Construction costs set to rise as labour shortages and material costs worsen

The sharpest price increase will be felt in Brisbane, where tender prices are predicted to increase from 5 per cent in 2026 to 7 per cent in 2029, followed by Gold Coast where tender prices are set to rise from 5.5 per cent to 7 per cent in the same time frame. Tender prices in Melbourne and Sydney will rise incrementally from 4 per cent to 4.5 per cent in the three years from 2026 to 2029.

Construction, property and management consultants at Rider Levett Bucknall found Australia’s tender price index sat at 4.6 per cent in September – unchanged since the June quarter.

In their Construction Market Update for the September quarter, RLB economists expect tender prices to grow to an average of more than 5 per cent over the next few years, well above the 2014 to 2019 average of 3.3 per cent. 

Middle East conflict drives higher construction material costs

Conflict in the Middle East is a major factor in price expansion and has pushed up the cost of fuel, freight and energy-intensive materials such as concrete. Higher diesel prices have flowed into road freight, concrete deliveries, earthworks and regional logistics costs, and the end of the federal government’s fuel excise discount on August 2 has added further pressure to diesel prices.

RLB data highlights the direct impact of the US war on Iran, with major concrete suppliers introducing surcharges of about $8 per cubic metre in late March, then $18 per cubic metre in April.

Similar cost hikes were applied to products like bitumen, global shipping rates and plastic pipes and fittings.

Builders absorb rising costs amid fierce competition

Despite this, competition among construction companies is so fierce that some firms are not passing on the full impact of rising costs, RLB research has found. 

Instead, these costs are being absorbed by contractors across the nation, with Perth the only city recording an uplift in tender prices (by 0.9 per cent) in the September quarter. 

“While the Middle East conflict has been a factor on input costs – particularly for diesel and oil-intensive products like bitumen and plastic pipes and fittings that really jumped in price in March and April, on our numbers – this hasn’t really fed through to the overall price that builders are charging,” says RLB Oceania chief economist Trent Wiltshire. 

“There hasn’t been that much pass-through to final costs, which is much less than what we would have thought back in March and April at the peak of the conflict. 

“So there’s some pass-through [of costs], but it’s been more [pronounced] in Western Australia. Some builders have passed them on in Sydney and Melbourne, but others are offering very low prices because they want to win work.” 

Labour shortages and data centres push construction costs higher

Australia’s construction industry is also facing intense labour shortages, particularly in Queensland, Western Australia and South Australia. Job advertisements for construction workers in these cities rose above pre-COVID levels, and unemployment rates sit below the national average.

While the number of construction workers is growing, the pace is not meeting the expected workload – particularly with the 2032 Olympic Games and continued boom in data centres. 

RLB’s report warns that upcoming wage pressures will play a role in the next round of construction enterprise agreements, many of which are due to expire in 2027.

Despite the price pressures, construction activity across the country is extremely high. Australian Bureau of Statistics data shows the value of non-residential work done by June this year reached $17.9 billion – up from $16.1 billion at the same time last year. 

Wiltshire says major projects including data centre development are keeping the construction sector busy.

“Data centres are part of the broader industrial centre as well, and obviously that pipeline’s absolutely booming, and that’s a positive for this sector,” he says.