Australian construction price outlook – Q2 2025

Overview

Australia’s construction industry is still under significant pressure and now at a critical point in mid-2025. Labour is scarce, supply chains are volatile, commencements lag and global currents reshape costs.

This isn’t new. What is new is the laser focus on productivity across the economy – with construction sitting squarely in the centre of discussions.

The Productivity Commission’s finding earlier this year, that the number of dwellings completed per hour by housing construction workers has declined by 53% over the last three decades, was a jolt. We are working more hours, paying more and delivering less.

That shows up in material costs. International prices are softening, yet locally intensive inputs such as concrete and plasterboard keep rising (more on this in our material price snapshot below).

Energy costs are part of the story, but the bigger driver is labour, with slower programs, more hours per unit of output and wage growth unbacked by productivity gains.

The message is blunt: our delivery models are going backwards.

There are some bright spots on the horizon. Ahead of the Australian Government’s Economic Reform Roundtable, the federal treasurer noted too many people are “burning cash waiting for approvals to build things”, agreeing that better rules and processes were needed for faster approvals, while still protecting nature.

Federal Housing Minister Clare O’Neil has launched a campaign to reduce red tape, harmonise building regulations and modernise construction practices to lift productivity.

Calls to fix stamp duty so more people can “right-size” are also in the mix. But productivity isn’t just about the size or type of dwelling. It’s about how effectively land, materials and labour are used. Compact, well-located units may deliver broader economic efficiency by reducing commute times and making better use of infrastructure, but the bigger gains come from construction methods and smarter delivery models.

A pilot study by the Construction Industry Culture Taskforce has shown that it is possible to cut costs by shifting from a six-day, 54-hour work week to a five-day, 50-hour schedule. The Taskforce suggests that changes to working hours can improve planning, reduce injuries, lower turnover and boost workforce retention.

The NSW Government is also testing new models. July saw residents move into Grafton’s largest modular social housing project. The state also launched its Housing Pattern Book, offering $1 architect-designed home templates and fast-tracked approvals that could cut construction costs by up to 17%.

Despite these positive moves, financial strain is deepening. In the 2024-25 financial year, construction insolvencies surged nearly 21% year-on-year, reaching a record 3,595 cases. Small businesses, which make up 98.5% of the industry, are particularly vulnerable.

Many insolvencies were tied to simplified restructures, but underlying issues remain: thin profit margins, delayed payments and stricter tax enforcement. This high failure rate is compounding risks for builders and subcontractors, contributing to tighter lending conditions and higher risk premiums across the industry.

The RBA’s decision to lower the cash rate to 3.6% at its August board meeting may ease financing burdens for developers and moderate project costs. However, they risk reigniting house price growth and worsening affordability. A stronger Australian dollar could take some edge off imported materials, though domestic costs are expected to remain sticky so long as projects take longer and consume more labour per dwelling.

Internationally, the Bank of England’s move to ease rates signals a global pivot in monetary policy. But Australia’s housing challenge will not be solved by interest rate reductions alone. Evidence suggests that the real lever is productivity: unless we build faster, smaller and smarter (adopt MMC principles), cheaper credit will only lift house prices, not lower costs.

Outlook on construction cost escalation

| Figure 1 - Altus Group’s outlook on construction cost escalation

Note: These figures are general, and individual projects and asset classes may have dramatically different spreads of costs. Previous forecasts were made in Mar 2025.

Source: Altus Group

We have adjusted our forecast this quarter to reflect a diverging outlook across the major cities.

Brisbane is expected to remain the nation’s escalation hotspot through 2027, fuelled by Olympic-related works, persistent labour shortages and supply chain pressures. Sydney and Melbourne show a slower trajectory due to weaker construction pipelines and fewer major project starts, evidenced by higher rates of trade contractor response to tenders. Perth is also easing after its recent resource-driven spikes.

