Why Feasibilities Keep Collapsing and What Housing Providers Can Do About It

A project gets to feasibility. The numbers look reasonable. The board approves the concept. A planning permit is secured. Then a quantity surveyor updates the cost plan — and the project doesn't stack up anymore.

This sequence has repeated itself across Australia's housing and care sector since 2021, and it's still happening in 2026. The causes aren't mysterious, but they're not fully priced into how most providers approach project planning. Understanding what's driving feasibility failures — and what good project governance does to manage them — is increasingly important for any organisation trying to deliver in the current environment.

What Has Happened to Construction Costs

The numbers are stark. According to CoreLogic's Cordell Construction Cost Index, residential construction costs are now approximately 30 per cent higher than they were at the onset of COVID. Over the five years to 2025, costs rose by around 40 per cent in total. Material prices rose sharply through 2021 and 2022, peaking at 14 per cent annual growth in the year to December 2022, before slowing to around 1.6 per cent annual growth in the year to December 2024.

But costs haven't come back down. They've settled at a higher level — and that higher level is now the base from which further escalation continues. Construction costs move like a staircase, not a wave. Each shock resets the base. Labour costs rise and stay there. Regulatory requirements accumulate. Productivity in housing construction has declined over time. None of that unwinds when market conditions ease.

The labour picture is particularly difficult for providers planning projects now. The 2024–25 financial year saw a record 3,490 construction firms enter insolvency. The construction sector has led national insolvency figures for consecutive years — 2,832 appointments in the 2024 financial year alone, a 28 per cent increase on the year before. Close to 7,000 builders and subcontractors entered insolvency in the three years to 2025. The firms that survived are carrying tighter margins, pricing risk more conservatively, and competing for a smaller pool of qualified subcontractors. That combination pushes tender prices higher and timelines longer.

For housing and care providers, the consequence is that a feasibility prepared in 2022 or 2023 — or even early 2024 — may bear little relationship to what it costs to build the same project today.

The Feasibility Gap Is Structural, Not Temporary

For social and affordable housing providers, the challenge is compounded by the structure of the funding environment. Community housing providers typically generate revenue through rent set at a percentage of market rent or income. That revenue base has not kept pace with construction cost escalation.

The National Housing Supply and Affordability Council's State of the Housing System 2025 report describes the core problem directly: many housing projects are not commercially viable given current land, financing, and development costs relative to expected sale prices or rental revenue. Higher-density housing projects face a particularly significant feasibility gap, as price growth for higher-density homes has been more muted than for detached dwellings, while financing costs have risen considerably more.

For aged care providers, the dynamic is similar. Capital expenditure for new beds or facility upgrades is assessed against AN-ACC revenue, occupancy assumptions, and operational cost projections — all of which have shifted since pre-COVID feasibility benchmarks were set. The projects that looked viable when approved don't always look viable when they're ready to proceed to construction.

This is the environment in which the $10 billion Housing Australia Future Fund (HAFF) is operating. The HAFF is the federal government's primary mechanism for bridging the gap between what community housing providers can generate in rent and what it costs to build social and affordable housing. By November 2025, 279 contracts had been committed, supporting 18,650 homes — with 889 completed and 9,501 under construction, against a target of 40,000 homes. The average cost per HAFF-funded home has been reported at around $700,000. The gap between government funding and commercial viability is a policy design problem, not a project management one. But project management has a direct role in whether providers can navigate it successfully.

Why Feasibilities Collapse When They Do

Feasibility failure rarely happens because the underlying project idea was wrong. It usually happens because of one or more of the following.

Stale cost data. Quantity surveyor estimates prepared at concept or planning stage are not construction-ready cost plans. In a market where construction costs have moved significantly over short periods, an estimate prepared 18 months ago may understate current costs by 15 to 20 per cent or more. Projects that carry stale estimates through to procurement without an updated cost plan arrive at tender with a gap they haven't planned for.

Financing cost increases. Interest rates rose sharply from mid-2022. Higher-density projects — which require larger loans over longer development periods — are particularly exposed. Finance costs that were modelled at historically low rates look very different when they're recalculated at rates that have moved significantly. The total development cost shifts even if construction costs are stable.

