Construction costs continue to rise, a stark reminder that the nation’s housing shortage isn’t going away anytime soon.
According to Cotality's latest Cordell Construction Cost Index, construction prices were up 1% nationwide, during the December 2025 quarter. That was the highest quarterly growth in a year, with prices up 0.4%, 0.5% and 0.6% in the first three quarters of the year, comparatively.
"This is clear evidence of renewed momentum across the December quarter," said Tim Lawless, research director at Cotality.
Meanwhile, amid the nation's persistent housing shortage, PPrime Minister Anthony Albanese's Labor party set out to build 1.2 million new homes nationwide by 2029 under the National Housing Accord.
"But that goal is proving elusive," Saul Eslake, Hobart-based economist, told Australian Broker.
"I don't think anybody really believes that that target of 1.2 million in five years is now achievable."
In addition to rising construction prices and an ongoing labor shortage, Eslake said the housing crisis is "a case of persistent delays in getting projects approved and then, once they are approved, it's taking longer to complete dwellings."
Australian building approvals rose slightly in November, up 15.2% in the month. But market players were not convinced it was fast enough.
"It is a really jumpy series [of data]," said Madeline Dunk, an economist at ANZ. "But at the end of the day, if you look at where approvals are relative to history, they're still pretty soft. And particularly when you think about how many more people we have [in Australia] compared to let's say 10 years ago."
By state, prices rose the most in Western Australia and South Australia, each increasing 1.2% during the December quarter. This underscores the rapid pace of activity in these markets, and the resulting shortages of construction materials and labour.
"The year ahead is likely to be shaped by cost volatility, labour constraints, and supply chain adjustments," said John Bennett, construction cost estimate manager at Cotality. "Price updates from vendors and the ongoing shortage of skilled trades will remain the primary hurdles for the sector. Careful monitoring of material pricing and workforce availability will be critical to navigating 2026.”
Meanwhile, at the national level, construction costs continue to climb, driven by broader inflationary pressures.
While both headline inflation and trimmed mean inflation fell during November, inflation is still outside of the Reserve Bank of Australia's (RBA) target band.
The nation's headline consumer price index (CPI) rose 3.4% in the year leading up to November, down from 3.8% in October. Trimmed mean inflation increased 3.2% during the same time period, down from 3.3% in the 12 months leading up to October, according to the Australian Bureau of Statistics (ABS).
September's quarterly CPI reading — which many economists believe is a clearer measure of underlying inflation because it tracks trends in the market — also revealed that both headline CPI and trimmed mean inflation were on the rise.
Moreover, the figures were likely higher than the RBA would have liked. The Bank remains steadfast in its commitment to the 2% to 3% inflation target and has made it clear that interest rates will not be cut until inflation is firmly back within that band.
