Australia’s construction sector remained flat in the first quarter of 2025, as gains in residential building were offset by declines in non-residential and engineering construction, according to the latest industry data. While the sector faces headwinds, a robust residential market and easing cost pressures provide some optimism for the industry’s outlook.
Mixed Performance Across Segments
The total volume of construction work was unchanged in Q1 2025, reflecting a delicate balance between growth and contraction across key segments. Residential building emerged as a standout, growing by +1.6% over the quarter and a solid +7.0% compared to a year ago. This resilience signals sustained demand for housing, supported by stabilising costs for new home construction.
In contrast, non-residential building activity dipped by -0.1% during the quarter and is down -3.9% year-on-year, indicating a cautious approach to commercial projects. Engineering construction, which has been the industry’s strongest performer in recent times, also saw a -1.0% decline in Q1, raising concerns about momentum in major infrastructure projects.
A detailed breakdown of state and territory results is available below in TablePack data, highlighting regional variations in construction activity.
Cost Pressures Ease, Supporting Rate Cut Speculation
On the economic front, Australia’s cost of living rose by +2.4% over the year to April 2025, consistent with recent trends. Underlying inflation edged up to +2.8%, remaining within the Reserve Bank of Australia’s (RBA) target range. Notably, rental inflation slowed to +5.0%, its lowest since early 2023, though it continues to strain household budgets.
For the construction industry, the cost of building new homes for owner-occupiers increased by a modest +1.2% year-on-year, a sharp slowdown from the +20% peak seen in 2022. This easing of cost pressures could bolster confidence in residential projects, particularly as the RBA considers further interest rate reductions at its 8 July 2025 meeting. The uncertain international environment adds weight to calls for additional rate cuts to stimulate economic activity.
Outlook for Construction
The flat performance in Q1 underscores the challenges facing Australia’s construction sector, with non-residential and engineering segments under pressure. However, the strength in residential building, coupled with moderating inflation and potential RBA rate cuts, offers hope for a rebound. Industry stakeholders will be watching closely to see if policy support and improving cost dynamics can reignite momentum in the months ahead.
For a detailed breakdown of state and territory results, refer to the table pack data below.
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