Why are construction costs still rising in Australia?

Multiple factors are driving sustained cost increases: labour shortages, Olympic infrastructure spending in Queensland, strong population growth, government capital works programs, higher construction wages, and ongoing capacity constraints. These pressures are expected to continue for the foreseeable future, particularly in South East Queensland.

How does rising construction cost affect my property insurance?

If your property's rebuild cost has increased but your insurance sum insured has not been reviewed, you may be underinsured. In the event of a major loss, your insurer may only pay out in proportion to the level of cover. An annual Insurance Replacement Cost Assessment by a Chartered Quantity Surveyor ensures your policy reflects true current market costs.

I am a developer — what should I do about rising construction costs?

Review your feasibility with current market rates, not historical benchmarks. Ensure your cost plan includes appropriate escalation allowances (especially for projects spanning multiple years) and contingencies of 5–15% depending on risk profile. Engage an independent Quantity Surveyor early for cost planning, tendering advice and drawdown reporting.

Why do lenders want independent QS reports?

Banks and financiers use independent QS reports to validate project budgets, assess remaining costs to complete, verify drawdown claims and ensure adequate contingencies. With construction costs elevated, lenders are more focused than ever on cost risk to avoid funding shortfalls mid-project.

Does rising construction cost affect my tax depreciation schedule?

Yes, for new construction. Higher construction costs mean higher capital works (Division 43) values, which can increase annual deductions at 2.5%. For existing properties, the tax depreciation schedule is based on historical construction cost at the time the property was built, so cost escalation does not directly alter existing schedules.

How does Koste help property owners and developers navigate rising costs?

Koste provides Insurance Replacement Cost Assessments, Tax Depreciation Schedules, Construction Cost Planning, Financier Reports, Progress Claims, Cost to Complete Assessments, Asset Registers and Capital Expenditure Planning. Our Chartered Quantity Surveyors work across residential, commercial and industrial sectors throughout Australia.

Australia's Construction Costs Continue to Rise — What Every Property Owner, Investor and Developer Needs to Know

Construction costs haven't returned to normal. They have become the new normal.

For several years, many in the property industry expected construction costs to stabilise as supply chains recovered from COVID-19. That hasn't happened.

The latest Australian Construction Market Conditions Report released by WT Partnership indicates that construction cost escalation is expected to remain elevated over the coming years, particularly across South East Queensland where demand continues to outpace industry capacity.

What is driving construction costs?

Construction costs today are no longer being driven solely by material shortages. The market is experiencing pressure from multiple directions:

Labour shortages — skilled tradespeople remain in high demand across all states
Olympic infrastructure projects — Brisbane 2032 has accelerated regional construction activity
Population growth — demand for housing and commercial space remains strong
Government capital works — competing for the same workforce and materials
Higher wages — construction award rates and enterprise agreements have increased significantly
Capacity constraints — builder capacity is stretched across all sectors
Delayed developments — projects deferred during COVID are now flooding back, compressing the pipeline

Queensland, particularly Brisbane, the Gold Coast and the Sunshine Coast, continues to experience some of Australia's strongest construction activity.

| Cost Driver | Impact Level | Regions Most Affected | |---|---|---| | Labour shortages | 🔴 Very High | All states | | Olympic infrastructure | 🔴 Very High | SE Queensland | | Population growth | 🟠 High | QLD, NSW, VIC | | Government capital works | 🟠 High | NSW, QLD, VIC | | Higher wages (awards + EBAs) | 🟠 High | All states | | Capacity constraints | 🟠 High | All major cities | | Delayed projects returning | 🟡 Medium | Residential, commercial |

Why this matters for property owners

Insurance

> ⚠️ Underinsurance warning: Australian insurers estimate that up to 80% of commercial and strata properties are currently underinsured — meaning in the event of a total loss, owners would face a significant out-of-pocket shortfall. Rising construction costs are the primary reason policies fall behind.

If your building replacement cost has increased but your insurance has not been reviewed, you could be underinsured. In the event of a major loss, this may result in significant out-of-pocket costs. An independent Insurance Replacement Cost Assessment by a Chartered Quantity Surveyor ensures your policy reflects today's true rebuild cost.

Renovations

Projects that appeared financially viable twelve months ago may now require revised budgets and contingencies. Getting independent cost advice before committing to a renovation avoids costly surprises. Use our Renovation Cost Calculator to get an indicative budget before engaging a builder.

Investment properties

Higher construction costs ultimately influence replacement value, depreciation opportunities on new construction, and long-term asset values. Understanding this can improve your investment decisions. See how depreciation interacts with your property using the Tax Depreciation Calculator.

What it means for developers

Feasibility margins continue to tighten. Even relatively small increases in construction costs can significantly impact project viability. Developers should be reviewing:

Construction budgets and current market rates — use Koste's Construction Cost Estimator for professional-grade estimates
Escalation allowances for multi-year projects
Contingencies (industry standard is 5–15% depending on risk)
Funding assumptions with lenders
Project timing relative to market cycles

Independent quantity surveying advice — including cost plans, feasibility reviews and progress claims — has never been more valuable.

> 💡 Rule of thumb for developers: For every 10% increase in construction costs on a $2M project, the total cost blows out by $200,000. On a $10M development, that same 10% rise costs an additional $1M. Escalation allowances built into your cost plan protect feasibility when markets move.

Why lenders are paying closer attention

Banks and financiers are increasingly focused on construction cost risk. Independent Quantity Surveyor reports assist lenders by providing confidence around:

Project budgets and market-rate validation
Remaining costs to complete
Drawdown claims and payment schedules
Construction progress assessments
Cost contingency adequacy

Accurate reporting helps reduce the risk of funding shortfalls during construction.

The hidden risk many owners overlook

Many commercial buildings, strata properties and investment assets have not had an Insurance Replacement Cost Assessment completed for several years. With ongoing cost escalation, many policies may no longer reflect the true cost of rebuilding today.

This is not just a theoretical risk. Underinsurance regularly results in significant financial loss when claims are made on policies that haven't kept pace with market construction costs.

Looking ahead

While economic conditions may fluctuate, one trend remains clear — construction costs are expected to remain elevated for the foreseeable future. For property owners, investors and developers, waiting until a project begins is often too late.

Understanding construction costs early allows better decisions around budgeting, financing, insurance and project feasibility. Koste's National Construction Cost Database covers 153 verified cost entries across all Australian cities and property types — updated quarterly. ---

Source This article references findings from the WT Partnership Australian Construction Market Conditions Report — June 2026. All commentary, analysis and opinions are Koste's own.

Written by Koste Team · Koste Chartered Quantity Surveyors · AIQS Member · RICS Member · TPB Registered · 1300 669 400 · info@koste.ai