Timber, wages, and uneven state trends are reshaping the outlook for 2026
Australia’s construction sector recorded its strongest quarterly cost increase of 2025, with a 1% rise in the December quarter signalling renewed momentum after a year of subdued growth, according to a new report.
Cotality’s latest Cordell Construction Cost Index showed the December quarter increase outpaced earlier quarterly rises of 0.4%, 0.5%, and 0.6% recorded through 2025. However, annual growth over the 12 months to December reached just 2.5%, down from 3.4% at the end of 2024 and marking the smallest annual rise since March 2002.
“There is clear evidence of renewed momentum across the December quarter. However, even with this uptick, annual growth in home building costs remains at its lowest point, sitting well below the pre-COVID decade average of 4.7%,” Cotality research director Tim Lawless said.
Western Australia and South Australia led national construction cost increases, each rising 1.2% in the December quarter. Western Australia’s growth eased slightly from 1.3% in the September quarter, while South Australia saw a marked acceleration from 0.5% in the previous period.
All states except Western Australia and South Australia remained below their respective pre-COVID decade-long averages, highlighting stronger supply constraints relative to demand in those two markets compared with the rest of the country.
Material pricing shifts drove the quarterly increase, with structural timber products showing upward movement after remaining stable in the previous quarter. Other timber categories and cement sheeting products also recorded price rises.
“The annual Fair Work minimum wage update came into effect during the quarter, adding further impact on labour and associated costs,” Cotality construction cost estimation manager John Bennett said.
The sector showed diverging activity levels, with dwelling approvals trending higher through the year across most states. Victoria and Tasmania recorded softer trends, underscoring ongoing challenges in their residential construction markets.
“The year ahead is likely to be shaped by cost volatility, labour constraints, and supply chain adjustments. Price updates from vendors and the ongoing shortage of skilled trades will remain the primary hurdles for the sector. Careful monitoring of material pricing and workforce availability will be critical to navigating 2026,” Bennett said.
