 workers on public infrastructure works in October 2025. Figure 7 shows IA’s projection of demand versus supply with peak workforce demand of 521,000 in mid-2027, with an estimated shortage of 300,000 workers.

 

Figure 7. Demand, supply and shortage of infrastructure workers

Source: Infrastructure Market Capacity, p. 43. 

 

Of the estimated 300,000 worker shortage, engineers, architects and scientists will peak at 126,000 in late 2026 before gradually declining, shortages for trades workers and labourers peaks at 126,000 by mid-2027, and there will be a sustained demand for project management professionals, with a peak in mid-2027 at around 59,000. For firms IA surveyed in 2925, labour is a substantial delivery risk, with labour cost cited by 63% and labour and skills shortages by 59%. 

 

Figure 8. Worker shortage by occupational groups

Source: Infrastructure Market Capacity, p. 44. 

 

Shortages in capital cities are projected to rise from 131,700 in 2025 and peak at 148,000 in 2026. Regional locations are expected to have a much steeper increase, with the workforce shortage growing from 38,200 in October 2025 to a peak of 181,000 in 2027, because that is where the transmission, solar, wind and pumped hydro projects in the $163 billion energy infrastructure pipeline are.

 

Unpicking These Numbers

 

An explanation of how these estimates by Nous were arrived at is in Appendix E on Workforce and Skills Methodology.As the Appendix notes ‘The fundamental question addressed by this report is to what extent the current and projected supply of labour can support Australia’s proposed investment in public infrastructure.’  Nous defines the occupations and skills that underpin the workforce then estimates the ‘number of workers in or near the infrastructure workforce as determined by official statistics and our own forecasts or modelling based on those statistics’, plus ‘additional data (such as job advertisements) that provides extra information on variables (such as skills) not covered by the official statistics, and extra granularity.’ Figure 9 has their methodology.

 

Figure 9. Workforce quantification modelling methodology

Source: Appendix E: Workforce and Skills Methodology, p. 17. 

 

While the methodology looks good, there are some anomalies. Industry groups identified as directly linked to ‘construction of public infrastructure’ are 942 Equipment Repair and Maintenance and 529 Other Transport Support Services, along with the more obvious 692 Architectural, Engineering and Technical Services and the four industry groups in Construction Division E. Using job advertisement data, a  ‘share of non-project-management occupations are apportioned into project management occupations, to reflect that many project management roles on public infrastructure projects are undertaken by individuals captured under other occupations’, but occupations ‘that contained less than one per cent of project management professional roles in its job advertisements were excluded.’ ‘Weightings were developed to apportion the share of workers engaged and adjacent to public infrastructure’ using demand estimates and workforce-to-spend ratios provided by IA. 

 

The six demand side categories of major and minor public infrastructure, private infrastructure, private residential and non-residential buildings, and road maintenance are the basis of the capacity forecasts. In August 2025, there were 1.35 million people employed in the ABS Construction industry, of which 125,500 were employed in Engineering construction, which is 60% public work. There were another 330,000 people employed in Architectural, Engineering and Technical Services, and IA also adds project managers to their infrastructure workforce. The problem is the shift to the ‘public infrastructure’ component where, in 2025, IA estimated there were 204,000 workers and a 202,000 shortage. 

 

There is a conceptual problem here. How, in 2025, did the work get done if there was a shortage of half the required workforce? In 2027 the shortage will be 60% of the required workforce. Do shortages mean projects are not started because workers are not available, or lead times increase, or projects take longer to deliver because the workforce is spread over many projects? Are there more delays and bottlenecks due to such shortages? 

 

Conclusion

 

Assessing industry capacity requires identifying maximum potential output and the industry’s ability to meet current and future demand, based on supply of factors like the workforce and materials, and the effects of technology and market conditions. Other factors that are often considered are the number of active firms, trends in output and productivity, and capacity utilisation (i.e. the level of output compared to potential maximum output, often used to allow for downtime needed for maintenance of machinery and equipment). 

