Why construction costs remain high even when material inflation slows
This is a critical economic point.
Suppose a builder’s costs were:
2019 = $300,000
Then materials increase 20%, labour 15%, transport 20%, insurance 25% and compliance/overheads 10%. The builder does not subsequently reduce the price just because timber inflation falls from 20% to 2%. The industry has established a new cost base. Therefore:
Lower construction inflation does not mean lower construction prices.
It means construction prices are increasing more slowly. This explains much of Australia’s current situation.
2018–2026: overall assessment
I would summarise the Australian construction-cost cycle as follows:
2018–2019 → Stable/moderate
↓
2020 → COVID disruption
↓
2021 → Major acceleration
↓
2022 → Construction-cost crisis/peak inflation
↓
2023 → Inflation starts falling
↓
2024 → Materials stabilise, but labour and overheads remain high
↓
2025 → National construction-cost inflation becomes relatively low
↓
2026 → Construction inflation accelerates again
The latest ABS data make this particularly clear: annual house-construction inflation increased to 5.9% nationally in June 2026, while Queensland reached 8.0%, SA 8.5%, WA 8.8%, and Tasmania 11.5%.