Construction

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%.

Major drivers of Australia’s construction-cost increase I would group the causes into 12 major factors: 1. Global supply-chain disruption COVID disrupted factories, ports, shipping and logistics. 2. Freight costs International shipping and domestic transportation costs increased substantially. 3. Timber shortage A major driver of the 2021–22 construction shock. 4. Steel and metal prices Steel, aluminium and copper significantly increased construction costs. 5. Strong housing demand Housing demand exceeded construction capacity. 6. Government housing stimulus HomeBuilder and other stimulus increased construction activity while supply was constrained. 7. Skilled labour shortages Trade shortages pushed up wages and subcontractor prices. 8. Energy costs Energy-intensive products such as cement, bricks, glass and metals became more expensive. 9. Fuel costs Higher fuel costs increase the cost of transporting almost every building material. 10. Infrastructure boom Large government infrastructure projects compete for the same labour, materials and equipment used by private construction. 11. Extreme weather Floods, cyclones, bushfires and storms increase both repair/rebuild demand and insurance costs. 12. Builder insolvencies Financial stress and insolvencies cause surviving contractors to increase prices to compensate for greater commercial risk. ABS has highlighted insolvency and labour shortages as factors affecting construction prices. Extreme weather is becoming an increasingly important cost driver This deserves particular attention for Australia. Floods, cyclones, storms and bushfires create a double construction-cost effect: First: buildings need to be repaired or rebuilt. Second: the demand for builders, trades and materials increases dramatically in affected regions. This competes with normal residential construction. The latest Insurance Council analysis says more than 400,000 claims associated with declared weather disasters occurred between 2022 and 2026, creating additional pressure on construction resources. Queensland is particularly exposed.

Which building materials have increased the most? This is one of the most important aspects of the Australian construction-cost story. Timber Timber was one of the biggest price shocks during 2021–2022. The ABS reported annual increases in timber, board and joinery of: The important factors to increase the price of timber was global timber shortage, COVID-related production disruption, housing demand, freight costs, supply-chain disruption. Timber prices subsequently stabilised considerably. Steel The steel prices increased substantially during the pandemic period because of iron ore and energy costs, international demand, manufacturing disruption, shipping costs and construction demand. Steel remains important because it affects structural steel, reinforcing steel, roofing, frames, beams, fixings, appliances and electrical infrastructure. Aluminium Aluminium has become increasingly important in 2025–26. The major affected products include aluminium windows, doors, frames and roofing products. In June 2026, the price of aluminium windows and doors increased 3.2% in the quarter. Copper Copper is now one of the important sources of construction-cost pressure. The price increase of copper affects electrical cable, wiring, conduit, plumbing and electrical equipment. In June 2026, electrical equipment prices increased 7.4%, while electric cable and conduit increased 11.2%. PVC PVC is used extensively in pipes, electrical conduit, drainage, plumbing and other building products. Higher oil and petrochemical costs can therefore flow through into construction. Concrete, cement and sand These materials have experienced continuing cost pressure because production is energy intensive. The ABS reported that the price of concrete, cement and sand were affected by raw-material costs, labour, energy, freight, maintenance and environmental compliance costs. Concrete is particularly important because the price increase of concrete affects almost every major construction project. Plasterboard/plaster products The price of plaster products has also increased. In June 2026 the price of plaster products by +4.6% quarterly. In Brisbane, plaster products increased 7.7% during the quarter and in Hobart, 9.3%. Roof tiles Roofing products have been particularly affected by extreme weather and rebuilding demand. Recent Cotality/Cordell analysis found that roof-tile costs increased approximately 77% over five years to March 2026. This is an exceptionally large increase compared with general inflation. Windows The costs of windows have been affected by increases in the price of aluminium, glass, transport and labour. The combination of