A detailed comparison of the two biggest cost shocks to hit Australian construction in living memory, and what the lessons of one tell us about surviving the other.

The comparison gets made constantly now. Builders mention it on job sites. Industry bodies invoke it in submissions to government. The media reaches for it as shorthand.

COVID 2.0.

It is understandable. The surface similarities are hard to ignore. Supply chains under pressure. Material costs spiking. Builders on fixed-price contracts absorbing costs they did not see coming. A government scrambling to respond. An industry asking whether it will make it through.

But the comparison only goes so far. And understanding where it breaks down is just as important as understanding where it holds.

This is a close look at both shocks. What drove each one. How fast they moved. What the government did and did not do. What happened to insolvencies. And what recovery actually looked like the first time, because that matters a great deal for what comes next.

The First Shock: How COVID Hit Construction

When COVID-19 arrived in March 2020, the initial fear in construction was a demand collapse. Home builders reported contract cancellation rates above 30 per cent in the weeks after the national shutdown. The Reserve Bank of Australia warned dwelling investment was expected to fall by around 20 per cent through the June quarter.

The government’s response was swift and deliberately targeted at the industry. The HomeBuilder program was announced on 4 June 2020, offering eligible owner-occupiers a $25,000 grant to build a new home or complete major renovations. Combined with state and territory first homeowner grants, the package was significant.

It worked, in the short term. Approvals for private new houses increased sharply across every state and territory. New house approvals and commencements peaked in June 2021. At that moment, the construction pipeline was the fullest it had been in a generation.

Then the second phase arrived.

The supply shock that followed the demand surge was not immediate. It built over months. Global shipping routes were disrupted. Timber supply from North America tightened as US housing demand surged simultaneously. Steel supply became erratic. Border closures removed the migrant labour that had underpinned roughly 20 per cent of the construction workforce before the pandemic.

The ABS data tells the story precisely. From September quarter 2020 to June quarter 2024, prices received by building construction businesses increased 31.1 per cent. House construction prices rose 40.8 per cent over the same period. In the 2021-22 financial year alone, building material costs rose 17 per cent.

The cost increases did not flow through overnight. They accumulated across 18 months to three years. Builders who had signed fixed-price contracts during the stimulus-fuelled rush of 2020 and 2021 found themselves delivering homes in 2022 and 2023 at prices that no longer covered their costs.

The problem with COVID was not the shock itself. It was what came after. A demand surge followed by a cost surge, stacked on top of contracts that had no room for either.

The Second Shock: How the Middle East Is Different

The Middle East conflict is a different animal. The transmission mechanism is faster, the inputs affected are different, and the starting conditions for the industry are far worse.

COVID was initially a demand shock. Clients stopped signing contracts. The risk was emptiness, not unaffordability. The government could respond by stimulating demand because the cost of building was still manageable.

The Middle East conflict is an energy and supply shock from the first day. Oil prices rose sharply as soon as the Strait of Hormuz was disrupted on 28 February 2026. Fuel surcharges hit transport operators within days. Supplier price notifications to builders followed within weeks.

The speed is the key difference. Major supplier Iplex notified Reece Plumbing customers of increases of 27 per cent on PVC products, 36 per cent on polyethylene and 31 per cent on polypropylene, effective from 17 April, roughly six weeks after the conflict began. During COVID, equivalent cumulative increases took two to three years to materialise.

The nature of what is being affected is also different. COVID hit timber, steel and labour hardest. Those inputs are not primarily petroleum-derived. The Middle East conflict is targeting petroleum-derived materials directly: PVC, polyethylene, polypropylene, bitumen, foam insulation, adhesives, coatings. Every one of them sits upstream of oil. When the Strait of Hormuz closes, their input costs move immediately.

Diesel is the other key distinction. Civil construction, earthworks, concrete delivery and materials transport all depend on diesel. Diesel prices across Australia rose more than 40 per cent in the four weeks following the conflict’s escalation. During COVID, diesel was broadly affordable because demand collapsed globally and oil prices fell sharply in 2020’s early months.

