After several years of volatility, Australia’s construction sector shows signs of stabilisation, but without lingering pressures.
According to the latest data from the Australian Bureau of Statistics (ABS), construction costs rose by 0.9% in the March quarter of 2025, bringing the annual increase to 3.7%. While this marks a moderation from the double-digit surges seen during the pandemic and post-lockdown recovery, the industry remains recalibrated.
Output of building construction prices, quarterly and annual percentage change and index
The Labour-Materials Balance
Labour shortages and elevated material costs continue to weigh on the sector. Although global supply chains have largely normalised, certain materials, such as concrete, steel, and electrical components, remain costly due to sustained demand and limited domestic production capacity.
Builders also navigate a competitive labour market, with skilled trades in short supply across many regions. This is causing longer project timelines and, in some cases, cost overruns, contributing to a rising trend of insolvencies in this sector.
Global Uncertainty Clouds Outlook
The growing uncertainty from international trade tensions and geopolitical shifts adds complexity. Recent tariff announcements and ongoing global conflicts have introduced new volatility into material supply chains and investor sentiment. While the direct impact on Australian construction costs remains limited, the longer-term flow-on effects are still unfolding. Developers and policymakers alike are watching closely as the sector braces for potential disruptions in pricing, procurement, and project timelines.
Looking Ahead
While the worst of the construction cost crisis may be behind us, the path forward is far from smooth. Developers and investors must remain agile, factoring in regional variations, shifting demand patterns, and evolving regulatory frameworks.
In this context, the Federal Government’s recent decision to consolidate all key housing policy functions under a single ministerial portfolio is a welcome development. The move, announced as part of Prime Minister Albanese’s cabinet reshuffle, brings housing, infrastructure, planning, industry policy, and building codes under the Treasury’s oversight. The building industry sees the administrative overhaul as a critical step toward addressing Australia’s housing shortage with greater clarity, coordination, and strategic alignment.
The next quarter will be critical in determining whether the current plateau in cost growth is a temporary reprieve or the beginning of a more sustainable phase for the industry.
Importantly, property owners and insurers should ensure that insurance coverage keeps pace with rising construction costs. Underinsurance remains a significant risk in a market where replacement values have shifted dramatically in recent years. Regular reviews and updated valuations are essential to ensure adequate protection in the event of loss or damage.