 

Infrastructure Australia (IA) produces an annual Infrastructure Market Capacity Report that provides forecasts of Australian infrastructure demand and supply of resources, and  makes recommendations to improve the capacity of the construction industry to meet forecast infrastructure demand across four areas: to actively manage demand; to increase material supply; to increase labour supply; and to improve construction productivity. 

 

Since the first report in 2021, Federal and state governments have adjusted the project pipeline, and the reports show a stretching out of work over more years and reductions of IA’s forecast peak in public infrastructure investment. IA notes this is ‘likely reflective of planned expenditure being pushed back as the market struggles to meet overly ambitious delivery targets.’ However, whether those decisions were based on the report or the result of delays in project funding, preparation or commencement is hard to tell. Compared to last year’s report, IA’s projected activity peak has fallen and has been shifted out a year, illustrating the uncertainty associated with long-term forecasts.

 

The report has a focus on projects in the Major Public Infrastructure Pipeline (MPIP). IA collects data on planned projects and labour and material supply, supported by interviews and surveys with key stakeholders, including state and territory governments and the Australian Department of Infrastructure, Transport, Regional Development, Communications and the Arts. Project data is classified by type, sector, phase and funding source. The report has evolved over five editions, to include current and emerging market conditions, availability of labour and construction materials, productivity trends, the supply of apprentices and trainees and other workforce issues. It includes regional demand, and the energy projects located in the regions have become an increasingly important component of total demand.

 

The research is not without challenges. In particular, the cost estimates for projects in the pipeline that are the basis for demand forecasts unavoidably have some uncertainty about future cost escalations. IA’s National Infrastructure Project Database aggregates data from public and private sources, including the ABS, but does not and is not intended to capture all private sector activity. How serious these issues are is a matter for debate. 

 

Industry capacity is the overall ability to deliver output, typically at a national and sectoral level. For IA, this is the capacity of the construction industry to deliver major infrastructure projects. There are two issues here. The first is the lack of a clear statement of what the maximum output possible with existing resources of the Australian industry actually is, whether for total work or for the three industry sectors of residential and non-residential building and engineering construction. These estimates should be clearly made.

 

The second is linking worker shortages to the numbers for the value of total public infrastructure and the major project pipeline, which is developed from the project database. There is no separate section in the report on how these estimates are derived. Although the methodology is in the Appendices, how the MPIP is used to estimate worker shortages is not explained. Given that managing the public infrastructure pipeline is the main point of producing the capacity forecasts, the analysis should be highlighted and be made more explicit. 

 

A serious problem is that there is no analysis in the report of the effect of increased demand on project duration. One of the characteristics of construction is that project delivery times increase during periods of high demand, because this the most important way the industry adjusts to increasing demand. As the available labour and materials are fixed in the short-run and capacity is limited by availability, these get spread over more work as new projects are started. Contractors bid for projects to ensure they have sufficient work in the future, adding to their workload, and the result is fewer people on a site and slower progress of ongoing work. Lead times and cycle times increase with workload, as project duration from order to delivery and from start of construction to completion increase. At high levels of activity, there is more potential for delays or bottlenecks in supply chains, as the reporting on industry survey results and discussion shows. 

 

Another problem is that, by assessing capacity against total demand, there is an underlying assumption that workers move between engineering and building work. However, there is no good evidence that there is much worker mobility between sectors. BuildSkills Australia 2025 Housing Workforce Capacity Study published in September 2025 found limited evidence that infrastructure activity is materially drawing labour away from residential construction [3]. How the shortages of architects, engineers and project managers are estimated is also not clear. 

 

A final point is that infrastructure is conventionally divided into physical (roads, rail, ports, energy etc.) and social (schools, hospitals, community centres etc.) projects. These divisions are not used by IA, instead they have four sectors of transport, utilities, buildings, and resources, and the portfolio breaks down ‘these three sectors’ [sic] across 22 Master Types and 83 separate typecasts (detailed in Appendix C). No reason is given for not using these categories and putting everything into the MPIP. 

