Small builders cannot absorb larger wage increases, industry warns
A higher-than-expected minimum wage increase risks breaking the residential building sector’s back at a time when Australia is already missing its housing targets, the Housing Industry Association (HIA) has warned in its initial submission to the Fair Work Commission’s 2026 Annual Wage Review.
The HIA is seeking a 3.5% increase to the National Minimum Wage, arguing that anything above that level would add to cost pressures facing small builders and further threaten housing supply.
“Independent modelling shows governments are already adding more than half a million dollars to the cost of every house through taxes, charges and fees,” said Stuart Collins, senior executive director, compliance and workplace relations at the Housing Industry Association.
“Construction costs have risen 40% since 2019. The Middle East conflict is now generating real, immediate fuel and materials cost increases that builders under fixed-price contracts cannot pass on to clients to account for the increases. These businesses are being squeezed from every direction. A wage determination above 3.5 per cent, on top of everything else, is not something the sector can absorb without dire consequences for housing supply.”
The association said the wage review should not be assessed in isolation from the broader conditions affecting residential construction, including tax and regulatory burdens and a growing gap between housing supply and government targets.
Under the Federal Government’s National Housing Accord target of 240,000 homes a year for five years, Australia built 174,730 new homes in the first year, leaving a shortfall of over 60,000 homes.
“The residential building sector is made up of 97% small businesses,” Collins (pictured right) said. “These are sole traders and small companies already operating on thin margins, with no capacity to pass on mandated cost increases mid-project.
“When costs go up, apprentices are often the first to go - and we cannot afford to lose a single worker right now. Construction trade apprenticeship commencements have already fallen 27% in the year to June 2025. We need policies that make it easier to take on a trainee or apprentice, not harder.”
The HIA submission draws on Fair Work Commission statistics which it said show construction profit margins below their five-year average, and argues that previous above-inflation increases aimed at restoring real wages have largely met their objectives.
It also referenced Reserve Bank of Australia forecasts that wage growth is expected to slow to 3.1% from June 2026, below the 3.5% rise the HIA is advocating.
“The Panel’s own data confirms that minimum wage households have experienced real income growth above CPI in the year to July 2025,” Collins said. “The case for catch-up increases no longer applies with the same force. The 2026 determination should reflect that reality.”
The association said it had formally flagged a future application seeking differentiated award treatment for small residential building businesses, citing what it described as structural pressures unique to the sector’s role in delivering housing supply.
“We are not arguing against fair wages for workers,” Collins clarified. “We are saying that if governments want 1.2 million homes built, the industry needs to be sustainable and increases in wages must also be offset by removing the barriers that are making it impossible for small home builders thrive.”
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