What the Numbers Show: A Direct Comparison

	COVID-19 (2020-2023)	Middle East Conflict (2026)
Trigger	Demand shock then supply shock	Energy and supply shock from day one
Speed of cost escalation	Gradual: costs rose over 12-18 months	Rapid: major price hikes within 3-4 weeks
Cumulative cost rise	30.8% over approx. 3 years	Up to 36% on specific materials in weeks
Interest rate environment	Record lows (0.1% cash rate)	Rates elevated; RBA forecasting 5% inflation
Government demand response	HomeBuilder: $2.64bn in grants, record new starts	No demand stimulus; supply-side fuel relief only
Construction insolvencies	Suppressed during COVID; surged 2022-2025	3,596 in 2025; entering shock on a high base
Housing demand conditions	Surging; lifestyle shift, interstate migration	Softer; affordability-constrained buyers
Builder contract exposure	Fixed-price contracts signed at low-cost era	Fixed-price contracts signed post-COVID at elevated base
Primary input affected	Timber, steel, labour	Petroleum-derived materials, diesel, freight
Recovery timeline (COVID)	Costs peaked ~2022; gradual stabilisation 2024-25	Too early to assess; depends on conflict duration

The table above reveals two things clearly. First, the Middle East shock is faster and more immediately expensive on specific inputs. Second, it has arrived when the industry is carrying much less buffer than it had in 2020.

The Insolvency Picture: Coming In Already Exposed

This is where the COVID comparison becomes most important, and most uncomfortable.

During COVID itself, construction insolvencies were artificially suppressed. The federal government introduced temporary relief for financially distressed businesses and directors trading insolvent. The Australian Taxation Office paused its standard debt collection activity. Builders stayed afloat on stimulus, deferred debt and government forbearance.

When those protections wound back and the ATO returned to what it described as business-as-usual debt collection from late 2022, the industry’s underlying fragility became visible.

The data from the Australian Securities and Investments Commission tracks the wave precisely. In 2022, 1,793 construction firms entered external administration. In 2023, that rose to 2,546, a 42 per cent increase. In 2024, 3,217 construction firms collapsed or entered administration, another 26 per cent rise. In 2025, ASIC recorded 3,596 construction insolvencies.

For context: construction has accounted for approximately 27 per cent of all company failures nationally in recent years, an unprecedented share for a single industry.

The collapse of Porter Davis Homes in 2023, with over 1,700 homes in progress, became the symbol of the era. Privium, Oracle, Condev, Pivotal Homes, BA Murphy, LDC and many others followed. The pattern was almost always the same: fixed-price contracts signed when costs were low, delivered when costs had risen sharply, with no mechanism to recover the difference.

The Australian construction sector is now entering the Middle East shock carrying all of that history. The insolvencies have not stopped. The fixed-price contract problem has not been resolved. The ATO is still active. Interest rates have only partially eased. And the cost base has not returned to pre-pandemic levels.

The industry is not entering this shock from a position of strength. It is entering it already stretched, already exposed, and with far less government forbearance available than it had in 2020.

What the Government Did in COVID. What It Is Doing Now.

The contrast in government response is the sharpest point of difference between the two events, and the one builders should understand most clearly.

COVID: A demand-side response to a demand-side problem

The HomeBuilder program was a direct, targeted intervention in residential construction. The federal government ultimately paid out $2.64 billion in grants to eligible owner-occupiers. Dwelling approvals rose 40.2 per cent from 2019-20 to 2020-21. New house commencements peaked in June 2021.

Alongside HomeBuilder, there was JobKeeper wage support, record-low interest rates set by the Reserve Bank, state and territory first homeowner grants, stamp duty concessions and planning reforms designed to fast-track approvals. The policy response was, by any measure, comprehensive.

