Housing supply at risk as small builders hit capacity limits
Australia’s small building firms expect housing delivery to lag government targets unless regulatory costs, planning bottlenecks and labour constraints are addressed across all levels of government, according to the Housing Industry Association (HIA) 2026 Small Business Conditions Report.
The report, which draws on a survey of HIA members operating as small businesses across the residential construction supply chain, points to a sector facing mounting operational pressure amid solid demand for new dwellings.
Small operators, which account for a large share of Australia’s home building capacity, report rising insurance premiums, heavier compliance workloads and extended planning timeframes that are affecting cash flow and business confidence.
“This report is not only a gauge of the level of sentiment in the small business sector, but is also a measure of how the home building sector may be performing from 2026 onwards,” said Jocelyn Martin (pictured right), managing director at Housing Industry Association.
According to the survey, 68% of respondents have considered scaling back or shutting their business due to regulatory and compliance burdens. Almost three-quarters do not expect to increase headcount over the next 12 months, signalling limited capacity expansion despite policy ambitions to lift housing supply.
Planning delays emerged as a key constraint. Eighty-eight percent of small builders reported that development approvals are taking longer than eight weeks, with about one in three experiencing delays stretching beyond six months.
For small firms, the report notes, longer approval periods translate into higher holding costs, later project starts and increased financial risk, which in turn restrict the volume of homes that can proceed to site.
Labour availability remains another concern. Sixty-seven percent of small builders indicated they are struggling to recruit or retain skilled workers, limiting their ability to take on additional projects or broaden their operations.
Compliance demands are also absorbing significant management time. More than half of respondents reported spending at least five hours each week on regulatory activities, and nearly one-third said they are devoting more than 10 hours to such tasks.
Mounting business and personal stress
Other findings of the survey underline the financial and personal strain on small building businesses. A majority (59%) do not expect 2025/26 to be more profitable than the previous year. Nearly two-thirds (63%) said forthcoming NCC 2025 changes are having either a moderate or major impact on their operations.
Most respondents (88%) also reported higher personal stress linked to increasing regulatory and administrative obligations, while 56% have employed new staff or reassigned existing employees specifically to handle compliance and administration.
“Streamlining planning systems, reducing compliance burdens and providing greater regulatory certainty would immediately improve productivity across the small business sector,” Martin said.
“Targeted support for apprentices, skills pathways and technology adoption would help small builders expand their workforce and lift output. With the right policy settings, small building businesses will play a central role in delivering more homes, faster, but without reform housing supply will continue to fall short.”
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