aluminium and glass costs has made windows significantly more expensive. Other materials The increased prices of other materials are also experiencing pressure. Other construction materials include bricks, pavers, insulation, cement products, glass, tiles, flooring, carpet, paints and coatings, electrical equipment, plumbing products, PVC products, structural steel and reinforcing steel. Some of the largest five-year material increases The latest Cotality/Cordell analysis is particularly revealing. Between approximately 2021 and early 2026, the price of some materials and construction components increased by approximately: Material/component Approx. five-year increase Roof tiles   77% Windows ~37–48% range Plaster ~37–48% range Plywood ~37–48% range Copper piping ~37–48% range Structural steel ~37–48% range Cement ~37–48% range Concrete ~37–48% range The Insurance Council/Cordell analysis says several of these materials increased more than twice the rate of general CPI. This demonstrates why simply looking at Australia’s headline, CPI can substantially underestimate the cost pressures experienced by builders. The most important material pressures now include roof tiles, aluminium, copper, electrical cable, PVC, plaster, concrete, cement, steel, windows, plywood and other metal products, while skilled labour shortages, energy, freight, extreme weather and insurance are increasingly important drivers. Labour is now perhaps more important than materials One of the biggest changes from the 2021–22 period is that labour has become a major structural constraint. Australia has shortages of bricklayers, carpenters, concreters, electricians, plumbers, engineers, project managers and specialised trades. The ABS specifically identifies shortages of bricklayers, carpenters and concreters as continuing to put pressure on residential construction costs. For commercial and infrastructure projects, competition for skilled labour is particularly intense because of hospitals, schools, defence, transport infrastructure, renewable energy, mining and major civil projects. This creates a labour bidding war between industries.

State-by-state construction-cost increase The latest ABS figures provide a particularly useful comparison. House construction prices — June 2026 State/Territory Quarterly increase Annual increase Assessment NSW 2.0% 4.8% Moderate-high Victoria 0.7% 3.7% Relatively moderate Queensland 3.1% 8.0% Very high South Australia 3.4% 8.5% Very high Western Australia 2.6% 8.8% Very high Tasmania 4.7% 11.5% Highest Northern Territory 1.4% 4.6% Moderate-high ACT 2.9% 5.0% Moderate-high Australia 2.0% 5.9% — Source: ABS, June 2026. Ranking by current annual increase 1. Tasmania — 11.5%2. Western Australia — 8.8%3. South Australia — 8.5%4. Queensland — 8.0%5. ACT — 5.0%6. NSW — 4.8%7. Northern Territory — 4.6%8. Victoria — 3.7% Therefore, our observation that construction costs have been increasing sharply is particularly relevant to WA, Queensland, SA and Tasmania in 2026. State-by-state analysis New South Wales NSW has experienced a substantial long-term increase in construction costs. Sydney and NSW face high wages, expensive skilled trades, high land and development costs, strong infrastructure demand, high regulatory/compliance costs, relatively expensive logistics and competition between residential, infrastructure and commercial projects. In June 2026, NSW house-construction prices increased 2.0% in the quarter and 4.8% over the year. Sydney’s building-material input prices increased 2.3% in the June quarter, with electric cable and conduit increasing particularly strongly. Regional NSW: costs can be affected significantly by freight distances and shortages of skilled trades. Remote and regional projects often have higher mobilisation and transport costs than Sydney. Victoria Victoria experienced one of the major construction booms during 2020–2022, but construction-cost inflation has subsequently moderated. In June 2026, quarterly house construction was +0.7% and annual house construction was +3.7%. This makes Victoria one of the slower-growing states at present. Melbourne input construction prices rose 2.0% in the June quarter 2026, with aluminium windows and doors among the contributors. Regional Victoria generally experiences a different cost structure from Melbourne, particularly because of transportation, smaller contractor pools, limited specialist trades and material delivery costs. Queensland — one of Australia’s most important construction-cost hotspots Queensland has experienced exceptionally strong construction-cost growth. ABS data show: 2019–20 → 2023–24 Average cost of completed new houses: $312,857 → $450,612 This represents approximately a 44% increase. Queensland had the highest average annual growth in completed-house