It was also demand-side. When the problem was that clients were not signing contracts, giving clients money to sign contracts made direct sense. The government could create activity because the cost of building was still manageable.

Middle East 2026: A supply-side response to a supply-side problem

The government’s response this time is smaller in scale and different in design. The fuel excise was halved from 52.6 cents per litre to 26.3 cents per litre for three months from 1 April 2026, at a budget cost of approximately $2.55 billion. The heavy vehicle road user charge was reduced to zero for the same period. Emergency fuel security legislation was introduced. Lower fuel quality standards were temporarily permitted to keep supply flowing.

Housing Minister Clare O’Neil convened a roundtable with building and construction industry leaders on 24 March. The government stated it would monitor price pressures and work with industry on alternative supply pathways.

What is absent is notable. There is no construction-specific demand stimulus. There is no direct protection for builders on fixed-price contracts. There is no mandated rise-and-fall provision for existing projects. The Australian Constructors Association has called explicitly for these measures, noting that during COVID and the Ukraine conflict the government worked with industry and unions to implement short-term measures that kept projects moving.

Those measures have not arrived. With a federal budget weeks away, the industry is watching carefully.

What Recovery Actually Looked Like After COVID

This is the question that does not get asked enough. Because the COVID comparison is frequently invoked to describe the shock. It is less often used to examine what came after.

Recovery from the COVID cost shock was not a clean event. It was a slow, uneven process that unfolded across several years and is arguably still incomplete.

Material costs peaked broadly in 2022 and began easing in 2023 as global supply chains normalised, shipping capacity returned, and commodity demand cooled in key markets. But they did not fall back to pre-pandemic levels. The ABS data shows the average cost of completed homes in Australia rose from $345,410 in 2019-20 to $443,828 in 2023-24. That is not a partial increase. That is a structural shift.

Build times, which had sat at seven to nine months pre-COVID, extended to twelve to fourteen months at the peak of the backlog and have not fully returned. Labour shortages persisted well beyond the material cost normalisation. Migrants had covered roughly 20 per cent of construction jobs before COVID but accounted for only around five per cent of the workforce in the years following, according to Master Builders Australia.

Insolvencies did not peak until 2024, two years after material costs began to ease. That lag matters. Builders were still completing fixed-price contracts signed in 2020 and 2021 deep into 2023 and 2024. Each completion crystallised a loss. The insolvency wave was the delayed financial consequence of contracts signed during the boom.

The RBA’s own October 2022 Financial Stability Review noted the dynamic explicitly: builders that primarily worked with developers rather than retail buyers had been able to switch to more flexible contracts, but those working under retail fixed-price arrangements remained exposed to further increases in input costs.

Recovery, in other words, required the entire backlog of pre-COVID and early-COVID contracts to work through the system. That took years. And it required material costs to at least stabilise, even if they did not fall.

Recovery from the Middle East shock will depend on two things above all: how long the conflict lasts, and whether the government moves on contract protections. Both are uncertain. Neither is within a builder’s control.

The Uncomfortable Truth About Fixed-Price Contracts

Both shocks have the same structural villain. Fixed-price contracts in an industry where input costs can move dramatically and unpredictably.

During COVID, builders signed contracts at 2020 prices and delivered homes in 2022 at costs that had risen 30 per cent or more. They could not recover the difference. Many did not survive.

In 2026, builders are signing or managing contracts at 2025 prices. Some of those contracts will be delivered at 2026 or 2027 costs that are now beginning to climb again, starting from a base that is already 35 per cent above 2019 levels.

The Australian Constructors Association’s position is unambiguous. Contractors should not have to gamble the future of their businesses on events entirely beyond their control. The call for rise-and-fall clauses is not new. It preceded both COVID and the current conflict. But both events have made the case more urgent.

