Finding the New Normal: What Build Costs Will Do in 2026

Crystal ball gazing has been a bit of a fool’s errand for Australia’s property development industry seers during the past five years. Not least when it comes to construction costs. Pandemic shutdowns, supply chain breakdowns, labour shortages, surging materials prices and a wave of builder insolvencies combined to produce the most volatile and unpredictable period the sector has seen in decades. But the heavy fog of pricing uncertainty appears to have finally lifted—for the time being, that is. And by comparison, 2026 is looking somewhat more uneventful—offering a degree of stabilisation with more predictable tender periods, shorter material lead times and flatter cost escalation curves. That’s the good news. But while the tumultuous post-pandemic era with its double-digit cost growth spikes appears to be over for now, the bad news is so too are the days of lower-price construction. Costs are unlikely to come back down in any meaningful way and, instead, the latest outlook indicates a permanent reset with the sector acclimatising to its loftier cost base. In other words, a new high-cost normal. “It will be hard to unwind,” Rider Levett Bucknall’s Oceania research and development manager Trent Wiltshire tells The Urban Developer . “We’ve certainly seen a rapid run up in construction costs over the past few years.” And although going forward there may be some mitigation of cost pressures—such as reforms to address insolvency risks as well as more skilled migration to ease labour shortages—he says: “It’s unlikely we’ll see overall cost levels shift down”. Indeed, according to RLB’s latest construction update for Australia, cost escalation is forecast to stay elevated—albeit at more moderate, single-digit levels. “Australia’s construction industry enters 2026 at historically high activity levels, underpinned by record work done and a robust pipeline of activity driven by public infrastructure, defence, and energy projects,” the global quantity surveyor and construction consultancy says. “The high volume of work underway will keep the industry overheated, maintaining pressure on construction costs and delivery timelines,” ▲ Rider Levett Bucknall Oceania research and development manager Trent Wiltshire: It will be hard to unwind. Here are this year’s construction cost growth forecasts across the nation’s major centres from RLB’s tender price index: Sydney (4 per cent, down from 4.5 per cent last year)—temporary tender competitiveness as subcontractor availability has improved but costs risks are likely to return by late 2026. Melbourne (steady at 4 per cent)—insolvencies are rising, labour shortages continue and mega-project cost overruns have inflated baseline costs. Brisbane (steady at 5 per cent) and the Gold Coast (5.5 per cent, up from 4.5 per cent last year)—productivity remains low and insolvency risks and industrial relations constraints continue to push up costs. Adelaide (5.1 per cent, up from 3.5 per cent last year)—Tier 1 construction capacity stretched by defence and infrastructure is keeping baseline pricing high. Perth (5.3 per cent, down from 5.4 per cent last year)—operating near capacity and regional projects face significant cost volatility. Canberra (4.25 per cent, up from 3.75 per cent last year)—construction activity remains strong with a solid pipeline of work across various sectors. Darwin (steady at 5 per cent) and Townsville (steady at 6 per cent)—defence-driven demand and limited Tier 1 construction competition is continuing to push up costs. “Yes, cost escalation has come down a touch but it’s still at a pretty strong pace,” Wiltshire says. “Typically, across most of the capitals that we’re tracking, the tender index prices are rising a bit faster than what they were pre-Covid.” And the states with major infrastructure project commitments are the most exposed to the potential for a renewed surge in escalation. ▲ Source: RLB Construction cost growth is expected to pick up in Brisbane, the Gold Coast and Townsville, and is also forecast to rise in Adelaide, increase modestly in Sydney from 2027 and remain high in Perth. However, RLB’s latest research suggests there is a window of opportunity in some regions over the next 12 months for developers with shovel-ready projects to move quickly to tender and secure resources before capacity tightens again, particularly in Queensland. With construction activity ramping up for the 2032 Brisbane Olympics, RLB warns that the Sunshine State is on track to become the most expensive place in Australia to build. Its index forecast points to construction cost growth rising to 7 per cent in Brisbane, the Gold Coast and Townsville as early as next year. By comparison, escalation in the country’s other major centres is expected to peak between 5 per cent and 5.4 per cent leading into the 2030s. In 2024-25, there was $298 billion worth of construction work delivered, close to a record high. Non-mining construction activity hit a new peak, driven by engineering construction—mainly energy infrastructure such as transmission lines, solar, wind and pumped hydro. Apartment activity also rose strongly, with building approvals, work-yet-to-be done commencements and work under construction all at decade highs. Approvals for new apartments and townhouses have increased significantly over the past year, up by 27 per cent in the nine months to September 2025—the pipeline of construction activity particularly strong in Western Australia, South Australia and Queensland. ▲ Queensland will become the most expensive state to build. Wiltshire says with more focus on ramping up the supply of high density housing in coming years it would likely remain a constant pressure point. “Of course, the big macro factor that will impact activity coming into 2026 and 2027 is what the Reserve Bank does with interest rates,” he says. “There’s been a big shift in expectations there … and now there’s a 50 per cent chance that rates are going to rise in February and there’ll be further rate rises after that. So that will really put a dampener on that activity…[and] potentially push up financing costs for developers in 2026-27.” Aside from the high level of public sector activity, other key factors cited by RLB as contributing to rising construction costs include limited competition among Tier 1 contractors and subcontractors, insolvency risks pushing up risk pricing and well-documented skilled labour shortages driving higher wage costs. Latest figures published by the Australian Securities and Investments Commission show that for the financial year to January 2026 there have been 1792 insolvency appointments in Australia’s construction sector. The number is almost on a par with the 1829 recorded for the same period last year, throughout which the industry’s total insolvencies surged almost 21 per cent to a new high of 3595. Meanwhile, demand for construction workers is also likely to continue to hamper the industry. “A tight market for skilled labour is flowing into higher wages,” the RLB update says. “Department of Employment and Workplace Relations data shows that scheduled average annual wage rises in construction industry enterprise agreements are now 4.9 per cent, up from 4 per cent a year ago. For newly signed agreements, average wage rises are even higher.” ▲ There has been a big shift in expectations around what the RBA will do with rates, Wiltshire says. In contrast to labour, costs of materials have stabilised and are no longer subject to sudden shortages or extreme price hikes—although structural timber prices are facing renewed upward pressure due to high demand. As well, supply chains have largely normalised and shipping costs are well below their pandemic peaks but they remain fragile and vulnerable to geopolitical shocks. With the industry’s cranes now swinging back into action for another 12 months, Wiltshire says from a cost perspective the sector’s biggest hurdle ahead is productivity. Australian Bureau of Statistics data shows that house and apartment completion times have increased by around 40 per cent compared to pre-pandemic, the RLB update points out. “Wage rises coupled with productivity gains is completely fine,” Wiltshire says. “But wage rises with no productivity improvements ... that’s certainly a handbrake on how much we can build at a decent price. “The optimistic view is there’s massive opportunities for the sector to grow and to build all these new things, and there’s potential opportunities in a bunch of new sectors. “But if the industry doesn’t become more productive, that will just lead to longer timelines, higher costs ... so there’s certainly challenges ahead.”

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