Programme delay. Projects that slip through planning, procurement, or design coordination phases accumulate escalation risk at every stage. A project that takes six months longer to reach construction start than planned faces six more months of cost movement. In a market with persistent upward pressure on labour costs, that delay is rarely neutral.

Procurement risk not managed upfront. The condition of the contractor market matters to feasibility. In a market with elevated insolvency rates and conservative risk pricing, the gap between a project's internal cost estimate and what contractors will actually tender can be substantial. Projects that don't account for current market conditions in their feasibility assumptions may reach tender and find the numbers don't hold.

Optimism in the base case. Feasibilities are often built on best-case assumptions — full occupancy from day one, stable construction costs, planning approval on schedule, no variations. In practice, projects encounter conditions. A feasibility with no contingency for variation, programme slippage, or cost movement isn't a feasibility — it's a plan for what happens if everything goes right.

What Sound Feasibility Practice Looks Like

None of this means that housing and care projects can't be delivered in the current environment. Many are being delivered. The difference between projects that get built and projects that collapse at procurement is usually not the macro environment — it's the quality of planning and governance upstream.

Current, detailed cost plans. Feasibility needs to be based on a cost plan prepared by a quantity surveyor with current market knowledge, updated at each key project decision point. That means refreshing the cost plan at concept, at design development, and before going to tender. The cost of updating a QS estimate is a fraction of the cost of a procurement that returns no viable bids, or a construction contract that requires re-negotiation midway through.

Contingency built for the actual market. In a market with persistent escalation pressure, a nominal contingency is not enough. Projects need to be structured with contingency that reflects the real risk of cost movement between feasibility and construction start, and between construction start and practical completion. What that number is depends on the project type, programme, and procurement approach — but it needs to be calculated, not assumed.

Programme as a financial variable. Every month of delay between feasibility and construction start carries a cost. Financing costs accumulate. Cost escalation continues. Projects that treat programme slippage as a scheduling inconvenience, rather than a financial risk, often find the feasibility has eroded by the time they reach procurement.

Procurement strategy matched to market conditions. How a project goes to market — the form of contract, the risk allocation, the tender process — directly affects what contractors will price. A contract that transfers maximum risk to the contractor in a market where contractors are already pricing risk conservatively will either attract no bids or attract very high ones. Early contractor engagement, staged procurement, or design-and-construct with properly developed design documentation can all reduce the gap between cost plan and tender result.

Funding structure stress-tested. For community housing providers relying on HAFF, concessional finance, or government grant programs, the funding envelope is fixed. That means the feasibility equation has to work within that envelope — and any increase in construction costs or financing costs has to be absorbed or offset somewhere. Stress-testing the financial model against cost movements, interest rate scenarios, and programme delays before committing to a project structure is how boards make informed decisions.

The Role of Client-Side Delivery Support

The providers who are successfully delivering projects in this environment tend to have experienced people managing the relationship between project decisions and financial outcomes at every stage — from feasibility through to construction.

For many housing and care providers, that capability doesn't sit in-house. The organisation has expertise in care delivery, community management, or housing operation — but not in cost plan review, procurement strategy, contract administration, or programme risk management. Bringing in client-side project advisory support at feasibility stage — not just at construction — is how the gap gets covered.

That's particularly important for providers pursuing HAFF or other government funding programs, where the application process, the conditions of funding, and the delivery milestones all need to be managed alongside the project itself. Getting the funding structure, the procurement approach, and the project programme aligned before commitment is significantly easier than trying to reconcile them once construction has started.

MakeSpace works with housing and care providers from feasibility through to handover — reviewing cost plans, setting up governance, supporting procurement, and administering contracts. If you're working through a project that's under feasibility pressure, or preparing a submission under HAFF Round 3, we'd be glad to work through it with you. Get in touch.

MakeSpace is a not-for-profit project advisory and client-side delivery consultancy, and a subsidiary of Unison Housing. Retained earnings are reinvested into the housing sector — so each project we help deliver helps fund the next.

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