Construction costs are expected to remain elevated over the next three years, even without factoring in the impacts from the Midde East conflict.
This edition of the Australian Construction Market Conditions Report introduces a deliberate methodological shift in response to the Middle East conflict that erupted in February 2026, separating business-as-usual escalation from the direct cost impacts of the conflict to give the industry a clearer and more useful baseline for decision-making.
About the report
Released bi-annually, our economic analysis focuses on cost escalation from a broad market perspective of national, city and sector trends in building and infrastructure, offering unparalleled insight into Australia’s construction sector.
Frequently asked questions
Business as usual (BAU) construction cost escalation reflects the underlying increase in costs driven by normal market conditions, excluding direct Middle East cost shocks.
It includes labour, supply and pipeline factors already present in the market, along with indirect effects of recent global events, providing a clear baseline for how costs are moving.
Use the BAU forecast as your baseline. Then work with your cost advisor to assess direct Middle East exposure specific to your project. That’s how sound cost planning works, and it’s how risk should be allocated in contracts.
Construction cost escalation is expected to remain elevated over the next three years, even on a BAU basis.
National escalation is forecast to stay above 5 per cent, with stronger pressure in markets with high activity and limited capacity.
Queensland state finances are already under pressure, and the direct Middle East cost impact plus elevated BAU escalation could put more projects at risk.
Victoria’s financial outlook is also challenged, with the November election and May 2027 Budget key variables.
Perth and Canberra appear best placed given their respective pipeline strengths and fiscal positions.
Elevated construction costs flow directly into housing costs. Detached housing is particularly exposed to Middle East impacts, and the overdue residential construction upswing may be further delayed. Demand remains high, but the supply response is being constrained by both cost and capability pressures.