Construction costs continue to hammer builders, home buyers
Rising construction costs are outpacing inflation across much of Australia, threatening to derail the fragile recovery in home building just as demand begins to climb again.
Renovations are near record highs but builders continue to face acute labour shortages and other issues.
There are signs that Australia’s ailing construction sector is emerging from its slump but the latest shock figures around the cost of building a new home will not help the cause.
The price of building a new house is rising faster than inflation in five of Australia's states and territories.
Tasmania fares worst, with construction costs blowing out by 9.2 over the past 12 months, although the total cost of building a new home is still cheaper than all markets except the ACT and South Australia.
The ongoing construction cost pressure threatens to undermine the positive signs that have emerged this month.
Home building approvals surged more than 12 per cent in September, while new home sales are tracking about 20 per cent higher than a year ago. The rebound has been supported by lower interest rates, improved consumer sentiment and targeted government incentives.
But the construction sector continues to wrestle with familiar constraints — from lengthy planning processes and rising land costs to a persistent shortage of skilled labour. Under the National Housing Accord, 1.2 million new homes are slated for delivery by 2029, but progress remains well behind schedule.
Inflation was only 3.8 per cent in FY 2024, yet house building costs climbed by 8.2 per cent in South Australia, 7.2 per cent in Western Australia, 5.5 per cent in the Northern Territory, and 4.9 per cent in Victoria, according to the Australian Bureau of Statistics (ABS). Queensland and New South Wales rose at a more subdued pace.
Qi Chen, CEO, OpenLot.com.au, on Wednesday (12 November) said that in 2026 there was unlikely to be any respite in cost escalations.
“We’ve identified some factors that can help explain the numbers, for example, Victoria and New South Wales are both high-cost states, but new house projects are large enough to offset some of these expenses.
“In both the Northern Territory and Tasmania, high import and logistics costs take a toll.
“Because this data captures the cost to build, it doesn’t necessarily mean builders and developers are seeing their profit margins shrink, as that depends on the contracts they negotiated with their buyers.
“Australia faces persistent construction inflation, which is a challenge builders, suppliers, and policymakers must collaborate on to modernise building practices and approvals,” Mr Chen said.
Additional population data suggests the demand for new homes is not about to abate. The ABS’ latest data shows there were 423,400 more people in the country as of April this year than at the same time in 2024 (the most recent figures available).
Tim Reardon, HIA Chief Economist, on Wednesday said investors were boosting home building activity.
“Investors typically supply around a third of all new homes built in Australia but are a larger share of the market at present due to a lower level of activity from owner occupiers.
“It will be crucial for policymakers to maintain a strong pipeline of shovel-ready land to meet this return of housing demand and prevent housing affordability from worsening.
“This includes policies that reduce the tax imposts on those that build new homes and reduce the regulatory burden on the industry,” Mr Reardon said.
He added that home renovation activity is nearing record highs, boosted by rising home prices and low unemployment.
The overall uptick in activity points to renewed optimism in the housing sector, yet significant structural hurdles persist.
Builders continue to face acute shortages of skilled labour, while slow and inconsistent planning approvals are stalling projects across the country.
Reforms in New South Wales and Victoria are beginning to pave the way for higher-density housing, but a coordinated national approach remains elusive.
Ultimately, the sector’s recovery will depend on how effectively Australia can balance faster delivery with long-term quality and affordability.
(Source : Australian Property Investor Craig Francis 12-11-2025 Building And Construction )