The Australian construction industry faces a cautious outlook amid geopolitical and economic upheavals as residential construction costs picked up slightly to grow 0.5 per cent over the June quarter.
Construction costs picked up slightly to grow 0.5 per cent over the June quarter, according to Cotality’s (formally CoreLogic) latest Cordell Construction Cost Index (CCCI).
Cotality’s Research Director, Tim Lawless said despite the increase, it is tracking at half the pre-pandemic decade average of 1.0 per cent.
He pointed to the annual rate of growth (ending June 2025), which saw construction costs increase by 2.9 per cent, up from 2.6 per cent over the 12 months to June 2024.
Oliver Nichols, Director of RLB Oceania Research & Development said, “the complex interplay between geopolitical tensions and global supply chain disruptions is impacting Australia’s construction industry”.
“The escalating conflicts in the Middle East and Ukraine are driving up fuel and raw material costs, which, combined with domestic challenges like labour shortages, rising interest rates, and evolving regulations, threaten to slow project delivery, inflate costs, and reduce investment appetite,” he said.
“As long as geopolitical tensions persist and domestic challenges remain unresolved, Australia’s construction industry will continue to operate in a climate of heightened risk and constrained opportunity.”
RLB has seen increased prices for fuel, steel, copper and aluminium impacting construction costs across the country. Elevated material prices and supply chain uncertainties pose risks to project budgets, timelines, and industry profitability.
Mr Lawless said builders are struggling with feasibility assessments amid a combination of high material and labour costs.
“Higher construction costs remain a key blocker for getting more desperately needed housing supply into the market. High costs have eroded builder margins and contributed to the housing affordability crisis.”
Property Council Group Executive Policy and Advocacy Matthew Kandelaars said the increase in construction costs for homes and apartments was putting pressure on the welcome goal of building 1.2 million new homes by 2029.
“Builders are facing a challenging market that is putting pressure on cost feasibility, particularly for apartment projects which will need to deliver the bulk of our housing supply in the next five years.
“We have seen a 31 per cent increase in residential building costs over the last five years, that is a massive increase in a short period of time.
“You couple this with slow planning approvals and tax settings that dissuade investment in housing and other city-shaping assets and it is easy to see why we are behind the eight ball.”
Beyond labour, Cotality Construction Cost Estimation Manager John Bennett said the quarter’s data was driven by increases in materials, including insulation and floor coverings, with both rising by 2 per cent. He said heating and cooling products showed a decline of just over 3 per cent.
Initially published in Property Australia on July 22, 2025.
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