Australia’s construction industry has been hit hard in recent years.

Soaring costs for both materials and labour have created serious headaches for everyone in the sector.

From architects and designers to contractors and clients, the financial pressure is being felt at every stage of a project. This affects everything from design and approvals to final construction.

Why Are Costs Going Up?

There’s no single reason behind these rising costs—it’s more of a perfect storm. Global supply chain disruptions, strong demand, currency fluctuations, and ongoing labour shortages have all played a role.

The result? Higher prices, longer delays, and an industry struggling to keep projects on track and businesses alive.

The Material Price Surge

While some material costs have eased slightly, overall expenses are still climbing. The COVID-19 pandemic threw supply chains into chaos. Although things have stabilised somewhat, issues like currency fluctuations and global trade policies continue to impact prices.

For example, imported materials – particularly steel and aluminium – are under pressure from international tariffs and exchange rate shifts. While steel has seen some price relief recently, essentials like concrete and bricks remain stubbornly expensive. So too do the labour costs associated with those trades.

The Labor Shortage Problem

Labor shortages are one of the biggest challenges facing the construction industry right now. There simply aren’t enough skilled workers to meet demand. This is driving up wages and pushing out project timelines.

Master Builders Australia has called on the government to ease immigration rules to bring in more skilled workers. It argues that the industry needs an extra 130,000 people this year alone to meet housing targets. But immigration policy remains a hot issue, with some groups arguing that rapid population growth is part of the housing crisis problem rather than the solution. The upcoming federal election will not guarantee a resolution of this issue in the near future.

Meanwhile, the financial strain on construction businesses is growing, with company liquidations rising by 28% in the last year. Construction costs have skyrocketed by 40% since the pandemic. This is largely due to labour shortages and contracts that have become impossible to fulfill profitably.

How This Affects Construction Projects

All of this is having a direct impact on the way projects are managed and delivered. In Brisbane, for example, construction cost inflation is running at 6.5% – the highest in Australia and New Zealand. Government regulations and inefficiencies are also adding to the financial burden, with the Building Products Industry Council (BPIC) estimating an additional $4.2 billion in costs over four years. Red tape is an issue for everyone in the industry. Despite various levels of government attempting to reduce the paperwork, it remains a major problem for all.

Finding a Way Forward

With no quick fix in sight, the industry is looking at different ways to manage these challenges:

• Smarter Construction Methods – More companies are turning to modular construction and technological innovations to improve efficiency and cut costs. Firms like Contour3D in Kurnell, NSW, are pioneering new methods that eliminate the need for traditional formwork and allow for innovative building designs.
• Rethinking Fixed-Price Contracts – The unpredictability of costs is making fixed-price contracts a major risk for builders. More businesses are pushing for flexible contract terms that better reflect changing market conditions.
• Workforce Reforms – Beyond immigration policy, the industry needs to make construction a more attractive career path. That means addressing cultural issues, improving training programs, and ensuring better job security to retain workers.

The Road Ahead

There are some signs that cost inflation is slowing, particularly for materials. But the challenges are far from over. Labor costs remain high and skilled worker shortages are likely to persist for some time. Industry leaders, including Lendlease CEO Tony Lombardo and Mirvac CEO Campbell Hanan, warn that subcontractor insolvencies could continue due to unsustainable pricing models and ongoing economic uncertainty.

Despite these challenges, there’s still room for optimism. The industry is adapting, exploring new technologies, and finding ways to work smarter. And there is definitely money available to undertake the right projects. But for now, managing costs remains one of the biggest hurdles in keeping Australian construction projects moving forward.

Ruth Newman is a highly experienced architect with over 30 years of expertise across the design, architectural, and construction industries. Her passion for architecture was ignited at the age of ten, and from her very first university lecture, she knew she had found her calling. Before establishing Ruth Newman Architect, she worked with a diverse range of architectural firms in Sydney and Wollongong, contributing to residential, retail, government, and commercial projects. As a
registered architect in NSW and Victoria, Ruth is committed to maintaining the highest professional standards and helping clients realise their property’s full potential, as well as supporting young professionals in the industry.