construction costs during this period, at 9.9% per year. And the latest data show that the pressure has continued: June 2026 annual house-construction inflation: 8.0%. Brisbane Brisbane has been particularly affected by population growth, housing demand, skilled-trade shortages, extreme-weather rebuilding, material shortages and infrastructure demand. The latest Cotality/Cordell analysis reports that Brisbane’s average home construction cost increased by almost 45% between 2021 and early 2026, reaching about $498,000. Regional Queensland Regional Queensland can be substantially more expensive than Brisbane because of long transportation distances, limited local suppliers, shortage of skilled trades, cyclone/flood resilience requirements and reconstruction demand. The latest analysis reports average construction costs above $500,000 in Rockhampton, Townsville, Cairns and Emerald, while Mount Isa reached approximately $638,000. This makes Queensland one of the most important states to monitor for construction-cost inflation. South Australia South Australia has recently experienced a strong acceleration. In June 2026, quarterly house construction was +3.4% and annual was +8.5%. This was one of Australia’s highest annual increases. Adelaide input construction prices rose 1.9% during the June quarter, with electric cable and conduit rising strongly. SA’s construction industry is being affected by labour shortages, infrastructure investment, energy costs, concrete and cement prices, electrical equipment costs and transport costs. Regional SA can experience additional costs because of transportation and smaller labour markets. Western Australia WA is particularly interesting because construction costs have been influenced by the mining boom, infrastructure investment, high wages, competition for skilled labour, regional mining projects, Perth housing demand and remote-area logistics. ABS data show that average new-house construction cost increased from $316,846 in 2019–20 to $382,044 in 2023–24, approximately 20.6%. The ABS notes that WA’s long construction completion times may mean that reported costs lag actual market conditions. However, current inflation is now considerably stronger. June 2026: WA house construction prices: +8.8% annually. Perth building-material input prices increased 2.0% in the June quarter, while electric cable and conduit increased strongly. Regional WA Regional and remote WA can be substantially more expensive than Perth because of FIFO/project labour, accommodation costs, freight, long distances, mining-sector wages and limited local construction capacity. This is especially important for construction in the Pilbara, Kimberley, Goldfields and other remote regions. Tasmania Tasmania currently has the highest construction-cost inflation in Australia. June 2026: Quarterly: +4.7% and Annual: +11.5% Hobart’s construction-material input prices increased 1.8% in the June quarter, with plaster products among the contributors. Tasmania’s cost pressures are amplified by island freight, smaller supplier market, killed-worker shortages, transportation costs, limited construction capacity, housing demand and extreme-weather/rebuilding pressures. Northern Territory The NT has a fundamentally different construction-cost structure. Important drivers include remote construction, long-distance freight, extreme climate, limited local workforce, high accommodation costs, specialised construction requirements and government/infrastructure projects. In June 2026, NT house construction prices increased 4.6% annually. However, ABS construction-material input statistics do not directly sample NT prices in the same way as the six capital cities, so regional NT costs should be assessed separately. Australian Capital Territory Canberra has historically had relatively high construction costs because of government construction, high wages, professional labour costs, infrastructure activity, strong compliance requirements and limited land availability. In June 2026, ACT house-construction prices increased 5.0% annually. Regional versus metropolitan construction costs There is no single “regional Australia construction cost“ because regional markets vary enormously. Generally, the metropolitan areas have the advantages of more suppliers, larger labour pool, shorter freight distances and greater competition among contractors. But they have higher wages, higher land costs, greater regulatory costs and intense demand. Regional areas have theadvantagesofcheaper land in many locations and sometimes lower property-development costs. They have the disadvantages expensive freight, limited skilled trades, limited subcontractor competition, accommodation/mobilisation costs, longer project duration, equipment transport and higher risk premiums.

