Insights from New Data on Australian Construction

Construction Industry Survey 2024

 

The ABS has published detailed data on the Construction industry for 2023-24. Although released as part of the Australian Industry data, this is the seventh of a series of irregular and infrequent Construction Industry Surveys done by the ABS [1]. The ABS collected employment, wages and salaries, income, expenses, operating profit, earnings before interest tax depreciation and amortisation (EBITDA), and industry value added (IVA) for private sector construction businesses. 

 

Construction is an industry division, divided into three subdivisions: 

·      Subdivision 30 Building construction, with the two groups of Residential and Non-residential building;

·      Subdivision 31 Heavy and civil engineering construction; and

·      Subdivision 32 Construction services with five groups of Land development and site preparation services, Building structure services, Building installation services, Building completion services, and Other construction services.

 

The survey divides income by: 

·      Type of client;

·      Nature of contract (contracting, subcontracting or speculative);

·      Type of asset (houses, other residential building, non-residential building, road and bridge construction, and other non-building construction); and

·      Type of work (new construction work, alterations, additions, renovations and improvements, and repairs and maintenance).

 

This post first looks at industry totals and the Construction subdivisions and groups, and details income and expenses. It then compares the amount per employee for income, wages and salaries, EBITDA and IVA across the subdivisions and groups to show their relative performance. The data on capital expenditure, work done by type of asset and type of work is presented. 

 

Australia is in the fortunate position of having one of the world’s best statistical agencies with the ABS, at a time when other countries are having issues with their data collections [2].

 

 

 Industry Totals

 

Total employment was 1,291,000 people, of which Construction services were 883,000 or 68%. Within Construction services, the largest groups were Building installation services (329,000 people) and Building completion services (223,000 people). Building construction employed 254,000 with 173,00 in Residential building, and Heavy and civil engineering construction employed 154,000. 

 

Total income includes income from non-construction services and sales of land and goods, but the survey also has income from contracting and subcontracting. Construction total income was $633.6 billion with $438.6bn from contracting and subcontracting (69%), with $77bn of contracting income from the public sector (17.5%). For the three subdivisions:

·      Building construction’s total income was $235.2bn, with $130.8bn from contracting and $21.5bn from subcontracting, contributing $152.3bn. 

·      Heavy and civil engineering construction’s total income was $122.4bn with $85bn from contracting, of which $47.2bn (55.5%) was for the public sector, and $13.2 from subcontracting, contributing $98.2bn. 

·      Construction services’ total income was $276.1bn, with $116.6bn from subcontracting and $71.4bn from contracting, contributing $188bn. 

·      Within Construction services, Building installation services was the largest group by income ($94.2bn), followed by Building completion services ($53.2bn), which together were 53% of Construction services income. 

 

 

Table 1. Construction totals 

Source: ABS 8155DO008. 

Note: W & S is Wages and salaries, Total income includes income from non-construction services and sale of land and goods, Profit is Operating profit before tax, EBITDA is Earnings before interest tax depreciation and amortisation, IVA is Industry value added. 

 

Figure 1. Contracting income by client type

 

 

Non-construction income was 31% of total income, with $113.2bn from the sale of goods and $61.2bn from services. Income from sales of land and goods was a high proportion of contracting and subcontracting income for Residential building (67%) and Land development and site preparation services (53%). Income from Non-construction services (including professional, scientific and technical services) was a high proportion of contracting and subcontracting income for Heavy and civil engineering (14%), for Land development and site preparation services (43%), and for Building installation services (18%). 

 

Figure 2. Non-construction income by source

 

 

Expenses were $570.7bn in 2023-24. The largest were purchases of goods and materials ($255.4b) and selected labour costs ($105.7b). Payments to other businesses for construction services, building and industrial cleaning services was $91.6b, and this will have included Professional services like architectural, engineering and surveying services, and rental and hire of machinery and equipment .

