2025/26 Construction Cost Outlook (Australia)

2025/26 Construction Cost Outlook (Australia)

Inflation backdrop: a calmer surface, active drivers

Australia’s construction market in 2025/26 looks calmer on the surface than the sharp swings of recent years, but the underlying drivers of cost remain active. The most practical way to read the year ahead is not through a single national number, but through the interaction of regional demand, labour depth, services complexity, and the way risk is priced into tenders.

Against this backdrop, cost growth is easing from the extremes of the pandemic era, but not returning to “pre-COVID cheap”. Headline inflation is forecast by the Reserve Bank of Australia (RBA) to move back into the 2–3% target band in late 2025 and approach the midpoint in 2026, providing a more stable basis for setting escalation allowances. (Reserve Bank of Australia, Statement on Monetary Policy – August 2024)

Price indexes: costs still rising, but slower

Official price indexes confirm that construction costs are still rising, just at a slower, more manageable pace. ABS Producer Price Indexes show heavy and civil engineering construction prices up 1.6% over the year to March 2025, while earlier releases highlight ongoing labour-driven increases in building construction prices. (Australian Bureau of Statistics, Producer Price Indexes, Australia, March 2025)

Input prices to house construction have shifted from double-digit annual growth in 2021–22 to low single-digit increases by late 2024, reflecting easing material pressures but persistent wage costs across key trades and suppliers. (Australian Bureau of Statistics, Producer Price Indexes, Australia, December 2024; Insights into Output of Building Construction Prices)

Labour market: the structural cost pressure

Labour remains the key structural cost risk. Jobs and Skills Australia reports that construction employment grew over the year to August 2025 and is projected to remain one of the largest employing industries across most states, underlining strong demand for skilled trades and professionals. (Jobs and Skills Australia, Construction Industry Profile; Employment Projections – States and Territories)

National shortage tracking from the 2025 Occupation Shortage List shows that 29% of assessed occupations (293 of 1,022) were in shortage in 2025, down from 33% in 2024 and 36% at the 2023 peak, with ongoing concentration in technician and trade categories that directly affect construction programmes and pricing. (Jobs and Skills Australia, 2025 Occupation Shortage List – Key Findings Report)

Infrastructure Australia’s 2025 Infrastructure Market Capacity Report goes further, projecting workforce shortages across public infrastructure could climb towards 300,000 workers by 2027, with regional areas most affected – a dynamic that will keep upward pressure on site labour rates, preliminaries and program risk allowances. (Infrastructure Australia, 2025 Infrastructure Market Capacity Report)

Pipeline and approvals: housing, infrastructure and volatility

The housing pipeline continues to add structural pressure to the broader market. The National Housing Accord target of 1.2 million new well-located homes over five years from 1 July 2024 signals sustained residential delivery demand and ongoing competition for skilled resources across multiple states. (Australian Government, National Housing Accord – 1.2 million homes target)

On the non-residential and infrastructure side, the national construction pipeline remains substantial but uneven. Infrastructure Australia estimates a five-year Major Public Infrastructure Pipeline of around $213 billion, representing nearly a quarter of Australia’s total $1.08 trillion in construction activity, with growing emphasis on energy transition, transport and social infrastructure. (Infrastructure Australia, 2024 Infrastructure Market Capacity Report)

Near-term pipeline confidence still fluctuates. ABS building approvals data show that in October 2025 total dwellings approved fell 6.4% to 15,832 (seasonally adjusted), with private sector dwellings excluding houses down 13.1% to 6,253 and private sector houses down 2.1% to 9,251. The value of total residential building fell 11.8% to $9.03 billion, while non-residential building rose 11.6% to $7.13 billion. (Australian Bureau of Statistics, Building Approvals, Australia – October 2025)

Financial resilience and risk pricing

Financial resilience across the supply chain continues to shape how risk is priced. In 2023–24, the construction industry recorded 2,975 insolvencies, representing 27% of all company insolvencies nationally – a reminder that margins remain thin and that head contractor and subcontractor failure risk is still material. (Australian Securities and Investments Commission, Annual insolvency statistics 2023–24)

For West-Edge, this translates directly into risk allowances, procurement sequencing and contingency logic. More fragile balance sheets typically mean higher risk premiums, tighter prequalification, and greater scrutiny on cashflow and security arrangements.

West-Edge view: turning data into smarter budgets

West-Edge view: For 2025/26, these indicators point to a market where budgets will be won or lost through early decision quality. Region-specific escalation logic, disciplined scope governance, and early validation of building services assumptions are likely to have greater impact than broad national averages. In this cycle, well-coordinated documentation and credible programmes do more than reduce headaches — they translate directly into tighter tender spreads and better pricing confidence.

Bringing these official data streams together, we expect construction cost escalation in 2025/26 to remain positive, but lower and more project-specific than in recent years. Projects with high labour intensity, regional delivery, complex staging or specialised trades are likely to track above general inflation, while some material packages may offer opportunities where global prices and supply chains have normalised.

Using ABS, RBA, Infrastructure Australia and Jobs and Skills Australia datasets – together with federal housing and insolvency statistics – as a quantitative baseline, West-Edge Cost Consulting and Analytics calibrates escalation allowances at trade, element and location level, helping clients set realistic budgets, test feasibility and avoid both over-contingency and late-stage price premiums.

In short, 2025/26 is a recalibration year. The strongest project outcomes will come from early cost intelligence, local market realism, and a deliberate approach to risk before it becomes a last-minute cost problem at tender.

Sources (official Australian data)

• Reserve Bank of Australia – Statement on Monetary Policy
• Australian Bureau of Statistics – Producer Price Indexes
• Australian Bureau of Statistics – Building Approvals
• Infrastructure Australia – Infrastructure Market Capacity Reports & Pipeline
• Australian Government – National Housing Accord (1.2 million homes target)
• Jobs and Skills Australia – Construction Industry Profile & Employment Projections
• Jobs and Skills Australia – 2025 Occupation Shortage List
• ASIC – Annual insolvency statistics 2023–24