 

The report could do with an edit and has a couple of basic errors, where different numbers are given for the same thing: transport is $129 billion on p.18 and $192 billion on p. 20, and the public infrastructure worker shortage in 2025 is 141,00 on p. 42 and 202,000 on p.43. However, the report has a detailed, a five-year forecast that covers sectors like transport, energy, water, and buildings, including housing. It analyses critical issues such as labour and skill shortages, material costs and equipment demand, productivity, and the challenges of the energy transition, including regional breakdowns. Insights from industry surveys and interviews add perspective on market conditions, risks, and challenges. It is an important source of data and provides a comprehensive overview of Australian construction.

 

                                                                          *

 

[1] This post looked at the capital stock of Australian industry.

 

[2] Opposition to net zero is bizarre. A 21^st century economy runs on abundant electricity, and today the cheapest source of electricity is solar with storage. The Ember 2025 Global Electricity Review found: ‘Renewable power sources added a record 858 TWh of generation in 2024 … brought low-carbon power to 40.9% (12,609 TWh) of the mix in 2024, compared with 39.4% in 2023. Hydro remained the largest source of low-carbon electricity (14.3%), followed by nuclear (9.0%), with wind (8.1%) and solar (6.9%). Solar generation has doubled over the last three years to reach over 2000 TWh. Solar was the largest source of new electricity generation globally for the third year in a row (+474 TWh) and the fastest growing source of electricity (+29%) for the 20th year in a row. More than half (53%) of the increase in solar generation in 2024 was in China.’

 

[3] A Residential Mobility Study is currently being done by BuildSkills Australia, supported by Jobs and Skills Australia and the ABS, to understand actual and potential labour flows between residential and other construction. 

 

 

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A New Building Regulator for Victoria

  

Reform of licensing, compliance, insurance and payments

  

 

 

Victoria in 1993 established the Building Control Commission, responsible for building regulation, the Building Practitioners Board to register and monitor practitioners conduct, and the Plumbing Industry Commission, responsible for licensing plumbers, drainers and gasfitters and plumbing work standards. In 2013 the Victorian Building Authority (VBA) replaced those regulators, becoming responsible for building standards, permits, surveyors, plumbers, contractors and subcontractors. In 2024, the Building Act was amended to make the State Building Surveyor a statutory position, to be the primary source of technical expertise for building and plumbing work.

 

In July 2025 the VBA became the Building and Plumbing Commission (BPC), with the Building Legislation Amendment (Buyer Protections) Bill 2025, as an integrated regulator that consolidated the functions of the VBA, Domestic Building Dispute Resolution Victoria and the Domestic Building Insurance arm of the Victorian Managed Insurance Authority. The goals are: 

·      To strengthen consumer protection through defect rectification orders and new insurance and bond schemes; 

·      To maintain standards in the building and plumbing industries through more effective regulation of builders and developers; 

·      To ensure consistency in compliance with the building code across the state; and streamline regulation with the BPC as the single point of contact.

 

The decision to replace the VBA with the BPC coincided with an October 2024 review by Weir Legal and Consulting Victorian Building Authority – The Case for Transformation. With seven detailed case studies, the review began by acknowledging ‘the dreadful experience these complainants have had in their interactions with the building industry, the VBA and the legal system.’  It found ‘the VBA management and culture failed consumers’, and builders were not made accountable for poor standards of work and unethical conduct. The VBA ‘failed to protect homeowners’ because of:

·      Ineffective regulation of practitioner conduct, weak enforcement and slow processes;

·      Consumer neglect with complaints that were lost, delayed, or ignored; and

·      Systemic regulatory failures such as combustible cladding and building defects in apartment towers [1].

 

This post first looks at the scope of the regulatory powers the BPC is given under the legislation and the changes from the system under the VBA, then the new domestic building insurance and apartment bond schemes are detailed. Issues with the legislation are discussed, including those raised by Master Builders Victoria, followed by the potential for issues with rectification orders and whether the BPC is responsible for providing technical solutions. Further reforms with a new domestic building contract and proposed changes to security of payment legislation are also discussed.  

