A new research report from commercial real estate fund manager MaxCap puts numbers on what builders have been feeling on the tools for months: another round of cost inflation is coming, and this time the trigger is sitting in a waterway 12,000 kilometres away.

Construction costs are going to keep climbing through 2026. That is the headline finding of new research released by commercial real estate fund manager MaxCap, which has put a figure on the cost shock now working its way through the Australian building sector. The closure of the Strait of Hormuz, triggered by the war in Iran, has lifted energy prices and is feeding into the price of fuel, plastics, metals and chemicals that builders rely on every day.

MaxCap expects a moderate uplift in construction costs over the year, which it puts at under 10 per cent. That is a real increase, but it is well short of the roughly 30 per cent blowout the industry absorbed coming out of the pandemic. The report, titled Navigating Dire Straits and written by the firm’s research team, is aimed at private credit investors who fund construction projects. But its findings land squarely on the desk of every builder trying to hold a margin in a year that keeps throwing curveballs.

Here is what the research says, why it matters, and what it means for the way builders price and run work for the rest of the year.

Why a shipping lane is driving up your material prices

The Strait of Hormuz is a narrow channel connecting the Persian Gulf to the rest of the world. On a normal day it carries around 112 cargo ships and roughly 20 per cent of the world’s seaborne crude oil. It is also a major route for industrial chemicals, including the urea and ammonia used in fertiliser, sulphur, methanol and aluminium. When it closes, global energy and commodity markets reprice almost immediately.

Since the closure in February 2026, crude oil prices have been volatile and elevated, and futures markets are pricing in higher energy costs well into next year. That feeds into construction in a direct way. Building is a fuel-intensive business. Concrete is delivered by truck. Steel is transported across long distances. Earthmoving, quarrying and site machinery all run on diesel. When oil moves, construction costs follow, usually with a lag of three to six months.

MaxCap makes one point that builders should sit with. Even if a deal were struck tomorrow and the Strait reopened free of naval mines, the next shipment from the Persian Gulf would still take around two months to reach Australian shores. The disruption is not a future risk to plan for. It is already here, already in the supply chain, and already showing up in supplier price notifications.

Even if there is an immediate deal and the Strait reopens tomorrow, the next Persian Gulf shipment will still take another two months to arrive. The supply disruption is real, and higher input costs are here today.

What is going up, and by how much

The research identifies broad-based cost escalation rather than a single pressure point. Fuel has risen the most, though that has been partly offset by a temporary cut to fuel taxes. Beyond fuel, the report flags significant rises in plastics, metals and chemicals. These are the petroleum-derived inputs that sit upstream of a huge range of building products, from PVC pipe and insulation to adhesives and coatings. TGB has been tracking what is going up and by how much across the supply chain, and the MaxCap figures line up with what suppliers have been telling builders directly.

MaxCap arrives at its forecast three different ways, which is worth noting because it is not relying on a single hunch. It looks at the historical correlation between oil prices and construction costs. It runs a detailed cost-accounting exercise mapping the inputs that make up a residential build. And it watches supplier price notifications as an early warning signal.

That last source is telling. The report notes that 98 suppliers issued price-increase notifications coming into effect in the second quarter of 2026, with the average increase sitting at 9.2 per cent. That is the highest jump since the final quarter of 2022, when the post-pandemic cost surge was still raw. The signals from across the industry point the same way: costs are climbing, and the rise is broad rather than isolated.

Where the cost pressure sits in a residential build

The MaxCap cost-accounting work breaks down the major inputs in residential construction by their weight in the overall cost base and the inflation expected in each. The table below shows the items carrying the sharpest increases.

Source: MaxCap, Navigating Dire Straits (June 2026), drawing on ABS input-output data.

The pattern is clear. Fuel and plastics are carrying the largest percentage rises, but they are smaller slices of the overall cost base. The biggest single component, construction services, is rising more modestly. That mix is exactly why MaxCap lands on a moderate aggregate uplift of around 7 per cent rather than a repeat of the pandemic-era spike.

A familiar pattern, a milder shock

One of the more reassuring threads in the research is historical. Oil price shocks are not new. They follow a well-worn path, from elevated oil prices to higher inflation to rising interest rates. MaxCap points to the 1970s oil shocks and the COVID supply chain disruption as the two clearest recent examples. Oil prices and construction costs move in lockstep often enough that the relationship is predictable, even if the exact timing is not. That correlation is one of the more reliable signals for understanding where the construction market is heading over the rest of the year.

What is different this time, according to the research, is the starting point. The economy is less reliant on fossil fuels than it was in the 1970s, thanks to the growth of renewable power. And crucially for builders, the industry itself has changed how it manages cost risk since the last shock. That brings us to the part of the report builders should pay closest attention to.

Why builders are better placed than in 2022

The margin squeeze is real. MaxCap is clear that higher materials and borrowing costs are compressing builder profit margins right now. Higher interest rates make project finance more expensive at the same time that input costs are climbing. That is a genuine pinch. But the report makes an important distinction: builders are better positioned to manage this in 2026 than they were during the pandemic, because they have moved away from fixed-price contracts and tightened their cost management.

