Despite elevated costs and insolvency pressures, forecasts suggest a more stable market on the horizon. Builders who adapt now can position themselves for future growth.

The Australian construction industry continues to face significant cost pressures, with builders navigating the combined impact of rising material prices, global uncertainty, and ongoing labour shortages. According to the latest Australian Construction Market Conditions Report by WT Partnership, 2025 will bring continued escalation — with projected increases of 4.5% to 6% across most capital cities. Brisbane is forecast to face the highest increase at 6.5%, while Canberra is expected to remain more stable at 3%.

For infrastructure, the outlook is similarly challenging, with national costs expected to escalate by an average of 5.5%.

However, there is some light on the horizon. WT’s forecast suggests that the market will begin to stabilise from 2026, with strengthening conditions by 2027 and the potential for downward cost pressure by 2028.

The current conditions present a difficult environment for builders, developers, and suppliers — but also an opportunity to rethink procurement, contracts, and building methods to navigate the uncertainty ahead.

Contributing Factors: From Global Economics to Local Bottlenecks

Trade Policy and Global Flow-On Effects

One of the key global influences is the ongoing trade tension between the United States and China. As new tariffs impact the flow of goods between the two largest economies, there is potential for a surplus of steel and aluminium in the Asia-Pacific region — including Australia. This could bring some relief to local builders by improving material availability and pricing, particularly from late 2025 into 2026.

However, builders are advised to proceed cautiously. The timing, quality, and consistency of these redirected supply chains remain subject to regulatory and logistical conditions.

Domestic Pressures: Labour, Planning, and Demand

Domestically, Australia’s construction landscape is being shaped by a range of challenges:

• Labour Shortages: Skilled trades remain in short supply. Without meaningful investment in training and skilled migration pathways, delivery timelines and quality control will continue to be strained.
  
• Housing Demand: The government’s housing targets and infrastructure stimulus packages have injected demand into the system. However, this surge has collided with capacity constraints, exacerbating costs and delaying projects.
  
• Planning and Regulation: Approval bottlenecks and inconsistent state-based policies have further delayed supply response, creating uncertainty for small to mid-tier builders who depend on predictable pipelines.
  
  

Material Cost Trends and Insolvency Risk

Material inflation continues to play a dominant role in builder profitability. In 2023, the Australian Securities and Investments Commission (ASIC) recorded 2,546 construction insolvencies, up 42% from 2022. This trend aligns with insights from the BCI Construction Outlook, which lists project deferrals as a key risk area in 2024 due to rising build costs and trade scarcity.

Key drivers include:

• Supply Chain Disruption: Post-pandemic logistics remain fragile, with freight costs and lead times still elevated for imported products.
  
• Inflationary Pressures: Rising energy and fuel prices continue to affect the cost of manufacturing and transporting construction materials.
  
• Market Competition: Builders are now paying premiums for common materials such as timber, steel, concrete, and cladding — often with limited ability to pass those costs onto clients.
  

Strategies for Mitigation

In light of these challenges, builders are adopting a range of strategies to protect project viability and strengthen resilience:

1. Strategic Procurement and Supplier Diversification

Builders are increasingly exploring alternative sourcing arrangements, including second-tier markets and direct-to-manufacturer channels. Some are establishing partnerships with local manufacturers to reduce reliance on overseas supply.

2. Contract Reform and Escalation Clauses

Contracts are evolving to reflect the reality of price volatility. Builders are incorporating cost escalation clauses tied to commodity indices and creating clearer frameworks for variation management. Legal review of all forward contracts is now critical to ensuring risk is appropriately shared across the project chain.

3. Innovation in Building Methods

Several alternative construction methods are gaining ground in response to labour and cost challenges:

• Off-Site Manufacturing and Modular Construction: Reduced on-site time, less exposure to weather delays, and improved quality control.
  
• Precast and Tilt-Up Panels: Common in commercial builds, now being adapted for residential multi-dwelling projects.
  
• Mass Timber and CLT (Cross-Laminated Timber): Offering both speed and sustainability benefits, particularly for low-rise developments.
  
• Lightweight Steel Framing: Products such as TRUECORE® steel are improving cost certainty and build accuracy on mid-size projects.
  

Builders experimenting with these methods are reporting faster project cycles and reduced rework, especially in environments with unpredictable labour availability.

4. Technology Integration

Use of digital estimation tools, project tracking software, and BIM (Building Information Modelling) is becoming more widespread. These platforms assist with cost control, clash detection, and procurement forecasting, giving businesses real-time oversight of budget shifts.

A Call for Long-Term Vision

While the private sector is adjusting, many experts — including WT economist Damon Roast — believe the public sector has a key role to play in ensuring future stability. A legislated, transparent pipeline of infrastructure and housing projects would help builders better plan for workforce development and materials investment.

Such a pipeline could also drive investor confidence, enabling better access to finance and sustainable scaling across the construction supply chain.

Looking Ahead

The outlook remains challenging in the short term. However, those able to pivot — whether by adopting new construction technologies, expanding supplier networks, or renegotiating client and supplier contracts — will be best placed to weather current volatility and capture opportunity as the market stabilises.

Would You Like to Contribute?

The Good Builder is always looking to highlight the perspectives of builders, project managers, estimators, and suppliers across the country.

Have you made recent changes to your procurement or build method that helped reduce cost or risk?

Have you seen results from modular, lightweight, or digital-first strategies?

We welcome industry insights and case studies.

Please contact [email protected] if you’d like to be featured or provide comment for a future article.

Author: The Good Builder

The Good Builder is a media platform that provides news and insights for Australia’s home building industry. From exclusive stories and curated insights to bold industry perspectives, we deliver the news and updates that keep builders, suppliers, and the entire home building industry inspired and ahead of the curve.