Australia’s housing challenge is often framed through the lenses of land supply, interest rates and affordability. Yet one of the most immediate constraints sits closer to the construction site – the business conditions facing small residential builders.

Small and medium sized building businesses remain the backbone of Australia’s home building industry. They deliver over two thirds of Australia’s new homes each year, employ a substantial share of the workforce, and train many of the apprentices and tradespeople the sector depends on. Their capacity to operate efficiently is therefore central to the nation’s ability to lift housing supply.

Findings from the 2026 HIA Small Business Conditions Survey provide timely insight into the pressures shaping this section of the industry. While underlying demand for housing remains strong, small builders are facing mounting operational constraints that are limiting output and dampening confidence.

Why small business capacity matters

The scale of reliance on small builders is sometimes under-recognised in policy debates. The latest HIA Housing 100 report shows the nation’s largest 100 builders delivered just over 64,000 homes in 2024–25, accounting for around 36 per cent of dwelling starts. The remainder of Australia’s housing supply was delivered by small and medium family enterprises.

This distinction has important implications as the states and territories work towards the Federal Government’s commitment to 1.2 million new homes over five years to 2029. In the first full year of the target, Australia was already almost 67,000 homes behind schedule, highlighting that demand side measures alone will not close the gap.

Meeting housing supply needs will increasingly depend on whether small builders have the certainty, workforce and regulatory settings needed to expand output.

Regulatory pressure reshaping business behaviour

One of the clearest messages from the survey is the growing impact of regulation and compliance on day-to-day operations. More than half of the surveyed businesses reported hiring new staff, or redeploying existing employees, specifically to manage administrative and regulatory requirements.

For firms with limited workforces, this shift is significant. Resources that would otherwise be directed toward construction activity are instead absorbed by paperwork and reporting obligations. More than half of respondents said they spend at least five hours each week on regulatory tasks, with nearly one-third spending more than 10 hours.

The cumulative effect is a measurable productivity cost. Changes under NCC 2025 have added further complexity, with almost two-thirds of small builders reporting a moderate or major impact on their business. Frequent regulatory change, short amendment cycles and compressed implementation timeframes are contributing to uncertainty – particularly for smaller operators with fewer internal administrative resources.

The survey also highlights the human impact of compliance pressure. Almost nine in 10 respondents reported increased personal stress as a result of red tape, an indicator that regulatory settings are testing the sustainability of many small businesses.

Planning systems as a supply constraint

Planning delays continue to act as a direct brake on housing delivery. Nearly 88 per cent of small builders reported approval timeframes exceeding eight weeks, and one in three experienced delays of more than six months.

From a policy perspective, these delays have clear economic consequences. Extended approval timeframes increase holding costs, disrupt construction schedules and elevate financial risk before work even begins. For small builders in particular, delayed approvals can stall entire businesses, reduce cashflow and discourage expansion.

When replicated across thousands of small firms nationwide, these delays translate into fewer housing starts and slower completions — outcomes that are at odds with national housing supply targets.

Workforce shortages limiting expansion

Labour availability remains another structural constraint. Around two thirds of respondents reported difficulty recruiting or retaining skilled workers, especially experienced tradespeople and site supervisors.

Apprenticeships are correctly recognised as critical to rebuilding capacity, yet the survey points to a policy tension. Rising employment costs, supervision obligations and uncertainty around future workloads are reducing the ability of small businesses to take on apprentices, despite their long-term importance to the sector.

Hiring intentions remain cautious as a result. Most small builders are only prepared to expand their workforce when workloads are predictable, and approval processes are stable — reinforcing the link between planning reform and labour capacity.

Tight margins despite strong demand

Despite robust housing demand, business conditions remain tight. Nearly 60 per cent of surveyed businesses do not expect to be more profitable in 2025–26 than in the previous year. Elevated input costs – including insurance, labour, finance and compliance – continue to erode margins.

Of particular concern is the finding that more than two-thirds of respondents have considered scaling back or exiting the industry due to regulatory and compliance pressures. In a sector where small businesses deliver the majority of new homes, this sentiment represents a material risk to future housing supply.

Policy reform as a productivity lever

The report reinforces a consistent message: Australia’s housing challenge is not driven by a lack of demand, but by constraints on delivery capacity. Small builders remain resilient and committed to delivering homes for Australian communities. However, confidence remains fragile.

Improving outcomes will require a policy focus on productivity and certainty. Streamlining planning systems, reducing duplication across regulatory frameworks and applying a small-business lens to new regulation would provide immediate benefits. Greater stability in the National Construction Code, including longer amendment cycles, would further support efficient decision making.

Workforce-focused measures such as targeted apprentice incentives, improved retention support and more effective skills recognition are equally important. Enabling technology adoption and modern methods of construction can lift productivity, provided regulatory and finance systems evolve in step with industry practice.

The report makes clear that with faster planning decisions, reduced administrative burdens and stronger workforce support, small businesses are well placed to expand output and help close the housing supply gap. Without reform, capacity constraints will continue to limit delivery – regardless of how strong demand remains.

Australia’s housing ambitions ultimately rest on the viability of the small businesses that build the majority of our homes.