Building costs spiked 1 per cent higher over the December quarter, blowing past the softer 0.4, 0.5 and 0.6 per cent rises from earlier in 2025 - echoing late-2024 momentum.

Annual growth through December slowed to 2.5 per cent from 3.4 per cent at the end of 2024 - landing far below the pre-COVID decade average of 4.7 per cent.

Cotality research director Tim Lawless noted the push-pull dynamic and observed that while short-term pressures were building, the bigger picture showed unusual restraint.

“There is clear evidence of renewed momentum across the December quarter. However, even with this uptick, annual growth in home building costs remains at its lowest point, sitting well below the pre-COVID decade average of 4.7 per cent,” he said.

The quarter's pickup follows 2024's post-rate-hike surge, with supply chains showing signs of steadying even as housing pipelines strain under mounting demand.

WA and SA post steep spikes

Western Australia and South Australia led the nation with 1.2 per cent quarterly climbs.

WA dipped a notch from September's 1.3 per cent rise, while construction costs in SA rose sharply, up from 0.5 per cent in Q3.

Meanwhile Queensland, Victoria and New South Wales trailed pre-COVID norms, signalling scarcer inputs amid hotter project backlogs.

Dwelling approvals mostly climbed through 2025, although Victoria and Tasmania bucked the trend with declines, indicating continuing complications in their residential construction markets.

Timber surges as wage increases push up costs

Structural timber snapped out of recent flatness with a notable price hike, which pushed up the cost of other timber lines and cement sheeting products.

Cotality construction cost estimation manager John Bennett said structural timber products had showed “upward movement” which marked a shift from the previous quarter where prices “remained stable”.

Bennett added the spike was also fuelled by wage improvements and regulatory ripple effects.

“The annual Fair Work minimum wage update came into effect during the quarter, adding further impact on labour and associated costs.”​

Labour shortage looms large over building targets

In an interview with 2GB’s Money News program on Monday (19 January) Master Builders Australia CEO Denita Wawn linked the issue of construction shortfalls to an ongoing workforce crunch.

She stressed that hitting the federal government's National Housing Accord target of 1.2 million new homes over a five-year period (1 July 2024 to 30 June 2029), would require the construction of 240,000 homes per year.

“It's a large number, but it's a number we actually need to achieve to resolve the housing crisis in this country. It equates to around about 240,000 odd homes in each year,” she said.

Wawn said the feat had not been achieved since 2012, when 50 per cent of new housing supply was from high rise apartments.

“The last time we achieved that number Australia wide was in around 2012, and the important factor in that regard is 50 per cent of the homes in that year were actually from high rise apartments, where at the moment, only about 40 per cent of our homes come from high rise,” she said.

“We'd need to see a significant uplift in high rise before we were able to achieve that number.”

Highlighting a worrying lack of skilled migrant labour, Wawn noted that migrants covered 20 per cent of jobs pre-COVID, yet over the past five years only accounted for 5 per cent of the workforce.

“We are really falling short on migrants, and we know that there is stress in the system, and concerns by the community that if you bring too many migrants in, that it makes the housing crisis worse,” she said.

“We say that you've got to make sure that you're focused on skilled migrants who can build these homes to alleviate the stresses in the housing system at the moment.”

“We're competing in the world for international talent, many other countries, such as Canada and the UK, have specialist tradie pathway visas, we don't, we make it really difficult,” she said.

Wawn said that a “specialist fast track tradie pathway” was needed to lure more foreign construction workers to Australia and argued that the federal government’s Pacific Island Workers Scheme needed to be expanded for “non-licensed trades”.

Wawn noted build times had now dragged out to 12-14 months versus the pre-COVID 7-9 month period and that construction costs had exploded by 45 per over the last five years due to persistent labour shortages.

“This means that the rate of labour is higher, and every day you see a building site empty means that it's becoming more expensive,” she said.

“The government has got to pull a whole range of policy levers to fix this supply problem, the demand is there, it's just that we have supply constraints.”

Bennett's 2026 outlook similarly reinforced the dilemma of labour shortfalls coupled with construction material increases.

“The year ahead is likely to be shaped by cost volatility, labour constraints, and supply chain adjustments, he said.

“Price updates from vendors and the ongoing shortage of skilled trades will remain the primary hurdles for the sector.”

[Related: New population forecasts put focus back on housing target]