Construction lending in Australia is recovering, but completions tell a different story to approvals. Output hit its lowest point in more than a decade in 2025, and lenders are sharpening their assessment of delivery risk rather than retreating from the market. The ABS Producer Price Indexes show input costs for house construction eased from 11.4% annual growth in March 2023 to 3.8% in the June 2026 quarter. Productivity losses and elevated insolvency rates keep the sector under pressure. The tension running through construction finance right now is not a lack of demand. It is whether projects can actually get built.
The recovery is real but uneven. Blake Buchanan, general manager at Specialist Finance Group, points to the completions figure as the sharper concern: 'Completions are the main concern, with the lowest number of homes completed in 2025 in 12 years.' ABS building activity data puts that figure at 173,036 dwellings. Monthly approvals have risen year on year since February on a seasonally adjusted basis. Chris Meaker, head of sales and distribution at Brighten, says application volumes rose 145% between 2024 and 2025, application values grew 176%, and volumes for the first three-quarters of 2026 were already 112% higher than all of 2025. Demand is clearly there. The question is whether supply can follow.
Banks are competing more aggressively. Colin Robinson, head of construction risk at Millbrook Group, says major lenders have shown a greater willingness to offer flexible construction funding over the past 12 months. That has not pushed non-banks aside. Cory Bannister, senior vice president and chief lending officer at La Trobe Financial, puts it plainly: 'Increasingly, borrowers aren't choosing between banks and non-banks based purely on price. They're choosing the lender best equipped to help them deliver the project successfully.' Lee Prior, director of distribution at ORDE Financial, says the growing number of self-employed, SME and non-standard borrowing structures is one reason non-bank lenders will continue to take a larger role in this market.
The numbers on a feasibility study matter less than the people standing behind them. Robinson says the margin for error has narrowed: 'At Millbrook, rigorous feasibility assessment has always been central to our credit process. We place significant emphasis on construction costs, project viability and a developer's capacity to manage unforeseen cost increases or delivery delays.' Buchanan adds that his team now places greater weight on contingency allowances, builder capability, presales quality and the developer's liquidity position. Jason Arnold at Pallas Capital says his firm's credit fundamentals are unchanged but its focus on construction risk monitoring after settlement has increased significantly over recent years. Experience of the sponsor matters as much as the numbers.
Policy is pulling in different directions. Meaker flags the 2026 Federal Budget as a turning point for investor demand: 'Importantly, recent tax changes announced in the 2026 Federal Budget are likely to direct more investor demand toward new housing stock.' Australia remains well behind the pace needed to deliver the National Housing Accord target of 1.2 million homes by 2029. Bannister takes a measured line: 'While policy settings can influence activity and accelerate opportunities, they do not replace sound credit fundamentals.' Buchanan is more direct. 'It appears that the more the government intervenes, the worse the supply issue becomes,' he says. Approval timelines remain a sticking point in several jurisdictions.
Modular building is no longer a novelty on lenders' desks, but it requires a different kind of assessment. Robinson says the cash flow profile is the main adjustment: prefabricated projects require upfront deposit payments and financing for construction that occurs off-site before installation. That changes the drawdown structure significantly. Bannister regards prefabrication and modular construction as trends worth watching closely for what they can do to delivery speed and cost predictability. Buchanan describes the shift as an evolution rather than a disruption. 'Prefabrication can reduce build times, improve quality control and mitigate labour shortages,' he says. Lenders that have not yet reviewed their drawdown policies for off-site build methods are behind the curve.
The bigger story is not a lack of workers. It is stalled productivity. Buchanan states it starkly: 'Over the past 30 years, output per hour worked has effectively halved.' In practical terms, work that once took one person now often requires two. The ABS figures support that reading: output cost growth has consistently outpaced the moderation in input costs. Bannister notes that experience, more than headcount, separates builders in a tight market. Labour availability is less of a defining credit consideration when a sponsor brings experience and sound project fundamentals. Meaker says conditions are improving, but certainty of delivery is now as important as the strength of the underlying asset.
Front-load the detail. Preparation matters more than ever, and Meaker says certainty and speed can be just as valuable as price in the current market. Arnold says providing comprehensive information upfront helps identify potential issues earlier and supports a smoother credit process. Prior puts the emphasis on timing. 'One of the biggest advantages brokers can give their clients is starting the conversation early,' he says, adding that communication matters just as much once building is underway. Buchanan frames the broker's role as matchmaking: 'Construction finance is no longer purely about securing funding. It is about matching the right project with the right lender.' Brokers working across this sector will find further analysis in Mortgage Professional Australia's premium reports.