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

Construction costs crystal ball gazing has been a bit of a fool’s errand for Australia’s development industry seers during the past five years. 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 uncertainty is finally lifting—at least, for the moment. 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, 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 industry reset with the sector acclimatising to its higher altitude cost base. In other words, it is transitioning to 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 there’s some things going forward that may mitigate cost pressures—like changes to address insolvency risks and more skilled migration to ease labour shortages—I think it’s unlikely we’ll see overall cost levels shift down.” Indeed, according to the leading global quantity surveyor and cost consultancy’s latest construction update for Australia, cost escalation is forecast to stay elevated—albeit at more moderate levels with the low single digits—during 2026 as historically high construction activity continues, underpinned by a robust pipeline of public infrastructure, defence and energy projects. ▲ Rider Levett Bucknall Oceania research and development manager Trent Wiltshire: It will be hard to unwind. Here are this year’s forecasts for growth in construction costs across the nation’s major cities 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.” States with major infrastructure commitments are the most exposed to the potential for a renewed surge in escalation. But the latest research from RLB indicates 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, most notably in Queensland. ▲ Queensland will become the most expensive state to build. With construction activity ramping up for the 2032 Brisbane Olympics, the forecast from RLB is that the Sunshine State is on track to become the most expensive place in Australia to build. Its index points to construction cost growth rising to 7 per cent in Brisbane, the Gold Coast and Townsville as early as next year. Meanwhile, 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. Overall, the high volume of work underway across the nation is expected to “keep the industry overheated, maintaining pressure on construction costs and delivery timelines”. 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. Wiltshire says with more of a focus on ramping up the supply of high density housing in the next few years it would likely remain a constant pressure point. ▲ There has been a big shift in expectations around what the RBA will do with rates, Wiltshire says. “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, key factors pushing construction costs higher are 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 marginally less but on a par with the 1829 recorded for the same period last year, in which the industry’s total insolvencies surged almost 21 per cent to a new high of 3595. In contrast to labour, materials costs have stabilised and are no longer subject to sudden shortages or extreme price hikes. 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. As the industry’s cranes swing back into action for another 12 months, Wiltshire says from a cost perspective the industry’s most challenging factor going into 2026 and beyond is productivity. “Wage rises coupled with productivity gains is completely fine,” he 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 the pessimistic view is that if the sector doesn’t become more productive, that will just lead to higher costs, longer timelines ... and, as it is, there’s certainly challenges ahead.”

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

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