The Housing Industry Association (HIA) has issued a stark warning to the Fair Work Commission, cautioning that a wage increase beyond 3.5 per cent could severely impact the already strained residential building sector. This comes as the HIA submitted its initial recommendations for the 2026 Annual Wage Review (AWR), advocating for a modest rise in the National Minimum Wage amidst escalating cost pressures that threaten the viability of small builders crucial to addressing Australia’s housing crisis.

Stuart Collins, Executive Director of the HIA, highlighted the unique challenges faced by the residential building industry, which he described as being under unprecedented financial strain. “Independent modelling shows governments are already adding more than half a million dollars to the cost of every new home through taxes, charges and fees,” Mr Collins explained. He further noted that construction costs have surged by 40 per cent since 2019, exacerbated by geopolitical tensions in the Middle East that are driving up fuel and material costs. “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,” he warned.

The current shortfall in housing supply is stark, with Australia constructing approximately 174,730 new homes annually, falling significantly short of the Federal Government’s National Housing Accord target of 240,000 homes per year. This gap of around 66,000 homes is likely to widen if small business builders, who constitute 97 per cent of the residential building sector, face additional financial burdens.

Mr Collins emphasised the precarious position of these small businesses, many of which are sole traders or small companies operating with minimal profit margins. “These are sole traders and small companies already operating on thin margins, with no capacity to pass on mandated cost increases mid-project,” he stated. The repercussions of increased costs are immediate, with apprenticeships often being the first casualty. “When costs go up, apprentices are the first to go – and we cannot afford to lose a single worker right now,” he added.

The decline in construction trade apprenticeship commencements, which have dropped by 27 per cent in the year to June 2025, underscores the urgency of the situation. HIA is advocating for policies that facilitate, rather than hinder, the employment of trainees and apprentices in the sector.

In its submission, the HIA draws on data from the Fair Work Commission, revealing that construction profit margins are below their five-year average. Furthermore, the Reserve Bank of Australia’s forecasts indicate a slowdown in wage growth to 3.1 per cent from June 2026, a figure lower than the increase the HIA is supporting. “The Panel’s own data confirms that minimum wage households have experienced real income growth above CPI in the year to July 2025. The case for catch-up increases no longer applies with the same force. The 2026 determination should reflect that reality,” Mr Collins asserted.

The HIA’s submission also signals its intention to seek differentiated award treatment for small residential building businesses in future applications, citing the unique structural pressures these entities face as the primary drivers of Australia’s housing supply. “We are not arguing against fair wages for workers,” Mr Collins clarified. “We are arguing that if governments want 1.2 million homes built and fair wages paid, they need to stop loading half a million dollars of charges onto every new home and start removing the barriers that are making it impossible for small builders to do both.”

As the Fair Work Commission deliberates on the wage review, the HIA’s submission underscores the delicate balance between fair wages and the sustainability of the building industry, a sector pivotal to resolving Australia’s housing shortage. The outcome of the review will have significant implications not only for builders but also for the broader housing market and the economy.