Australian construction costs are set to remain elevated over the next three years, with national business-as-usual (BAU) escalation forecast at 5.5% for building and 5.1% for infrastructure in 2026, according to the latest edition of WT’s Australian Construction Market Conditions Report.
The report, published twice yearly, provides city-by-city escalation forecasts across building and infrastructure. This edition introduces a deliberate methodological shift in response to the Middle East conflict that erupted in February 2026, separating BAU escalation from the direct cost impacts of the conflict to give the industry a clearer and more useful baseline for decision-making.
WT Construction Economist Damon Roast said the approach reflects the reality that direct Middle East impacts vary significantly by project type, materials mix and supply chain exposure.
“Bundling the direct impacts of the Middle East conflict with business-as-usual escalation would misrepresent the cost pressures the industry is actually facing,” Roast said.
“The direct impacts on construction costs have been significant in some areas, particularly for infrastructure projects with heavy reliance on oil products. But for many building project types, the affected materials represent a relatively small proportion of overall costs, and the presence of substitute materials or alternative sourcing is helping to cap price pressures.”
“A single, blanket escalation figure simply doesn’t reflect that diversity. Our approach gives clients and the industry a reliable baseline from which to assess and manage risk on a project-by-project basis, which is how it should be done.”
BAU escalation remains significant
Even excluding the direct Middle East impacts, the report finds that underlying cost pressures remain firmly elevated. BAU escalation captures all other contributors to cost growth, including normal market factors, new Enterprise Bargaining Agreements, and the indirect effects of the conflict such as profiteering, pipeline changes and workforce impacts.
National BAU escalation is forecast to ease to 5.3% for building and 5.0% for infrastructure in 2027, before rising again to 5.8% for building and 5.2% for infrastructure in 2028 as economic recovery takes hold.
Brisbane remains the nation’s most pressured market, with BAU building escalation forecast at 6.5% in 2026, rising to 10.0% by 2028 as the Brisbane 2032 Olympic and Paralympic Games pipeline intensifies. The Sunshine Coast (7.0%) and Gold Coast (6.8%) round out the nation’s three highest-escalation markets in 2026.
Perth is also forecast to see strong building escalation of 6.7% in 2026, supported by continued strength in mining, population growth and healthy state government finances.
Sydney and Melbourne are expected to soften, with building escalation of 4.8% each in 2026, as interest rate pressures and the Middle East situation weigh on commercial and residential pipelines.
Economic outlook and scenario planning
WT’s base-case scenario anticipates a deal on the Middle East conflict by mid-July, with supplies returning to pre-conflict levels by Q2 2027. Under this scenario, an economic slowdown is likely, with recession quite possible, though interest rate relief and fiscal stimulus could provide support.
The report also models positive and negative scenarios. Under the negative scenario, a resolution is not reached until August or September 2026, with supplies unlikely to recover before the end of 2027, leading to a potentially major recession despite fiscal and monetary support.
WT National Director James Ford said the current environment demands a disciplined approach to cost planning and risk allocation.
“The construction industry is navigating one of its most complex periods in recent memory. Clients and project teams need clear, reliable information to make sound decisions, not headline numbers that conflate fundamentally different cost pressures.”
“This report reflects our commitment to giving the industry the rigour and clarity it needs, especially when conditions make that harder to deliver,” Ford said.