How will we physically build to meet the build-to-rent pipeline?
Australia’s build-to-rent (BTR) sector stands at a pivotal juncture. With billions of dollars committed to the BTR pipeline over the next decade and unprecedented bipartisan support from both Federal and State Governments, the nation’s ambition is unmistakable: Australia wants to become a global BTR superpower. The political will is firmly in place, the institutional capital is flowing, and the demand for high-quality rental housing has never been more acute.
Yet beneath this optimism lies a fundamental tension. The Australian construction industry has endured an acute and persistent skills shortage for several years, and the sector’s capacity to deliver on this ambition remains deeply uncertain. In 2024, only 4,660 BTR units were delivered nationally, a figure shadowed by the 2025 forecast of 6,000 units. The national pipeline now comprises 113 projects encompassing 39,316 units, which, if achieved, would represent a 41% increase year-on-year. These numbers underscore both the scale of the opportunity and the magnitude of the delivery challenge.
The question confronting the sector is no longer whether the demand or the political will exists. The question is: who will build it?
Pipeline growth and feasibility constraints in light of rising labour costs
The scale of the national BTR pipeline is impressive on paper. It now stands at approximately 65,575 units, representing a 26% year-on-year increase. Of those, some 20,500 units have received development approval but have not yet commenced construction. These figures reflect genuine momentum, but pipeline growth alone does not translate into delivery.
The sector faces significant feasibility constraints, chief among them being escalating construction costs, chronic labour shortages, and elevated interest rates. It is also notable that over half of the national pipeline is backed by foreign institutional investors, and in many instances the head contractor engaged on these projects is also an overseas entity. While international capital and expertise are welcome, these dynamics raise important questions about the long-term sustainability and sovereign capability of Australia’s construction sector.
Rising labour costs must be accepted as a structural reality given the depth of the current shortage; inflation, too, is here to stay. Contract models must evolve to accommodate inflationary pressures and provide a fair balance of risk and reward for all project participants. Without such recalibration, the gap between pipeline aspiration and built reality will only widen. It is against this backdrop that the question of risk allocation assumes critical importance.
Rethinking risk allocation on BTR projects will assist in breaking unsustainable build cycles
Risk allocation in the Australian construction industry is, to put it plainly, broken. One in four insolvencies over the past year has occurred in the construction, energy, and infrastructure sectors. For much of the industry, the recent period of activity has been a profitless boom. The reality is that even before COVID-19, many large contractors were operating in the red, and a significant number failed entirely.
The root cause lies in a culture of risk allocation driven by Federal and State Governments that have prioritised perceived certainty under the mantra of ‘on time, on budget.’ This has resulted in increasingly harsh, one-sided contractual frameworks in which the head contractor absorbs disproportionate risk and, in turn, forces those risks downstream to subcontractors. Where local contractors have been unwilling to accept such terms, principals have turned to international contractors prepared to do so often without a full appreciation of the risks being assumed.
This creates an unsustainable cycle. Large-scale BTR projects are now entering the market against a backdrop of rising commodity prices and unprecedented labour costs. Rethinking traditional risk allocation is not merely desirable it is critical to addressing the skills shortage and to improving productivity across the sector. There is an urgent need to recalibrate how labour risks are allocated on BTR projects. In the context of construction and project agreements for larger developments, the key risks relating to labour, productivity, and subcontracting must be fundamentally shifted to a model that is sustainable for all participants.
The question then becomes: what does that model look like in practice?
What can be done on larger BTR projects
Improve industry culture by incentivising innovation at design stage
The challenge is, in part, one of industry culture, a persistent recidivism that sees parties revert to adversarial contracting models despite their well-documented failures. On larger BTR projects, there is a compelling case for greater use of packages structured around detailed design, enabling more informed pricing and reducing the scope for disputes.
Competitive parallel design processes, in which multiple bidders are paid to participate and incentivised to innovate, should be adopted more widely, with government funding such processes where it is the sponsor. Collaborative contract models, including NEC-style contracts and alliance frameworks, offer a proven alternative to the rigid lump-sum approach. Contrary to common perception, collaborative contracts can deliver greater price certainty, and deliver it earlier, than the bankability of a fixed-price lump sum.