 

Purchases of land for property development was $12.2 bn, with Residential building accounting for $7bn and Land development and site preparation $3bn of the total. Those purchases incurred $2.1bn and $1.3bn in interest costs for the groups, which also had $762mn and $1.4bn in depreciation and amortisation expenses. 

 

Performance Per Employee

 

Comparing the amount per employee for income, wages and salaries, EBITDA and IVA highlights the differences between the industry subdivisions and groups. The Non-residential building and Heavy and civil engineering construction subdivisions had much higher average wages and salaries and income than the rest of the industry, and the highest IVA per employee. The highest operating profit per employee and EBITDA was in Land development and site preparation, which was also the group with the highest income from non-construction services, and Building installation services had the lowest operating profit per employee and EBITDA.

 

Table 2. Amount per employee

Source: ABS 8155DO008. 

Note: W & S is Wages and salaries, Total income includes income from non-construction services and sale of land and goods, Profit is Operating profit before tax, EBITDA is Earnings before interest tax depreciation and amortisation, IVA is Industry value added. 

 

The figures below show the differences between the groups for wages, profits, EBITDA and IVA per employee. The general pattern is that Construction services have lower values than Building and Engineering, often around half as much, particularly for wages and contracting income. Average wages are notably low for Residential building and Building completion services. Contracting income per employee is highest in Non-residential building, by a considerable margin over Residential building and Engineering, and the three groups of Building installation, Building completion and Other construction services have almost the same contracting income per employee.

 

Figure 3. Wages and salaries per employee

 

 

Figure 4. Income per employee

 

Note: Includes contracting and subcontracting income, excludes non-construction income from sales of land and goods.

 

For EBITDA and IVA where non-construction services income is included, Land development and site preparation had the highest EBITDA and third highest IVA per employee. Residential building had lower IVA per employee but higher EBITDA than both Non-residential building and Engineering, which were the two groups with the highest IVA per employee. Interestingly, there is only a weak relationship between EBITDA and IVA per employee across the industry groups. 

 

Figure 5. EBITDA per employee

 

Note: EBITDA is Earnings before interest tax depreciation and amortisation.

 

The four Construction services groups of Building structure services, Building installation services, Building completion services and Other construction services have IVA per employee values around half that of Engineering, and around two thirds of Building. 

 

Figure 6. IVA per employee

 

Note: IVA is Industry value added.

 

Capital Formation

 

There is a well-established relationship between the amount of capital (both physical and intellectual) available for each worker and their level of productivity. All else equal, the more capital the higher the productivity. The survey has capital expenditure (capex) and gross fixed capital formation (GFCF) for the eight industry groups, and Figure 5 shows  the relationship between IVA per employee, capex and GFCF per employee.

 

Land development and site preparation had the highest level for both capex and GFCF per employee indicators, due to including purchases of land and equipment. Similarly, Engineering has a high capex that includes purchases of machinery and equipment, and also the highest IVA per employee. Capex is low for Residential and Non-residential building  because of the low level of ownership of heavy equipment and machinery due to extensive use of hiring and leasing, however that equipment and machinery lifts the level of IVA per employee. The other four trades in Construction services have capex and GFCF tracking IVA per employee, and are the best example of the relationship between capital and productivity.

 

Figure 7. IVA, capex and GFCF per employee in 2023-24. 

 

Note: Capex is capital expenditure and GFCF  is gross fixed capital formation.

 

Work Done by Type of Asset and Type of Work

 

Building Construction and Construction Services Income

 

There is a new set of data in this year’s survey that has the income from different types of asset built, divided into houses, other residential building and non-residential building, and the type of work done, divided into new construction work, alterations, additions, renovations and improvements, and repairs and maintenance. This is given for the three Building groups of Residential and Non-residential building and Construction services. 

