Policy Influence on Perceived Risks in Adopting the Circular Economy in the Construction Industry

The adoption of the circular economy (CE) practices in the construction industry helps to mitigate unsustainable footprints by reducing waste and enhancing resource efficiency. Nevertheless, decision-makers still perceive adaptation of CE strategies as risky, which is slowing their uptake. Policy efforts are among many things that influence CE adoption through regulatory compliance and incentives. Therefore, this study aims to analyze the potentials and gaps of the existing policy framework for addressing perceived risks in the adoption of CE practices in the Australian construction industry. This study employed a PRISMA-based systematic literature review (SLR) to identify causes of perceived risks, which were then cross-referenced with 13 existing Australian policies from the commonwealth and the states of Victoria and New South Wales (NSW). The literature findings revealed that regulatory clarity, jurisdictional consistency, enforcement strength, and the availability of incentives directly influence how decision makers perceive risk, particularly in the context of realities such as regulatory compliance risk, financial risk, information gaps, and limited financial and other resources. Beyond direct regulatory effects, the policy context also influences decision-makers’ cognitive tendencies, such as loss aversion, reliance on heuristics, ambiguity aversion, and analysis paralysis, by shaping how information, incentives, and regulatory pathways are structured and communicated. The findings will assist policymakers in accelerating the transition toward circular construction in Australia through future policy reform, through a context-specific exploration.