Some states already allow escalation clauses for unforeseen circumstances in certain contracts. NSW, Queensland, South Australia, Tasmania, the ACT and the Northern Territory have provisions in varying forms. Victoria and Western Australia impose tighter restrictions. The result is a patchwork that does not protect the industry consistently or comprehensively.

Until contract frameworks catch up with the reality of an industry operating in an environment of persistent geopolitical and supply chain risk, the fixed-price problem will keep producing the same outcome.

What Builders Should Take From This Comparison

The comparison to COVID is legitimate. The two shocks share a common mechanism: external events driving up input costs for builders on contracts that do not allow for recovery. The human consequences in both cases fall hardest on builders in the middle of projects, subcontractors dependent on single builder relationships, and clients left with incomplete homes.

But the differences matter for how builders respond right now.

• The cost escalation is faster this time. What took 18 months in COVID has taken weeks for specific inputs. Builders cannot wait to understand their exposure. They need to know it now.
• The demand environment is weaker. In 2020, the government stimulated demand and clients were eager to build. In 2026, affordability is already strained, interest rates are elevated, and the RBA is warning of 5 per cent inflation by June. Clients are not rushing to sign new contracts. The pipeline cannot be counted on to absorb the shock the way it did in 2020.
• The industry’s buffer is thinner. In 2020, insolvencies were being suppressed by government protections. In 2026, the industry has already been through the worst insolvency wave since at least the 1990s. There are fewer large builders. The supply chain is already running tight. There is less slack to absorb another hit.
• Government support is more targeted and less generous. The fuel excise cut is real but narrow. There is no HomeBuilder equivalent. The construction-specific support builders need on contracts has not arrived.
• Documentation and evidence matter more than ever. The COVID experience showed that builders who could demonstrate cost escalation through evidence had more options, legally and commercially. The same logic applies now. Start documenting cost movements immediately.

The Question of Recovery

What recovery looks like from the Middle East shock depends almost entirely on how long the conflict lasts.

In the most optimistic scenario, a diplomatic resolution arrives by mid-2026. Shipping gradually normalises. Petroleum-derived material prices ease over the following two to three quarters. The fuel excise cut is extended or a successor measure announced. The industry absorbs the shock with a wave of project renegotiations, some insolvencies among the most exposed operators, and a gradual return to stability heading into 2027.

In the central scenario, the conflict continues through late 2026. The fuel excise cut expires in June without a comparable replacement. Material costs remain elevated. A new wave of insolvencies emerges, concentrated among builders on fixed-price contracts signed in 2024 and 2025. Government contract protections arrive too late for the most exposed businesses.

In the worst case, the conflict extends into 2027. The construction industry faces a second sustained cost shock on top of a base it has not recovered from. Insolvency rates rise significantly. The government’s 1.2 million homes target, already tracking toward a 380,000 shortfall by 2030 according to Master Builders Australia’s most recent forecasts, drifts further out of reach.

Recovery from COVID took years and required a specific combination of stabilising material costs, clearing the fixed-price contract backlog, and gradual labour market normalisation. Recovery from this shock will require the same combination, plus the resolution of an active geopolitical conflict. That is a harder set of conditions to meet.

The TGB Takeaway

COVID did not break Australian construction. But it bent it badly. The industry came through the other side carrying higher costs, thinner margins, a depleted supply chain, fewer builders, and a wave of insolvencies that has only just begun to slow.

The Middle East conflict has arrived into that environment. Not into a rested, recovered industry, but into one still finding its footing.

The comparison to COVID is useful. It tells builders what the mechanism looks like. It tells them that fixed-price contracts in a volatile cost environment are a structural problem that will not fix itself. And it tells them that recovery is possible, but that it is measured in years, not months.

The builders who came through COVID were not the ones who waited to understand their exposure. They were the ones who moved early, documented everything, held volume discipline, talked to their lawyers and suppliers before the pressure became a crisis, and stayed close to their numbers when everyone else was guessing.

That is the same playbook now.