 

Table 3. Income from construction services by type of work

 

 

Residential projects provided the largest source of income for Construction services, with $55.6bn from House construction and $17bn from Other residential building, a total of $72.6bn, compared to Construction services’ Non-residential building income of $66.2bn and Non-building construction’s $49.3bn. For the Non-residential building group, Alterations etc. income of $18bn was 58% of income from New work of $31bn.

 

Table 4. Type of work done by Building construction and Construction services

 

 

The distribution of income across type of work and type of asset can be found from this data. This has not previously been available and it allows a comparison of the relative importance of type of building work done. New work is 72% of the total, but of particular interest is that 9% is repair and maintenance, which is generally inefficient and labour intensive compared to new work. Around three quarters of R&M is (unsurprisingly) done by trades in Construction services and, except for Non-residential building, most of the alterations and additions.

 

Engineering Construction Income

 

Heavy and civil engineering construction total income was $98.2bn, of which $85.1bn was from contracting. Income was broken down by project type and into New work and Improvements and Repairs and maintenance (R&M): 

·       Road and bridge construction ($37.5bn; New work $34.5bn, R&M $2.6bn );

·       Railways, tramways and harbour construction ($17.3bn; New work $17bn);

·       Water storage and supply, sewerage and drainage construction ($7.2bn; New work $6.1bn, R&M $1.1bn);

·       Electricity generation, transmission and distribution construction ($11.5bn; New work $11.1bn);

·       Telecommunications construction ($1.2bn; New work $$567mn, R&M $595mn);

·       Oil, gas, coal, pipelines (not water) and other heavy industry construction ($9.4bn; New work $7.2bn, R&M $2.2bn);

·       Other non-building construction ($8.2bn; New work $7.6bn);

·       Building construction ($5.1bn; New work $5.5bn, Alterations & additions plus R&M $593mn). 

 

Roads and railways are by far the largest categories of new engineering work ($37.5bn and $17.3bn respectively), and it should be noted that 2023-24 was a year with exceptionally high public expenditure on infrastructure, with major projects underway in NSW, Victoria and Queensland. The third highest category was Electricity generation, transmission and distribution construction, reflecting expenditure on the energy transition with $11.1bn of new work. Repair and maintenance was 8.3% of total Engineering income. 

 

 

Key Points

 

Total income included income from non-construction services and sales of land and goods as well as income from contracting and subcontracting. Construction total income was $633.6 billion with$438.6bn or 69% from contracting and subcontracting. Contracting income from the public sector was $77bn. Sales of land and goods was a high proportion of contracting and subcontracting income for Residential building (67%) and Land development and site preparation services (53%).

 

Construction services have lower wages, profits, earnings before interest, tax, depreciation and amortisation (EBITDA) and industry value added (IVA) per employee values than the Building and Engineering groups, particularly for wages and contracting income. Contracting income per employee is highest in Non-residential building, much more than Residential building and Engineering, and the three groups of Building installation, Building completion and Other construction services have almost the same contracting income per employee. 

 

When non-construction services income is included, Land development and site preparation had the highest EBITDA and third highest IVA per employee. Residential building had lower IVA per employee but higher EBITDA than both Non-residential building and Engineering, which were the two groups with the highest IVA per employee. There is only a weak relationship between EBITDA and IVA per employee across the industry groups. The four Construction services groups of Building structure services, Building installation services, Building completion services and Other construction services have IVA per employee values around half that of Engineering, and around two thirds of Building. 

 

The survey has capital expenditure and gross fixed capital formation (GFCF). Land development and site preparation had the highest and Engineering the second highest for capex and GFCF per employee, due to purchases of land and equipment. Capex is low for Residential and Non-residential building  because of hiring and leasing of heavy equipment and machinery. The other four trades in Construction services have capex and GFCF closely tracking IVA per employee, a good example of the relationship between physical capital and productivity.

 

Data on the distribution of income across type of work and type of asset has not previously been available. For Building construction New work is 72% of the total, alteration, additions and improvements 19%, and repair and maintenance is 9%, with around three quarters of R&M done by trades in Construction services. However, the data does not include the number of people employed in R&M. 