Government has an opportunity to drive change
Government-sponsored BTR projects should embrace this shift. Having multiple teams compete to then work collaboratively under flexible contracts can lead to better innovation and more reliable cost estimates. Measuring success purely on financial return is too narrow and BTR projects should consider broader benefits, such as:
- building Australia’s reputation as a world leader in a sector that is growing rapidly
- creating jobs for Australian workers
- training and upskilling the domestic workforce to develop new and better capabilities for future growth.
BTR projects might adopt efficient construction methods such as modular construction
Consideration should also be given to the adoption of modern methods of construction, including modular construction techniques, which have the potential to materially improve delivery timelines and reduce on-site labour requirements. These approaches are particularly well suited to the repetitive design elements inherent in BTR developments.
Improvements to down-stream risk allocation
Equally important is the adoption of fairer subcontractor arrangements for smarter risk sharing throughout the supply chain. Pass-through mechanisms must be accompanied by sensible risk-sharing provisions, including rise-and-fall clauses and the use of nominated or novated subcontractors where appropriate.
Pass-through provisions are of little value if the subcontractor becomes insolvent, and the cost of subcontractor insolvency on megaprojects is exacerbated by the skills shortage, particularly where projects are located in remote areas. It is not commercial to purchase a risk that one cannot carry or does not understand, and it is entirely appropriate to refuse terms that are unreasonable. Importantly, the fact that another contractor may be willing to accept a particular risk does not, of itself, make it prudent to do so.
Far from being altruistic, such mechanisms could improve productivity and provide greater price certainty, as part of encouraging scarce labour resources into BTR projects over similarly lucrative roles in new energy, resources, and infrastructure. For government-sponsored projects, this shift should be immediate, as industry and funders will follow suit if they see risk-sharing models succeed. Yet even the most carefully calibrated contractual frameworks will count for little without the workforce to deliver on them — and it is here that the sector faces its most formidable challenge.
Winning the talent war and increasing productivity
The Australian Constructors’ Association’s recent report, Nailing Productivity, identified poor productivity as the single biggest issue facing the construction industry, noting that the sector has gone backwards over the past three decades. This finding should serve as both a warning and a call to action.
Increase needed to the amount of industry entrants – utilising talent pools in Australia and abroad
As a driver of productivity, attracting and retaining the best talent is a pressing challenge facing the BTR sector. Australia faces increasingly global competition for skilled workers, compounded by the competing demands of the residential, commercial, industrial, new energy, civil, and mining sectors.
The numbers are sobering. The industry estimates that the skilled workforce in the BTR sector needs to double over the next 10 to 15 years — and may then need to double again. That figure does not account for the parallel demands of the renewables, infrastructure, and mining sectors. Streamlining migration pathways is an obvious and urgent priority, and there is a pressing need to enable fast-track visa arrangements for skilled trades.
On the domestic front, Australia’s engineering graduate pipeline is alarmingly thin. Only approximately 8.2% of graduates in Australia hold an engineering qualification, compared with close to 25% in Germany and approximately 20% in Japan. This structural shortfall demands sustained investment in universities and TAFEs, alongside targeted programs to upskill the existing workforce as part of a medium-term strategy.
Implementing flexible working arrangements
Beyond recruitment, the industry must fundamentally rethink how it attracts and retains people. The post-COVID world demands flexibility. Remote working must be accepted as the norm for roles where it is feasible. There is also a compelling case for reconsidering the traditional six or seven-day work program on building projects in favour of a five-day model, as many businesses are doing already.
The experience of Roberts Co under the leadership of Alison Mirams provides a compelling case study. The adoption of a five-day working week attracted greater female participation and more millennial workers, while delivering measurable reductions in sick leave, depression, and anxiety, and improved staff retention. More broadly, the industry must invest in work culture and work-life balance. A focus on work culture and work-life balance is critical to retaining talent in a competitive labour market. Greater participation by women must be a priority if the sector is to build a sustainable workforce for the decades ahead.
Australia’s BTR ambitions are achievable, but only if the industry and the governments that support it are willing to confront the structural impediments to delivery. Fairer risk allocation, greater workforce participation, streamlined migration, investment in skills and training, and a genuine cultural shift towards flexibility and collaboration are not optional extras. They are the essential foundations upon which Australia’s BTR future must be built.