 

 

Building and Plumbing Commission Powers

 

The BPC will oversee licensing, compliance, dispute resolution, and provide insurance coverage for defects. Current licenses will automatically transfer to the BPC and remain valid, but builders will need to meet minimum financial standards (that are not yet specified) to renew their licenses, have proof of insurance cover and provide a training plan for continuing professional development. There are new powers to combat phoenixing, where companies are liquidated to avoid debts and restarted under a new name. Builders who are directors of insolvent companies may face suspension or non-renewal of their licenses, with provisions for immediate suspension [2].

 

To protect homeowners, the BPC can order builders and developers to fix defective work for up to 10 years under Rectification Orders (ROs) that can be issued to whoever is responsible for carrying out the building work, including unregistered persons, subcontractors and owner-builders. The BPC can suspend licenses if builders fail to comply with ROs for defective work, which is a significant change. ROs can be issued to any class of building, including commercial buildings. Opportunities to rectify defects before an insurance claim is triggered start with the consumer resolving defects informally with the builder, and ending with the BPC issuing an RO. The viability of the scheme relies on the BPC compelling builders to rectify defects, reducing demand for insurance payouts.

 

For residential buildings of up to three storeys, Domestic Building Insurance (DBI) administered by the BPC will become insurance of ‘first resort’ and the BPC will set premiums. Homeowners have access to DBI in the form of ‘assistance’ when they suffer loss from incomplete, defective, or non-compliant work, in addition to the existing triggers for cover when a builder dies or becomes insolvent, disappears, or ignores a court order. Assistance will involve rectification or completion of the works or payment of compensation. The BPC can order builders to rectify defects, take disciplinary action against them, seek tenders for work, and recover amounts paid under DBI to fund repairs if the builder refuses. The new insurance scheme will start in July 2026, and may affect insurance premiums and underwriting conditions for builders. 

 

For residential buildings over three storeys, developers will be required to lodge a bond of 2% of the total build cost as security for covering the cost of fixing defects in common areas. Criticisms of the bond scheme are that it only covers common property, not private areas or structural defects, and doesn’t address issues related to faulty materials, design, or workmanship. For apartment buildings, ROs may be issued against builders and subcontractors, and also against developers. The BPC may withhold an Occupancy Permit if no bond is lodged or if serious defects are not fixed, and off-the-plan sales may be blocked. If an Occupancy Permit is issued without the developer having a bond, off the plan purchasers can rescind the contract. 

 

The developer bonds will be held by the BPC for two years after issue of an Occupancy Permit, and return to the developer if there are no outstanding defects. Recourse against or release of the bond will be subject to two reports from an independent assessor. A final inspection must be completed 21 to 24 months after occupancy, confirming defects have been rectified, otherwise the owners corporation can claim against the bond to fund rectification, with any unused portion returned to the developer. While the bond could be released 24 months after occupation, contested claims would take much longer.  Developers may apply to the Victorian Civil and Administrative Tribunal (VCAT) for review of a RO, and the BPC may apply to VCAT for an extension of time beyond the 10-year limit.

 

KCL Law posted: ‘these reforms mark a fundamental reset of Victoria’s residential construction sector. Consumer protection, professional accountability, and industry transparency are now front and centre, with significant implications for how developers, builders and regulators interact. But this is more than regulatory housekeeping, it’s a rebalancing of risk and responsibility across the entire supply chain. Builders are being asked to operate more like professionals than tradespeople. Developers must budget not just for construction but for compliance and regulators will no longer sit back and wait for failure before stepping in.’

 

 

Issues With the Legislation

 

There was a public consultation phase on the BPC. Although the submissions are not available online, the concerns they raised were widely reported. In particular, in May 2025 Master Builders Victoria (MBV) and Housing Industry Association (HIA) called for the Building Legislation Amendment (Buyer Protections) Bill to be subject to a review by a Parliamentary Committee, concerned that many provisions in the Bill increase costs for builders, unfairly penalise good builders, and would not do much to protect consumers from bad building practices. 