Australian construction and building costs have risen substantially since 2018, but the increase has not been uniform over time or across states. The biggest structural break occurred during 2021–2022, when material shortages, global freight disruption, strong housing demand and labour shortages produced an exceptional cost shock. Costs then moderated during 2023–2025, but they did not return to pre-2021 levels. In 2026, costs have begun accelerating again, particularly in Queensland, South Australia, Western Australia and Tasmania. 1. Overall Australian construction-cost trend since 2018 A useful national measure is the ABS Building Construction Output Price Index. Its index rose from about 112.9 in March 2018 to 163.3 in June 2026, equivalent to roughly a 45% increase over that period. The important point is that most of the increase occurred after 2020. Australian building construction price trend, 2018–2026 ABS Building Construction Output Price Index. The index accelerated sharply during 2021–2022, moderated during 2023–2025, and accelerated again in 2026. Source: Australian Bureau of Statistics Producer Price Indexes. The major phases were: Period Construction-cost trend Main characteristics 2018–2019 Relatively moderate Normal inflation, relatively stable materials and labour 2020 Initial disruption COVID-19 disrupted manufacturing, logistics and construction activity 2021 Sharp acceleration Housing demand, HomeBuilder, timber/steel shortages, freight problems and labour shortages 2022 Peak cost shock Materials, freight, energy and labour costs surged 2023 Moderating but still high Supply chains improved, material inflation slowed 2024 Much slower increase Material prices stabilised, but labour, energy and contractor costs remained high 2025 Relatively moderate nationally Input inflation slowed considerably, although regional/state differences remained large 2026 Acceleration again Labour shortages, fuel/freight costs, copper/aluminium, concrete, plaster and renewed demand The ABS building-construction output index increased from 120.0 in June 2021 to 140.4 by December 2022, a very large increase in only 18 months. Annual house-construction price growth reached 20.5% in September 2022, the peak of the recent construction-cost shock. 2. What happened during 2021–2022? This was the most important period in Australia’s recent construction-cost history. The combination of COVID-19 supply-chain disruption, international shipping delays, container shortages, very high freight costs, timber shortages, steel shortages, strong housing demand, government housing stimulus, HomeBuilder, skilled-trade shortages, rising wages, energy-price increases, higher fuel prices and strong infrastructure demand created a major construction-cost shock. For example, by September 2022, the ABS reported annual house-construction price increases of: The quarterly increase was particularly extreme in Queensland and Tasmania. 3. Construction costs did not fall after 2022 An important distinction is that the rate of increase slowed; construction costs generally did not fall back to 2018–2020 levels. For example, input prices to house construction increased very rapidly in 2021–22. The ABS input index reached an annual increase of: By 2024, annual input inflation had fallen to around 1–2%. But this means: The construction industry moved from very high inflation to a permanently higher cost base, rather than returning to its pre-pandemic cost structure. That is why builders can still be charging considerably more in 2026 even though some material prices have stabilised. 4. The situation in 2026 The latest ABS data show another acceleration. In the June quarter 2026: The June 2026 quarterly house-construction increase of 2.0% was the largest since September 2022. This is significant because it indicates that Australia’s construction-cost problem is not simply a COVID-era phenomenon. Bottom line Australia’s construction costs have risen dramatically since 2018, with the largest structural increase occurring during 2021–2022. The national building-construction index is roughly 45% higher than its March 2018 level. The market then entered a period of slower inflation rather than a return to earlier prices. The current 2026 situation is particularly serious in Tasmania, WA, SA and Queensland, while Victoria is currently experiencing comparatively lower construction-cost inflation. Regional and remote locations generally face additional freight, labour and mobilisation premiums. If you are assessing this from an Australian property-development/investment perspective, the next useful step would be to compare construction cost per m² by state and major regional city (Sydney, Melbourne, Brisbane, Perth, Adelaide, Hobart, Canberra, Darwin, Gold Coast, Sunshine Coast, Newcastle, Wollongong, Geelong, Cairns, Townsville, etc.), together with land prices and property prices. That would show where construction is currently economically most attractive.