Although the pace of cost escalation is slowing in most cities, they remain well above pre-2021 levels. Meaningful relief is unlikely before 2028, given entrenched material, labour and regulatory cost pressures.

Escalation rates are highly variable, depending on project type, risk profile, size, location and materials. Given these complexities, it is essential to consult professional quantity surveyors to evaluate project-specific costs and escalation factors. Tailored assessments ensure accurate forecasting and risk management.

Material price snapshot

Figure 2 - A snapshot of Australian construction material price trends - Q2 2025

| Figure 3 - Altus Materials Escalation Index (Australia)

Structural steel and rebar: Asian steel prices remain under pressure from weak Chinese demand and excess supply, flowing through to softer Australian import offers. US tariffs on Chinese steel - now at 50% - are redirecting supply, but price volatility is influenced by a weak Australian dollar and local supply bottlenecks.

Concrete: Concrete prices continue to climb, fuelled by ongoing infrastructure projects, despite low levels of housing activity. Demand for this energy-intensive material remains strong.

Structural timber: Softer demand could place downward pressure on timber prices in the near term. Timber producers in regional Victoria, once bracing for a housing-led boom, are now scaling back operations. Some sawmills are running just four days a week, while a major facility is down to 75% capacity. The Victorian Forest Products Association attributes this to apprentices shifting toward major city infrastructure projects and increasingly complex planning approval processes.

Plasterboard: Prices have trended higher this quarter. As a later-stage construction material, this may indicate a healthy pipeline of projects nearing completion. The upward trend is expected to continue.

Bricks: Prices have eased slightly this quarter but remain high, underpinned by rising manufacturing costs as gas-reliant brick kilns face surging energy bills and higher transport expenses.

Copper: Prices have risen this quarter, though a recent sharp drop in copper trading prices could slow the upward momentum. Demand remains strong, particularly from the electrical trades.

Diesel: Prices have fallen back to pre-pandemic levels, due to lower global demand and higher production from major producers. The drop, tied to crude oil hitting a four-year low, provides some transportation and logistics cost relief.

Macro-economic review

Consumer Price Index

| Figure 4 – All groups CPI, Australia, quarterly and annual movement (%)

Australia’s Consumer Price Index (CPI) rose 0.7% in the June 2025 quarter, taking annual inflation to 2.1% and inside the Reserve Bank of Australia’s 2-3% band. For construction, the key signal is housing (+1.2% q/q). Ongoing pressure from new dwelling purchase prices, rents and maintenance costs is still filtering through to project budgets.

Producer Price Indices - Input

| Figure 5 – Producer Price Indices (PPI) – Input, Australia

Building material prices for house construction rose 0.9% in the June quarter 2025 - the strongest quarterly growth in nearly two years.

Timber, plasterboard and joinery were key contributors (+0.7%), led by timber windows (+1.2%) amid supply shortages. Other metal products also lifted (+1.1%), driven by higher costs for aluminium windows and doors (+1.0%).

Other material prices also rose (+1.2%) due to a sharp 3.9% rise in plaster products. These increases were partially offset by a 1.0% decline in ceramic products, with clay bricks falling 2.4% following price corrections after strong growth in late 2024.

Over the past year, input prices to house construction rose 1.6%.

Producer Price Indices – Output

| Figure 6 – Producer Price Indices (PPI) - Output, Australia

Output prices for building construction rose 0.7% in the June quarter. The lift is less about materials and more about labour-led pricing and capacity constraints.

Annual wage uplifts for large projects and sustained demand for electrical, formwork and finishing trades continue to push margins and prelims. Competition for scarce resources – particularly skilled labour and concrete placement capacity – in the non-residential and infrastructure pipeline keeps a floor under tender rates, even as material escalation flattens.

Despite the quarterly uptick, year-on-year output escalation is trending down, indicating a gradual normalisation from prior peaks.