 

For Heavy and civil engineering, total income was $98.2bn, of which $85.1bn was from contracting. Roads and railways are by far the largest categories of new work ($37.5bn and $17.3bn respectively). 2023-24 was a year with high public expenditure on infrastructure and 55.5% of income came from the public sector. Repair and maintenance was 8.3% of total Engineering income. 

 

The 2023-24 Construction Industry Survey has provided a level of detail previously unavailable. Key insights are that 69% of total income is from contracting and subcontracting, with the rest from provision of services and sale of land and goods, and 9% of income is from repair and maintenance. Although only 18% of total contracting income is from the public sector, for Engineering it is 56%. Purchases of land by Residential building was $7bn and by Land development and site preparation $3bn, with $2.1bn and $1.3bn in interest costs respectively. In Non-residential building work, Alterations, additions, renovations and improvements income of $21.2bn was 41.2% of the income from New work of $51.3bn. For House construction by Construction services, income from New work was $30.6bn, and for Alterations etc. was $17.6bn, 57% of New work income. 

 

Non-residential building and Engineering had the highest IVA per employee, followed by Land development and site preparation and Residential building. There is a wide productivity differential across the industry groups, as measured by IVA per employee. That may be an imprecise measure, but it is indicative of the labour intensity of the trades, and the higher capital intensity of the Building and Engineering subdivisions. One way to improve overall industry productivity would be through lifting the capital intensity of Construction services by providing incentives for them to increase capex. 

 

Conclusion

 

The ABS 2023-24 Australian Industry data included a survey of the Construction industry, with previously unavailable data on income from work done and type of work, clients and other variables at the level of eight industry groups. Therefore, this data has much more detail compared to the three industry subdivisions of Building, Engineering and Construction services used in regular ABS publications, because subdivisions are made up of industry groups.  

 

The first three groups are Residential building, Non-residential building and Heavy and civil engineering, and there are five groups of Construction services: Land development and site preparation services, Building structure services, Building installation services, Building completion services, and Other construction services.

 

In terms of policy and industry development, this detailed data is important because it clearly shows the differences in the characteristics of the industry groups, their clients and sources of income. It will also allow recalculation of construction labour productivity for the different types of work done. 

 

Construction is better viewed as three sub-industries when the differences between Residential building, Non-residential building and Engineering construction are taken into account. These structural differences affect the way clients, contractors, subcontractors, designers and suppliers work and interact, and these ABS subdivisions have their own characteristics and ways of working. For example, house builders have pattern books, commercial building uses architects, and infrastructure is designed by engineers.

 

Industry policies that target Construction will be challenged by sub-industries with limited, though important, similarities, and are unlikely to be relevant across them. The specific nature of the individual subdivisions often makes recommendations and policy directed at Construction as a single industry hard to implement or ineffective, separate policies are required. 

                                                              *

 

 

[1] ABS 8155DO008 Australian Industry 2023-24, ABS 8155DO001 Construction Industry Survey 2011-12. ABS 8772  Private Sector Construction Establishments 2002-03, 1996-97,1988-89,1984-85 and 1978-79. 

The 2002-03 survey used different industry categories and is not comparable with the other surveys. The ABS notes that survey data ‘were understated in the 1978/79 collection as there were significant coverage deficiencies in this survey.’

 

[2] In the US the Bureau of Labor Statistics issued a notice in June 2025 that said CPI collection reduction and suspension affected the Commodity and Services survey and the Housing survey. The ‘BLS makes reductions when current resources can no longer support the collection effort.’  

 

The UK Office of National Statistics published a wrong CPI figure in April 2025 and 

a Systemic Review of ONS Economic Statistics noted  ‘there are widely recognised problems with the Labour Force Survey’ and  ‘resource pressures on economic statistics and on the ONS as a whole have intensified in the last two years.’ In 2014 issues with UK construction data were so serious they led to Construction Output being de-designated as a National Statistic. 