 

In a June post the MBV’s key concerns with the Bill were: 

·       ROs can be issued to both builders and developers, but only registered builders face the risk of losing their registration if they don’t comply. Developers, who are not required to be registered, face no equivalent consequences; 

·       The Bill places the entire burden of rectification on the builder, even when the defect is determined to be caused by another party, such as the designer; 

·       The home building sector is already seeing a decline in builder numbers due to frustration with an increasingly complex and biased regulatory environment; 

·       The definitions of ‘Defect’ and ‘Serious Defect’ are too broad. ROs should be limited to serious defects only, and if ROs apply to all defects a genuine appeal process must be provided for the builder.  

 

There are valid concerns here. In particular, has the ‘burden of rectification’ been placed solely on the builder, when other parties such as designers or engineers may be at fault? The legislation does not define how disputes over proportionate liability will be managed. Also, the broad definition of a serious defect may become problematic, and when combined with the lack of clear guidelines on liability, disputes may be more complex, protracted, and difficult to resolve. That said, the legislation does not prevent the builder chasing other parties who are at fault, and the builder and developer have responsibility to resolve a dispute and compensate for rectification.

 

The Victorian HIA compiles data on building registrations from the VBA annual reports. Their chart shows the number of registered domestic builders by company and by individual. The number of individuals registered as domestic builders has declined from a 2020-21 high of 17,545 to 16,669 in 2024-25, but the number of companys registered as domestic builders had a small increase. The number of finalised applications for building practitioner registration has also declined, from 2,821 in 2020-21 to 1,384 in 2024-25. These trends predate the transition of the VBA to the BPC, and not evidence of builders leaving the industry because of onerous or bad regulation. 

 

Figure 1. VBA data

Source: HIA

 

The 2024-25 VBA annual report’s table 4 with building and plumbing registration and licensing has more detail. Figure 2 shows that, between 2023-24 and 2024-25, there have been increases in the number of people registered as surveyors, inspectors and domestic project managers, and over 1,100 more licensed plumbers. The annual report says ‘the 18.7 per cent increase in the number of building surveyors registered is attributed to practitioners attaining registration through the mutual recognition pathway’, however The Age newspaper revealed 60% (123 out of 204) of new Victorian building surveyor registrations in 2024-25 through mutual recognition from Western Australia, where the qualification standards are lower and a bachelors degree is not required. There were also 4,936 engineer endorsements (for engineering wanting to work in building construction) were a four per cent increase over 2023-24.

 

Figure 2. Building and plumbing registration and licensing 

Source: 2024-25 VBA annual report, p. 40 [3].

 

 

A petition to the Legislative Council (from an unknown group called vicbuildersunite with only 300 signatures) also called for a review of the legislation, because it would ‘result in an anti-competitive situation through the creation of a government-controlled insurance monopoly.’ The petition then argued: ‘There is a lack of procedures to resolve disputes between builders and subcontractors whenever a disputes occurs over works which increases costs to consumers, a lack of accountability from third party building inspectors both private and regulated, a lack of transparency and fairness in how the regulator investigates practitioners and unfair costs associated with accessing building standards and technical information which includes the limited hours the regulators technical team are available.’ There are more like complaints than criticisms, and to suggest ‘a lack of transparency and fairness’ in a scheme that has not yet started is ridiculous. 

 

There are a few other issues that have been raised that should not take too long to be resolved: 

·      There is a lack of clarity on transition arrangements for projects already underway or with pre-existing contracts and how they are affected by the new bond requirements;

·      A RO may allow penalties based on single complaint without a thorough investigation; and

·      The minimum financial standards for builders have not been specified.

 

 

Issues with ROs and the Condensation Scenario

 

There are potentially issues with how ROs will be managed. The Explanatory Memorandum for the legislation says:

 

‘New section 75E sets out what a rectification order can require a person to do.  Subsection (1) provides that the person may be required to take any action or the action specified in the order to complete the building work, rectify the non‑compliant or defective building work, rectify any consequential damage associated with the building work or the defective or non‑compliant work, follow any directions or meet any standards in completing or rectifying the work or do any other thing in connection with the required completion or rectification activities.’