Wage Price Index

| Figure 7 – Wage Price Index (WPI), Australia

The seasonally adjusted Wage Price Index (WPI) for construction grew by 0.7% in the March quarter and 3.5% over the year, slightly above the national average of 3.4%. Ongoing skilled labour shortages and union pay demands are sustaining wage pressures, lifting project costs while squeezing builder profit margins.

In Western Australia, for instance, a chronic shortage of tradespeople is pushing wages upward, especially as construction firms must compete with the higher-paying mining sector to attract apprentices and skilled labour. This scarcity is delaying projects and further inflating labour costs.

Meanwhile, Construction Skills Queensland forecasts an average shortfall of 18,200 workers over the next eight years, peaking at 50,000 in 2026–27. This gap is likely to drive significant wage pressures.

Building approvals

| Figure 8 – Building approvals, Australia

Dwelling approvals rose by 11.9% in June 2025 to 17,076, driven by a 33.1% surge in multi-unit projects (7,594). Private sector house approvals declined by 2.0% to 9,142.

Over the year to May, NSW approvals reached 24,716 units, overtaking Victoria, supported by government incentives tied to affordable housing quotas. Yet this uplift in approvals has not translated into delivery. In Western Sydney, for instance, more than 35,000 approved homes remain unbuilt, with only 5,405 under construction against a target of 24,000 a year. Persistent labour shortages, rising input costs and limited enabling infrastructure keep supply constrained and costs high.

The value of total residential approvals rose by a modest 0.3% to $9.41 billion while, non-residential approvals jumped 15.0% to $7.23 billion. This points to a rebound in commercial and public sector developments.

Dwelling completions have stabilised to around 15,000 per month over the past year, slighly below approval numbers.

Summary

Australia’s material costs aren’t simply a function of commodity curves. They are a mirror held up to our delivery models. International material prices can fall, but if projects run longer and consume more labour per unit of output, locally intensive materials will stay high.

With the Australian Government’s Economic Reform Roundtable focusing all sectors on productivity, construction needs a practical reset that shows up in the bill of quantities.

What might that look like?

1. Design for less. Smaller footprints, fewer bespoke details, tighter specifications. This lowers material intensity immediately and trims trades time, while having the extra benefit of cutting embodied carbon.

2. Standardise and repeat. Expand NSW’s pattern-book logic with common grids, repeatable wall types and pre-approved assemblies, from the lower density housing into the larger scale unit developments.

3. Shift offsite. Target elements with high labour intensity on site, like bathroom pods. Offsite isn’t always cheaper per unit price, but if it is faster, and speed equals savings.

4. Digitise delivery. Champion digital by default across design, procurement and site control to compress durations and cut rework.

5. Procure for productivity. Bring in contractors earlier and reward program certainty, rather than the lowest headline price.

Material prices won’t come down meaningfully until productivity goes up. We must start treating productivity as a costed material. Design, procure and measure it like concrete and steel. Only then will Australia start to bend the cost curve back toward affordability.

Methodology

Market research into the supply cost of core materials is conducted on a quarterly basis with manufacturers and suppliers. Our market assessment also involves a thorough analysis of secondary sources of market data on materials and labour prices.

These sources include the Australian Bureau of Statistics (ABS), the Australian Institute of Quantity Surveyors (AIQS), Fuel Price Index, Metal and Raw Material Price, and proprietary cost data from Altus Group.

Disclaimer

This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice or services of Altus Group, its affiliates and its related entities (collectively “Altus Group”). You should not act upon the information contained in this publication without obtaining specific professional advice.

No representation or warranty (express or implied) is given as to the accuracy, completeness or reliability of the information contained in this publication, or the suitability of the information for a particular purpose. To the extent permitted by law, Altus Group does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

The distribution of this publication to you does not create, extend or revive a client relationship between Altus Group and you or any other person or entity. This publication, or any part thereof, may not be reproduced or distributed in any form for any purpose without the express written consent of Altus Group.

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