 

 

 

Australian Construction Productivity

Is the industry’s productivity as bad as claimed?

 

The Australian Bureau of Statistics publishes productivity measures for the whole economy, the Market Sector, and for the 16 industries that make up the Market Sector. Productivity is the ratio of output and inputs and is affected by innovation, research and development, education and training, the quality and age of the capital stock (of machinery, plant and equipment, buildings and structures), the rate of technological change and adoption of new technologies.  The effects of all these factors takes time, so productivity is a long-run measure that changes gradually. 

 

The post compares Construction productivity to the performance of the Market Sector. The data used is from the annual ABS Productivity Statistics release, which has data from 1994-95 to 2023-24 (the most recent release was February 2025). The ABS productivity indexes are based on 100 in 2022-23, however for this analysis they have been first rebased to 100 in 1994-95 to compare the long-run growth of Construction and Market Sector productivity, and then rebased at 100 in 2015-16 for comparing productivity in the short-run. 

 

Comparisons are made for labour productivity and multi-factor productivity (MFP) using both the hours worked and quality adjusted labour input measures. The quality adjusted labour input indexes take into account characteristics of the workforce like years of education, levels of training, industry of employment, age and sex. These quality adjusted measures reflect changes in the composition and skills of the workforce, and typically have a lower rate of growth than the hours worked measure. Capital productivity is also shown. 

 

As well as comparing the different measures of productivity for Construction and the Market Sector, there is data for the individual industries that shows Construction is in no way the worst performing industry, although it is far from the level of growth seen in the best performing industries.

 

 

Productivity Since 1995

 

The long-run performance of Construction includes a sharp rise during the mining boom between 2012 and 2015, followed by a gradual decline over the next few years as these major resource projects completed [1]. At the end of the mining boom productivity had fallen to around the level it was before the boom. This pattern was due to the large increase in Construction output during the mining boom because output included plant and equipment like the offshore drilling platforms and gas liquefaction plants, none of which involved much construction work and most of which was imported. Productivity increased because this statistical quirk increased output much more than employment and hours worked [1]. 

 

Labour Productivity

 

Starting with labour productivity over the long run since 1994-95, the difference between growth in the Market Sector and the lower productivity growth of the Construction industry is apparent in Figure 1. However, despite claims made that there has been no growth in Construction labour productivity, there has been an increase. Construction labour productivity has increased by 17% on an hours worked basis and 24% on the quality adjusted labour input basis which, although less than the Market Sector’s 64% and 41% respectively, is not nothing. 

 

Figure 1. Market Sector industries labour productivity

 

Source: ABS 5260. Gross value added per hour worked. Quali is the quality adjusted labour input measure. 

 

As Table 1 shows, since 1995 the three leading industries for hours worked labour productivity growth have been Agriculture, forestry and fishing 210%, Information media and telecommunications 228%, and Financial and insurance services 123%. The two industries with lower growth than Construction were Mining 6%, Electricity, gas, water 2%, and Administrative and support services had negative growth of -13%. 

 

For quality adjusted labour productivity, Construction had better growth than Rental, hiring and real estate services 4%, and there were three industries with negative growth: Mining -2%, Electricity, gas, water and waste -9%, and Administrative and support services -23%.

 

Table 1. Market Sector industries labour productivity change

 

Multi-factor Productivity 

 

The ratio of output to input of combined labour and capital is multi-factor productivity (MFP). For MFP the story is not as good as for labour productivity, because there has been only 1% growth in Construction hours worked MFP and a 3% fall in the quality adjusted measure.  Market Sector growth on the hours worked basis was 23% and on the quality adjusted labour input basis was 13%. After MFP rose and fell during the mining boom, instead of returning to the preboom level there was collapse in Construction MFP after 2015-16.

 

Figure 2. Market Sector industries multi-factor productivity

 

Source: ABS 5260. Gross value added per hour worked. Quali is the quality adjusted labour input measure. 