 

‘New section 75H specifies what information a rectification order must contain.  This includes a statement describing the action the person to whom the order is issued must (or must not) take for the purposes of the order, a statement describing any standards that must be met or directions the person must follow, a statement describing any other things the person must do for the purposes of the order, the date by which the order must be complied and any prescribed information.’

 

Tim Law, an architectural scientist specialising in mould in buildings, worries Victoria’s legislation expects the BPC to fix every problem it uncovers and the State Building Surveyor (SBS), as the designated technical authority, to provide solutions. The result could be the BPC becoming both enforcer and scapegoat, responsible not just for identifying defects, but for solving problems and inheriting liability for every systemic failure in Victoria's building industry over the past decade. If this is right, it will become a very expensive problem for the BPC as the costs for defect remediation will be carried by DBI, and the BPC will have financial responsibility for outcomes they cannot control. However, if the BPC follows the NSW example, it will issue ROs that define the problem for the builder to get advice on how to fix, and then show the BPC that they have done the work. 

 

 

Reform of Contract and Payment Legislation

 

In September 2025, the Domestic Building Contracts Amendment Bill 2025 (Vic) was passed by the Victorian Parliament and will take effect by or before December 2026, and will apply to domestic building contracts entered into after the commencement date. The BPC will take over the protection functions of Consumer Affairs Victoria, which posted the new laws will: 

·       Provide stronger protections for homeowners when signing domestic building contracts;

·       Set clear rules on when builders get paid. Deposit limits, progress payment stages, and progress payment limits can be set in regulations. Any payments for completed work will be subject to a proportionality requirement;

·       Allow the use of cost escalation clauses for contracts worth $1 million or more. But these clauses can only add up to 5% to a contract’s price, and extra consumer protections will also apply;

·       Separate preliminary agreements. Builders and clients can make their own agreements for developing plans, specifications and bills of quantity;

·       Ensure clearer contract requirements for all. Currently, some basic document requirements only apply to major domestic building contracts. These will now apply to all domestic building contracts;

·       Provide a single, simple process for contract variations for major domestic building contracts. This applies whether the homeowner or the builder requests a variation; and

·       Set stronger rights for homeowners to end a major domestic building contract. This will make it easier to walk away if needed.

 

The new contract has mandatory pre-contract disclosures, tighter variation controls, and new rules on progress payments and deposit limits. It recognises the role of modern methods of construction by linking progress payments to the actual proportion of building work done, which affects financing of modular and prefabricated construction. This important reform means prefabricated houses in Victoria will have their own framework for staged payments. New rules around fixed-price contracts reduce reliance on provisional sums and prime cost items. (See here and here).

 

Along with the Domestic Building Contract Act the Government is also improving security of payment (SOP) to reduce insolvency risk and protect smaller contractors, subcontractors, and suppliers. In September 2025 the Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Bill was made public. This is the first package of reforms from a 2023 Parliamentary Inquiry into SOP, and is based on 16 of the 28 Inquiry recommendations. Industry consultations are underway on a second set of SOP reforms. (See here, here, and here). The security of payment bill will align Victoria with other states by removing excluded amounts, which were unique to Victoria, and  unfair payment clauses, and make the enforcement of payments simpler. It will be easier to make claims and have them adjudicated if there’s a dispute.

 

Other reforms under consideration are a handover manual for completed buildings on their construction and maintenance. Building surveyors will be required to provide an information statement to the owner of the building or land within 10 working days of issuing a building permit. A Building Monitor as a dedicated advocate for Victorian domestic building consumers exists, but has not yet been funded. New categories to be considered for registration requirements are building consultants and site supervisors. Changes to approvals, registration and licencing, inspections and insurance requirements to promote modern methods of construction are being developed. An expert panel is advising on a rewrite of the Building Act. Further reforms could be increased mandatory inspections during construction, and introduction of 10 year defect liability insurance similar to the scheme in NSW. Statutory trusts for retention money as in Queensland are not proposed [4]. 

