Australia’s residential construction sector has signaled a distinct shift in momentum, with building costs recording their sharpest quarterly rise of the year in the final months of 2025. According to the latest Cordell Construction Cost Index (CCCI) released by Cotality, national construction costs increased by 1.0% over the December quarter, marking a notable acceleration after a period of relative stability.

This end-of-year surge represents a change from the subdued activity seen earlier in 2025, where quarterly increases hovered modestly between 0.4% and 0.6%. While the quarterly figures suggest renewed pressure on the sector, the broader annual trend tells a story of long-term stabilization. The data shows annual growth over the 12 months to December sat at 2.5%, a decline from the 3.4% recorded at the end of 2024 and the smallest annual rise since March 2002.

Cotality Research Director Tim Lawless noted that while the annual figures remain well below the pre-COVID decade average of 4.7%, the recent uptick is undeniable. “There is clear evidence of renewed momentum across the December quarter,” Lawless stated.

State-by-State Divergence

The resurgence in cost pressures was not felt evenly across the nation. Western Australia and South Australia emerged as the clear leaders in cost inflation, both recording a 1.2% increase for the quarter. For South Australia, this was a significant jump, more than doubling the 0.5% rise seen in the previous quarter and marking its highest quarterly increase since December 2022.

Queensland followed closely with a 1.1% increase, while New South Wales recorded 0.9% growth. Conversely, Victoria recorded the softest growth at just 0.8%, reflecting ongoing challenges in its residential market where dwelling approvals have continued to trend lower compared to the recovery seen in NSW and Queensland.

Wages and Timber Drive Prices Up

The December quarter surge was driven by a specific combination of material price shifts and regulatory wage updates. After a period of stability, structural timber products saw prices climb, alongside increases in other timber categories and cement sheeting.

Compounding the material costs were labour pressures. Cotality Construction Cost Estimation Manager John Bennett highlighted that the annual Fair Work minimum wage update came into effect during the quarter, immediately adding impact to labour and associated costs for builders.

Outlook for 2026

As the industry moves further into 2026, experts warn that the road ahead remains complex. Despite the stabilization in annual growth rates, the sector faces persistent headwinds including skilled trade shortages and volatile vendor pricing.

“The year ahead is likely to be shaped by cost volatility, labour constraints, and supply chain adjustments,” Mr. Bennett advised. “Careful monitoring of material pricing and workforce availability will be critical to navigating 2026”.

With dwelling approvals trending higher in most states—except Victoria and Tasmania—demand is returning, but the scarcity of construction inputs relative to demand suggests that upward pressure is likely to characterize the coming year.