 

The 1% increase in Construction hours worked MFP is very small, but not the decline often claimed for the industry. Table 2 shows four industries had a fall in hours worked MFP since 1995:  Mining -28%, Electricity, gas, water -30%, Rental, hiring and real estate services -32%, and Administrative and support services -16%. The three high growth industries were: Agriculture, forestry and fishing 182%, Information media and telecommunications 64%, and Financial and insurance services 63%. 

 

Construction, however, was one of five industries with negative quality adjusted labour input MFP growth, although at -3% it had a much smaller decline than the other industries of Mining -31%, Electricity, gas, water and waste -33%, Rental, hiring and real estate services -36%, and Administrative and support services -25%. This raises the question of why Construction is singled out as the problem industry. 

 

Table 2. Market Sector industries multi-factor productivity change

 

Capital Productivity

 

Capital productivity has been falling for both the Market Sector and Construction since the early 2000s.  This is a complex measure, because estimating the stock of capital requires an estimate of annual capital investment and a depreciation rate to account for declining efficiency of the existing stock due to use and age. Although Construction capital productivity peaked in the mid 2000s and declined during the mining boom, the post-boom fall in MFP was due to the sharp decline in capital productivity, because since then labour productivity was more or less flat but capital productivity was falling. As Figure 3 shows the Market Sector also had declining capital productivity, but after 2015-16 the decline in Construction capital productivity was much worse. 

 

Figure 3. Market Sector industries capital productivity 

 

Source: ABS 5260. 

 

What these long run graphs show is that there was a downward shift in Construction productivity around 2015, when both MFP and capital productivity went into significant decline. Up until then Construction productivity had been similar to Market Sector productivity for MFP, but after 2015 the Market Sector and Construction industry measures diverged. The next section looks at productivity over the short run since that divergence.

 

Productivity Since 2015-16

 

Labour Productivity

 

Labour productivity in the short run since 2015-16 has a distinctive and interesting pattern. The hours worked measure has fallen 4% from 100 to 96 but the quality adjusted labour input measure has increased by 6% from 100 to 106, and was in fact higher then both Market Sector measures in 2023-24. The increase in the Quali index occurred in the 2019-20 year with a big jump from 95 to 104, and there has been a gradual increase in the years since. 

 

Figure 4. Market Sector industries labour productivity 

 

Source: ABS 5260. Gross value added per hour worked. Quali is the quality adjusted labour input measure. 

 

The increase in the Construction quality adjusted labour input measure index will be the result of changes in the composition of employment, with the combined share of Professionals and managers increasing from 15% to 18% between 2019 and 2020, and peaking at 19% in 2022. Figure 5 shows the share of Professionals increased from 4% to 6% in 2020, and for Managers the share rose rom 10% to 12% in 2020 and was 13% from 2021 to 2023. In 2024 Technicians and trades workers were 50% of Construction employment, and Machinery operators another 6%, and their combined shares in total Construction employment have decreased by 3% since 2016. The share of Clerical and administrative workers has also declined, by 0.6%. Therefore, since 2016 the overall makeup of Construction workforce has become more skilled and qualified, raising the quality adjusted labour input measures [2]. 

 

Figure 5. Share of total Construction employment

 

Source: ABS 6291

 

Between 2016 and 2024 there were large differences in the productivity performance of the 16 Market Sector industries. As Table 3 shows, on the labour productivity hours worked basis there were two industries with high growth: Agriculture, forestry and fishing 44%, and Information media and telecommunications 40%. Four industries had growth between 10 and 20%, and five had growth less than 10%. Construction -4% was one of five industries with negative growth, the others were Mining -15%, Manufacturing -4%, Electricity, gas, water and waste -15%, and Financial and insurance services -4%.

