Australia’s construction industry is set to remain under sustained cost pressure through 2026, as record levels of activity continue to strain capacity across the market. While construction cost escalation eased slightly in parts of Australia during 2025, tight labour supply, low productivity, insolvency risk and limited Tier 1 competition are expected to keep upward pressure on pricing and procurement outcomes.
A strong pipeline of work across housing, energy and major public infrastructure is underpinning activity levels, with approvals, work yet to be done and projects under construction all sitting at elevated levels nationally.
Building approvals for new apartments and townhouses increased by 27 per cent over the nine months to September 2025, with Western Australia, South Australia and Queensland showing particularly strong pipelines.
Infrastructure Australia forecasts continued growth in construction activity driven by housing, energy projects and major public works, although delays in large programs are pushing peak activity further into the future.
Despite the strong pipeline, delivery risks are rising. Skilled labour shortages, low productivity, insolvency risks and limited competition among Tier 1 contractors and subcontractors are contributing to persistent pricing pressures and procurement challenges.
Cost escalation remains elevated
Construction cost escalation has eased slightly but remains high.
Cost increases slowed across most regions during 2025 but are still well above pre-pandemic levels. The national Tender Price Index continues to grow faster than historical norms.
RLB forecasts construction cost growth in 2026 of 4.0 per cent in Sydney and Melbourne, 5.0 per cent in Brisbane, 5.5 per cent on the Gold Coast, 5.3 per cent in Perth, 5.1 per cent in Adelaide and up to 6.0 per cent in Townsville.
Oliver Nichols, Director of Oceania Research and Development at RLB, says:
“In some regions, there may be a brief window for well-prepared projects to move quickly to tender and secure resources before capacity tightens again. This is most evident in south-east Queensland.”
Regional factors shaping the outlook
Conditions vary across Australia, but cost pressures remain widespread.
Adelaide continues to experience elevated baseline pricing due to defence and infrastructure demand. Brisbane and the Gold Coast face ongoing productivity challenges, insolvency risks and industrial relations constraints. Melbourne is contending with rising insolvencies, labour shortages and inflated baseline costs driven by mega-project overruns.
Perth is operating near capacity, with regional projects exposed to cost volatility. Sydney has seen a temporary improvement in tender competitiveness due to increased subcontractor availability, although cost risks are expected to return by late 2026.
In Darwin and Townsville, defence-driven demand and limited Tier 1 competition continue to push prices higher.
Looking ahead
While some easing in cost escalation has occurred, RLB expects pressure to remain elevated as major projects progress and new work enters the pipeline. Olympic-related construction is expected to further intensify cost growth in Brisbane, the Gold Coast and Townsville in coming years.
“The high volume of work underway will continue to test industry capacity,” Oliver said. “Managing procurement strategies, timing and risk allocation will be critical for project success in this environment.”
RLB TENDER PRICE INDEX ANNUAL % UPLIFTS AS AT Q4 2025
| AUSTRALIA | 2025 | 2026 f | 2027 f | 2028 f | 2029 f |
|---|---|---|---|---|---|
| ADELAIDE | 3.5 | 5.1 | 5.0 | 4.5 | 4.5 |
| BRISBANE | 5.0 | 5.0 | 7.0 | 7.0 | 7.0 |
| CANBERRA | 3.75 | 4.25 | 4.5 | 4.0 | 3.8 |
| DARWIN | 5.0 | 5.0 | 4.0 | 4.0 | 4.0 |
| GOLD COAST | 4.5 | 5.5 | 7.0 | 7.0 | 7.0 |
| MELBOURNE | 4.0 | 4.0 | 4.0 | 4.0 | 4.0 |
| PERTH | 5.4 | 5.3 | 5.2 | 4.8 | 4.5 |
| SYDNEY | 4.5 | 4.0 | 4.5 | 5.0 | 4.5 |
| TOWNSVILLE | 6.0 | 6.0 | 7.0 | 7.0 | 7.0 |
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