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Did property and construction reach a productivity ceiling?
Under constant pressure to deliver more output at a high quality and good value for money, productivity has become one of the property and construction industry’s biggest challenges.
The call to improve productivity in property and construction certainly isn't new, though it has taken on an urgency in recent years due to population growth and mounting pressure on housing supply. In February 2025, the Productivity Commission released a paper examining "decades of poor performance" in the sector, finding that even after adjusting for bigger and better-quality homes, labour productivity in housing construction is around 12% lower than it was in 1994 – while the wider economy improved by roughly 49%.
A report from the Committee for Economic Development of Australia (CEDA) described a three-decade productivity decline, with construction labour productivity growing just 17% between 1994/95 and 2023/24, compared with 64% across market-sector industries.
Australia is not alone in this. McKinsey found global construction productivity improved by only 10% between 2000 and 2022 – around one-fifth the rate of the wider economy.
Closer to home, sustained pressure on the industry does not appear to be easing. ASIC figures show construction insolvency appointments rose almost 21% in FY25 to 3,595 – the largest of any sector – alongside high-profile administrations such as that of prominent residential developer Bathla Group.
What are the biggest barriers to improving productivity in real estate and construction?
Clients tell us productivity is one of their biggest concerns. Most property and construction businesses want to increase productivity and throughput. However, many of the factors holding them back are beyond their direct control.
Here are the four barriers to productivity our clients mention most often:
Skilled labour shortages
Productivity gains are difficult to achieve when skilled labour is in short supply. Competition for experienced workers has intensified in recent years due to demand across infrastructure, development and construction – which are all essentially drawing from the same limited talent pool.
The size of the gap is significant. Infrastructure Australia's 2025 Market Capacity Report puts the five-year major public infrastructure pipeline at a record $242bn, and estimates the sector is currently short around 141,000 workers. Despite experienced trades potentially becoming available when competing companies go into liquidation, the true extent of these effects on contractors and subcontractors is often not seen for many months after the event.
Slower decision making
The path from ideation to project commencement has become progressively more drawn out. Faced with higher costs and risk, developers and builders are understandably spending more time testing their assumptions and reviewing feasibilities than perhaps ever before.
This delayed decision making has a substantial impact on productivity, with some projects remaining in limbo for months on end. As noted by Jeff Jones, CFO at Buildcorp, in our latest Real Estate & Construction Sector Outlook report:
“…tender and decision timelines have doubled over the past three to four years, stretching to 16 weeks mainly because feasibilities aren't stacking up. Builders, more risk-averse since the pandemic, are reluctant to take on exposure they once accepted, prolonging negotiations as neither party wants to absorb the risk.”
Access to capital
Finance is essential for getting new projects off the ground, however economic sentiment and heightened concerns around insolvency risks have made traditional funders more cautious than they were just a decade ago.
This hesitation has ultimately led to an explosion of interest in private credit providers offering alternative funding pathways, albeit usually at a higher cost to the borrower. With a number of recent administrations unearthing deep dependence on these types of providers, it’s likely we will see greater scrutiny in this area in the not-too-distant future.
In turn, this scrutiny could lead private credit providers to adopt similar protocols to banks – which again would result in more rigorous approval processes and longer lead times.
Navigating regulation?
Productivity challenges begin well before construction starts. As highlighted in the CEDA report, an application to build a Sydney apartment block in 1967 was 12 pages long. Now it’s hundreds of pages, requiring structural, environmental, traffic and often heritage assessment.
Extended assessment timeframes and complex approval processes slow projects considerably, and it’s an issue that has been discussed at length between industry and government. The Productivity Commission’s four priorities are instructive: streamlined and better-coordinated planning approvals, an independent review of the National Construction Code, occupational licensing reform to improve workforce mobility, and removing the impediments to innovation such as modular building. Change is starting to come – NSW passed reforms in August 2026 recognising prefabricated buildings in law and streamlining approvals – though it could be some time before these have a tangible effect.
"The opportunity to streamline council and authority assessments via the use of technology is a huge area of opportunity." – Tim Jacobs, General Manager of Developments at Parklea
Starting with what you can control
Many of the issues affecting productivity are outside the control of any one organisation. But that doesn't mean you’re powerless to improve it.
For smaller operators, making a change in any of these areas is easier said than done. Running a construction business can be all-consuming and between projects and staff, finding time for administration let alone business improvement may seem impossible. However, it is important to come back to basics and ask the important questions, such as:
CEDA found that construction firms with 200+ employees generate 85% more revenue per employee than firms with 5-19 employees. If the industry simply matched the size distribution of manufacturing, CEDA estimates it would produce 12%, or $54bn, more revenue without any additional labour – the equivalent of gaining 150,000 workers. According to the report, the sector “is dominated by small businesses with more traditional ways of working. They have less capacity to innovate, to invest in equipment and technology, and to devote to training and capability building, which are all important drivers of productivity growth.”
- What do my numbers look like? Is my cashflow healthy?
- If I do a current state assessment (feasibility review) can I complete current projects in profit?
- Am I getting the best value from my suppliers?
- Can I work with other businesses to increase buying power?
- Do my contracts provide enough protection if conditions change outside my control?
- Where am I spending unnecessary time and can I automate those activities?
- What systems am I using and are they fit for purpose?
- What subscriptions am I paying and are they still relevant and good value?
- What are similar companies doing locally and overseas to improve output and profitability?
- What is a small change I can do to help my staff be more effective and productive?
It is interesting what can be unearthed when you take a moment to really consider these questions, and the answers often shine a light on areas that are ripe for implementing small but impactful changes. Modern methods of construction are worth watching too. They still account for less than 5% of the Australian market, yet NSW estimates they can reduce building costs by up to 20% and deliver homes up to 50% faster – a genuine opening for early movers.
Remember you can always work with a business advisor on anything you’re unsure about such as cashflow, forecasting, scenario modelling, feasibility reviews, funding options, technology solutions, automation, and more. For example, RSM’s business advisers guide our clients in each of these areas and connect them with various experts from across the RSM network and beyond as they need it.
There is only so much you can do to improve productivity within your property and construction business.
However, every improvement you make could be the one that inches your profitability higher and enables your business to withstand the present challenges to emerge even stronger in the near future.
To learn more about RSM’s business advisory services for real estate, property and construction, contact Adam Crowley or your local RSM office.
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Ready to improve your business performance?
Small improvements can make a significant difference to profitability. Whether you're looking to strengthen cashflow, review project feasibility or streamline operations, RSM's property and construction specialists can help.
Get in touch with our team to discuss your business challenges and opportunities.
Ready to improve your business performance?
Small improvements can make a significant difference to profitability. Whether you're looking to strengthen cashflow, review project feasibility or streamline operations, RSM's property and construction specialists can help.
Get in touch with our team to discuss your business challenges and opportunities.
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