 

On a quality adjusted basis Construction was the only industry to improve on the hours worked measure, all other industries had slightly lower quality adjusted labour input growth than hours worked. The other four industries with negative hours worked labour productivity again had negative quality adjusted labour input labour productivity growth. There were only six industries with better quality adjusted labour productivity growth than Construction’s 6%: Agriculture, forestry and fishing 41%, Wholesale trade 7%, Accommodation and food services 8%, Information media and telecommunications 33%, Professional, technical and scientific services 14% and Administrative and support services 12%.

 

Table 3. Market Sector industries labour productivity change

 

Multi-factor Productivity 

 

The MFP indexes for Construction do not show the same pattern as labour productivity. Both the hours worked and the quality adjusted indexes have fallen since 2016 and have closely followed each other down, ending at 92 and 91 respectively in 2024. However, the Market Sector has not performed particularly well, with the quality index only increasing to 101 and the hours worked index increasing to 104. 

 

Figure 6. Multi-factor productivity

 

Source: ABS 5260. Gross value added per hour worked. Quali is the quality adjusted labour input measure. 

 

MFP growth since 2016 is similar to labour productivity with a couple of exceptions. Table 4 shows on the hours worked measure only Agriculture, forestry and fishing 44% had high growth, and there were three industries above 10%. Five industries had negative growth: Construction -8%, Mining -3%, Manufacturing -1%, Electricity, gas, water and waste -15%, and Arts and recreation services -1%. Again, the growth in the quality adjusted labour input measure was lower than for hours worked, with Construction -9% one of eight industries with declining productivity, including Mining -3%, Manufacturing -3%, Electricity, gas, water and waste -16%. Transport, postal and warehousing -3%, Rental, hiring and real estate services -1%, and Arts and recreation services -3%. 

 

Table 4. Market Sector industries multi-factor productivity change

 

Capital Productivity

 

The performance of capital productivity has been particularly poor for construction, falling from 100 to 85 between 2016 and 2024, while the market sector index barely increased and ended at 103.

 

Figure 7. Capital productivity

 

Source: ABS 5260. 

 

Misunderstanding Productivity

 

There are two common misunderstandings about Construction productivity. One is that increasing offsite manufacturing and use of modern methods of construction like prefabrication and modular buildings will increase measured Construction productivity. It will not, because that work will be included by the ABS in the Manufacturing industry subdivisions of Prefabricated steel and timber buildings, Concrete products, and Structural steel. In fact, one reason for the lack of growth in measured Construction productivity has been the gradual but continual shift to more prefabrication and offsite manufacture. 

 

A second misconception is that improving Construction productivity will somehow decrease the cost and increase the number of dwellings being built. This mistakes new construction for the market for housing, where in the short-run price is determined by the interplay of demand and an inelastic supply of new dwellings due to limited industry capacity to build and lengthy approval times. Increasing onsite productivity might decrease the time to complete a build but will have a marginal effect on the total cost of delivery, and the number of dwellings built is determined by project feasibility (i.e. the profitability of development) at any one time. Improving Construction productivity might help, but on its own cannot and will not solve the housing crisis. 

 

Conclusion

 

That the Construction industry has had no or negative productivity growth for the last few decades has been repeated so many times by so many commentators it has become an accepted fact about the industry. There are, however, four different measures of productivity, and commentators can focus on those that support their claims, and productivity growth rates vary considerably over different time periods, allowing selective choosing of comparisons. 

 

The four productivity measures are labour productivity on an hours worked basis or quality adjusted labour input basis, and multi-factor productivity (MFP includes the capital stock) also on an hours worked basis or quality adjusted labour input basis. The ABS productivity statistics for the Market sector go back to 1994-95, and this analysis has been for two periods, the long-run from1994-95 to 2023-24 (the latest data) and the short-run period of 2015-16 to 2023-24, chosen because 2015-16 was the end of the rapid rise and fall in Construction productivity during the mining boom. 