 

 

Conclusion

 

The Victorian Government wants higher accountability, lower defect rates, and faster dispute resolution in the construction industry, particularly for residential building. After a damming review highlighted the failings of the Victorian Building Authority a new regulator, the Building and Plumbing Commission, was established in mid-2025 with greater powers to address defects and management of new insurance and bond schemes to pay for rectification.

 

With the BPC able to issue Rectification Orders up to 10 years post-completion there is now a long period of liability for builders and developers, who will need to keep records of completed and disputed defects. There will be new, as yet unspecified, minimum financial standards for builders, and measures to prevent phoenixing of companies. The BPC will manage domestic building insurance and a developer bond scheme for apartments over three stories. The BPC can withhold an Occupancy Permit if no bond is lodged or if serious defects are not fixed, and off-the-plan sales may be blocked. If an Occupancy Permit is issued without the developer having a bond, off the plan purchasers can rescind the contract. As with any ambitious regulatory reform there are critics, and the relevance and accuracy of their arguments will be found over time. 

 

There are some potential problems for the BPC. How the transition for projects already underway or with pre-existing contracts that are affected by the new bond requirements will be managed is unclear. The ‘burden of rectification’ of defects is on the builder, although designers or engineers may be at fault, and the legislation does not define how proportionate liability will be managed. The definition of a serious defect is broad, and with the lack of clear guidelines on liability, disputes may be more difficult to resolve. The developer bond only applies to defects in common areas, not substandard work or faulty materials. However, the new insurance scheme should incentivise builders to rectify building defects as they are found by homeowners, preventing disputes.

 

In conjunction with the BPC legislation, there is a new Domestic Building Contract Act and new security of payment measures. The new contract has stronger protections for homeowners, tighter variation controls, and links progress payments to work done in a framework for modern methods of construction. A new security of payment bill will align Victoria with other states by removing excluded amounts. 

 

The concern of industry associations is that regulatory complexity, the cost of insurance and bonds, and minimum financial requirements, will result in builders leaving the industry, particularly smaller ones with limited capital, and reduce industry capacity. Residential building has always had high rates of entry and exit, because it is a cyclical industry with many small and medium size businesses. However, it would be difficult to know which exits are due to the new regulatory system, instead of industry conditions, retirement, or insolvency. 

 

The Weir Review of the VBA made 20 recommendations. Those on dispute resolution, phoenixing, domestic building insurance, inspections, occupancy permits and rectification orders have largely been adopted. Some like staged building permits, codes of conduct and training for builders and surveyors, and for BPC staff, are for the BPC to implement. The recommendations for declared designs, including plumbing designs, to be lodged on a government portal, as in the NSWDesign and Building Practitioners Act 2020, are not in the legislation, despite their importance in the NSW reform strategy [5].

 

Taken together, these reforms are a comprehensive upgrade of the construction industry’s regulatory framework in Victoria, particularly in the residential building sector. Consumer protection and builder accountability have been the focus, and the changes to risk and responsibility for compliance will affect all participants. For consumers the insurance scheme is a crucial change, because the builder does not have to be insolvent or disappeared to make a claim it makes insurance genuinely protective, and should lead to better quality of work. For contractors and subcontractors, an important change is the removal of excluded amounts in the new security of payment bill, and they can now claim for contested variations and costs through a simpler adjudication process. The BPC consolidates several regulatory bodies, has expanded powers, and is expected to be a more effective and proactive regulator than its failed predecessor. 

 

                                                               *

 

Acknowledgement: I’d like to thank David Chandler, Bronwyn Weir and Tim Law for their comments and assistance in preparing this post. Any mistakes or errors are mine.  

 

 

 [1] Flammable cladding in Australia and the second Grenfell Report were covered in this post.

[2] Insolvencies and entry and exit data were discussed in this post.

[3] The 2024-25 VBA annual report can be downloaded from

https://www.parliament.vic.gov.au/parliamentary-activity/tabled-documents/

[4] The Queensland statutory trust account systems was covered in this post. Regulation under the Queensland Building and Construction Commission will be the subject of a post in the near future. 

[5] The NSW reform strategy was outlined in this post.

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