This is the lesson the industry paid dearly to learn. During COVID, a wave of builders had signed fixed-price contracts when costs were low, then delivered those jobs after costs had risen sharply, with no mechanism to recover the difference. That gap sank a long list of established names. The collapse of Porter Davis Homes became the symbol of the era, but it was far from alone.

Coming into this shock, more builders have room to negotiate on costs and are far less willing to carry the full risk of cost escalation in a fixed-price deal. That does not make anyone immune. But it does mean the industry is meeting this round of inflation with its eyes open, rather than locked into contracts that leave no room to move. MaxCap’s own conclusion is blunt: discipline in cost management will still be vital in 2026.

What it means for the money behind the build

Because MaxCap funds construction projects, the report spends real time on what this means for lenders and investors, and there is a flow-on for builders worth understanding. Higher material costs and tighter builder margins mean financiers will be running closer diligent surveillance of builder cash flows. In plain terms, expect lenders to look harder at your numbers, your pipeline and your ability to absorb cost movements before they commit.

The report also notes this is happening at a time when regulators are scrutinising smaller and weaker lenders in the market, which means less competition among financiers and more selective lending. For builders, the takeaway is practical. Clean books, documented variations and a clear handle on cash flow are not just good housekeeping in 2026. They are increasingly the thing that determines whether a project gets funded and on what terms.

For investors, MaxCap’s view is that higher inflation will sustain higher interest rates for longer, and that floating-rate credit remains a prime candidate for maintaining returns in that environment. That is an investor conclusion rather than a builder one, but it tells builders something useful about the cost of money: the expectation across the finance sector is that rates stay higher for longer, not that relief is around the corner.

The bottom line for builders

The value of a report like this is not that it predicts the future perfectly. No one can, while a crisis is still unfolding. The value is that it puts disciplined numbers around something builders have been sensing for months, and it does so from the perspective of the people who fund the work.

The signal is consistent. Costs are rising across fuel, plastics, metals and chemicals. The rise is broad rather than isolated. It is milder than the pandemic shock, but it is a shock nonetheless, and it is already in the system regardless of how the conflict resolves. Margins are under pressure from both costs and the price of finance. And the builders who will navigate it best are the ones who already moved away from carrying cost risk they cannot control.

If there is one action to take from this, it is to look at your next quote through the lens of a shock that has already arrived. Price for the costs in front of you, not the ones you remember from last year. Document everything. And know that the work you put into cost discipline after the last crisis is exactly what gets tested now.

For ongoing analysis of how cost pressures are shaping the year ahead, subscribe to the TGB weekly eNewsletter and listen to The Good Builder Podcast. 

Last updated: June 2026

General information only. This article summarises publicly released research and is intended as general industry information. It does not constitute financial, legal or professional guidance, and builders should seek advice specific to their own circumstances before making business decisions.

Your Questions Answered:

Will construction costs rise in 2026?
Yes. Research from commercial real estate fund manager MaxCap forecasts a moderate uplift in Australian construction costs through 2026, which it puts at under 10 per cent. The increase is driven by the closure of the Strait of Hormuz, which has lifted energy prices and is feeding into the cost of fuel, plastics, metals and chemicals. While this is a real rise, it is well short of the roughly 30 per cent cost blowout the industry absorbed coming out of the pandemic.

How much will building costs go up because of the Strait of Hormuz?
MaxCap estimates an aggregate uplift of around 7 per cent across residential construction inputs, with the total expected to stay under 10 per cent. The pressure is uneven: fuel-related inputs are rising fastest at around 40 per cent and plastics around 25 per cent, but these are smaller slices of the overall cost base. Larger components such as construction services are rising more modestly at around 5 per cent, which is why the aggregate figure lands at a moderate level rather than a steep one.

Why does the war in Iran affect Australian construction costs?
The war in Iran led to the closure of the Strait of Hormuz, a narrow shipping channel that carries roughly 20 per cent of the world’s seaborne crude oil and a large share of global industrial chemicals. When the Strait closes, global energy and commodity markets reprice almost immediately, and higher oil prices flow into construction because building is fuel-intensive. Diesel powers earthmoving, concrete delivery, transport and site machinery, and oil is also the base ingredient for petroleum-derived products like PVC pipe, insulation, adhesives and coatings.

Are builders better positioned than during COVID?
According to MaxCap, yes. The research notes that builders have moved away from fixed-price contracts and tightened their cost management since the pandemic, which leaves them better placed to handle this round of cost inflation. During COVID, many builders signed fixed-price contracts when costs were low and delivered them after costs had risen sharply, with no way to recover the difference, a gap that sank a long list of established names. Coming into this shock, more builders have room to negotiate on costs and are less willing to carry the full risk of cost escalation, though MaxCap stresses that cost discipline remains vital.

What does higher inflation mean for construction finance and lenders?
Higher inflation is expected to sustain higher interest rates for longer, which makes project finance more expensive and compresses builder margins from both directions. MaxCap expects lenders to run closer surveillance of builder cash flows, meaning financiers will look harder at a builder’s numbers, pipeline and ability to absorb cost movements before committing. This is also happening as regulators scrutinise smaller and weaker lenders, which points to less competition among financiers and more selective lending, so clean books and a clear handle on cash flow increasingly determine whether a project gets funded and on what terms.

Author: TGB Editorial