Output prices for building construction are back on the rise as a recovery in new housing demand has enabled home builders to pull back on offering discounts and regain pricing power, new data suggests.

And price growth is accelerating in commercial and multi-residential building construction.

But prices for civil construction are broadly stable.

The Australian Bureau of Statistics has released the September quarter edition of its Producer Price Index report.

In terms of construction, the report provides a snapshot of price and cost movements across both the building and civil construction sector.

In terms of building construction, the rate of output price growth reaccelerated from 0.7 percent in the June quarter to 1.3 percent in the September quarter.

Predominately speaking, this is being driven by a return to price growth in the detached house segment of the market.

Prior to the September quarter, pricing conditions in this sector had been extraordinarily weak as high interest rates and affordability pressures had forced builders to offer heavy discounts to attract consumers, particularly in New South Wales and Victoria.

This had seen output prices in this sector contract across both the December and March quarter before remaining virtually unchanged (+0.2 percent) in the June quarter.

In the September quarter, however, price growth reaccelerated to 1.2 percent as stronger market conditions enabled builders to regain pricing power.

“House construction prices rose this quarter, with the annual growth rate climbing for the first time since June quarter 2024,” the ABS noted.

“New South Wales, Victoria and Queensland contributed notably to the rise, with demand allowing builders to reduce incentive offers and pass-through higher input costs, particularly related to labour.”

(Note: the report measures output prices for the actual construction component of building only. This excludes items such as land values and GST, and may not necessarily follow movements in broader property prices.)

Outside of detached housing, output price growth is also accelerating in multi-residential building construction and commercial-non-residential building construction.

Between the June and December quarters, the rate of output price growth reaccelerated from 0.8 percent to 1.3 percent in multi-residential construction and from 0.9 percent to 1.4 percent for commercial/non-residential building construction.

This represents the fastest quarterly level of output price growth in each of these sectors since the June quarter of 2024.

According to the ABS, price growth in these sectors is being primarily driven by worker shortages and labor costs.

The effect of these was compounded in the September quarter by scheduled wage rises associated with enterprise agreements in Queensland.

These higher labor costs are also feeding through into price increases for concrete and electrical trades, the ABS notes.

Finally, the ABS notes that higher output prices in these sectors are also being driven by higher levels of project risk. These are caused by high levels of construction insolvency and concerns about potential project delays arising out of the ongoing labor shortages.

This is leading to a more conservative approach from construction contractors when tendering for major projects as builders seek higher margins to compensate for the greater levels of risk.

Turning to heavy and civil engineering construction, prices increased by a modest level of 0.3 percent during the September quarter and 1.8 percent over the past year.

Whilst this sector has been heavily impacted by labour shortages, price movements are affected by fluctuations in international commodity prices and exchange rates.

According to the ABS, wage prices have been the most significant price pressure in this sector.

These have been offset by other factors, however, such as falling prices for concrete.

Huge rises since COVID

The report also lays bare the extent of cost increases which have occurred since COVID.

Over the five years to September 2025, output prices for building construction and heavy and civil engineering construction have risen by 35.7 percent and 24.2 percent respectively.

Skilled factors driving cost trends into 2026

The report comes as several factors are influencing current cost trends.

It is latest report, quantity surveying and cost management firm Rawlinsons indicated that it expects the overall rate of construction tender price inflation across calendar 2025 to come in at between 3.5 and 6.0 percent across Australia’s eight major capital cities.

Since the June quarter, Rawlinson said that the rate of cost and price escalation has generally increased on account of strong pipelines of work.

It said that key factors which are driving cost escalation include skilled labour shortages, uncertainty surrounding trade tariffs and fluctuations in energy prices.

It noted that these trends are likely to continue into 2026.

Material price pressures rise

In addition to output prices, the report also provides an update of movements in relation to the price of materials which are commonly used in detached house construction.

On this score, the data indicates that moderate levels of material price pressures are reemerging.

In the June and September quarters, input prices rose by 0.9 percent and 0.8 percent respectively.

Whilst this represents a return to broadly normal levels of material price growth, it represents the highest rate of input price growth since the March quarter of 2023.

In its report, the ABS suggested that the return to pricing pressures is being driven by higher raw material costs and more assertive pricing positions from suppliers.

“Input materials to House construction prices rose this quarter due to increases in raw material costs, as well as new financial year pricing review decisions from major suppliers,” the ABS said.

“Timber products experienced notable price increases, primarily due to suppliers passing on higher raw material costs to buyers. Other metals products also rose due to raw material cost increases, particularly in aluminium and copper. Other materials (which includes plaster products, floor coverings, paint and insulation) rose, largely due to annual supplier price adjustments reflecting increased input costs.

“Offsetting the price rises were falls in concrete, cement and sand, as some suppliers lowered prices amid increased competition.”