 

When the productivity of Construction is compared to the Market sector, despite claims that there has been no growth in Construction labour productivity, there has been an increase. Since 1994-95 Construction labour productivity has increased by 17% on an hours worked basis and 24% on the quality adjusted labour input basis which, although less than the Market Sector’s 64% and 41% respectively, is not nothing. Construction is in no way the worst performing industry, although it is far from the level of growth seen in the best performing industries.

 

In Australia there is a wide difference between a group of high productivity growth industries and a group of low or negative productivity growth industries. On the hours worked measure for labour productivity, since 1994-95 there were three high growth industries, and ehree industries with lower growth than Construction. For quality adjusted labour productivity, Construction had better growth than Rental, hiring and real estate services’ 4%, and there were three industries with negative growth. 

 

For MFP the story is not as good, because since 1994-95 there was only 1% growth in Construction hours worked MFP. That 1% increase in Construction hours worked MFP is very small, but not a decline. Market Sector growth on the hours worked basis was 23%, and on the quality adjusted measure Market Sector growth was 13%. On the hours worked basis there were three high growth industries, and four industries had a decline. Construction was one of five industries with negative quality adjusted labour MFP growth, although at -3% it had a much smaller decline than Mining -31%, Electricity, gas, water and waste -33%, Rental, hiring and real estate services -36%, and Administrative and support services -25%. This raises the question of why Construction is singled out as the problem industry. 

 

Construction capital productivity peaked in the mid 2000s and falling MFP was due to this decline in capital productivity. The Market Sector also had declining capital productivity, but there was a downward shift in Construction productivity around 2015, when both MFP and capital productivity went into significant decline and the Market Sector and Construction industry measures diverged.

 

There is a notable difference between the quality adjusted labour input measures and the hours worked measures for Construction labour productivity since 2015-16, because the hours worked measure has fallen 4% but the quality adjusted labour input measure has increased by 6%. The increase in the Construction quality adjusted labour input measure index will mainly be the result of changes in the composition of employment, with the combined share of Professionals and Managers increasing from 15% to 19% in 2022. The Construction workforce has become more skilled and qualified, raising the quality adjusted labour input measures.

 

Between 2016 and 2024 on the labour productivity hours worked basis there were two high growth industries, four industries had growth between 10 and 20%, and five with growth less than 10%. Construction -4% was one of five industries with negative growth, the others were Mining -15%, Manufacturing -4%, Electricity, gas, water and waste -15%, and Financial and insurance services -4%. On a quality adjusted basis Construction was the only industry to improve on the hours worked measure, and there were only six industries with better quality adjusted labour productivity growth than Construction’s 6%.

 

For MFP growth since 2016 on the hours worked measure only Agriculture, forestry and fishing had high growth, and there were three industries above 10%. Five industries had negative growth: Construction -8%, Mining -3%, Manufacturing -1%, and Electricity, gas, water and waste -15%. Again, the growth in the quality adjusted labour input measure was lower than for hours worked, with Construction -9% one of eight industries with declining productivity, including Mining -3%, Manufacturing -3%, and Electricity, gas, water and waste -16%.

 

Clearly, Construction is far from the worst performing industry, which raises the question of why it is so often singled out for low productivity growth. There were only six industries with better quality adjusted labour productivity growth than Construction. And are industries that have had declining productivity like Mining or Electricity, gas, water and waste not important? Should their productivity performance not be scrutinised? 

 

Maybe Construction could do better, but there have only been a few high growth industries in Australia over recent decades. Construction is one of a group of low growth industries, and compared to those industries its performance has been much better in both the long and the short-run. Instead of complaining about low productivity growth, attention should be focused on addressing the issues that have negatively affected Construction productivity, such as the number of micro and small firms, lack of standardisation of structural elements, the low level of investment in software and capital stock, state based occupational licensing and building codes, procurement methods, financing and project management, and education and training systems [3].

 

 

[1] See The long cycle in Australian construction productivity

 

[2] See The changing composition of construction employment

 

[3] See Housing productivity report a missed opportunity