Builders are feeling the pain of rising fuel and concrete costs.
Australian construction contractors are copping escalating material and fuel costs rather than passing them on to developers, amid a fierce tendering environment that is squeezing their operations.
They are being hit by broader macro-economic factors including a re-escalation of the Middle East war, which has driven up the cost of critical inputs like diesel, freight, and concrete, according to a September quarter from quantity surveyor Rider Levett Bucknall.
However, the fierce competition for work is forcing builders to absorb these margin-crushing overheads.
RLB Oceania director of research and development Oliver Nichols says that while average cost increases for new projects had spiked, tough market conditions were effectively capping tender prices in most metropolitan areas.
“Average cost increases for new projects have risen again following the latest increase in input costs but remain below the levels recorded at the height of the initial conflict-related price shock,” he said.
Fleetwood Homes in Smithfield, where builders construct walls and bathrooms separately and transport entire pre-made houses on the back of a truck. Picture: Flavio Brancaleone/NewsWire
Mr Nichols said costs are being absorbed by contractors in most Australian cities, but Perth is bucking the trend with tender prices now forecast to rise more rapidly.
The Western Australian capital’s prices are breaking out as the building industry is operating at near peak capacity, while Sydney and Melbourne remain soft and highly competitive.
RLB upgraded Perth’s 2026 Tender Price Index from 5.6 per cent to 6.5 per cent — making it the fastest-escalating capital city market in the country.
Nationally, the firm’s average TPI forecast for 2026 sits unchanged at 4.6 per cent. However, this stable overall number masks sharp regional divides. Forecasts have been downgraded for Darwin and the Gold Coast due to softer-than-expected conditions.
Property developers are also capitalising on a window of opportunity, particularly in Brisbane and Sydney, where subcontractors are aggressively chasing forward workloads.
RLB noted that Brisbane had a six-month window for projects under $80m to lock in competitive tenders before an onslaught of Brisbane 2032 Olympic projects begins eating up capacity.
The firm said the current willingness of builders to absorb costs was not a sign of a structural downturn in pricing. But it pointed to a series of pressure points.
Wholesale diesel is hovering near $2.50 a litre and concrete suppliers have slapped surcharges of $7 to $9 per cubic metre back onto deliveries. Builders also face severe medium-term structural pain from chronic labour shortages and enterprise agreement wage deals have blown out to their highest levels since the late 1990s, which has been exacerbated by slowing migration and a lack of construction visas.
With national construction work hitting a record $328bn in the 2025-26 financial year, RLB has forecast that long-term tender price escalation will remain stubbornly high. Growth is projected to average over 5 per cent annually for the next several years — far outstripping the pre-pandemic average of 3.3 per cent.
“Competitive tendering is providing some relief from the immediate impact of higher input costs, but it should not be mistaken for a return to a low-cost construction environment,” Mr Nichols warned.
The squeeze comes as pressures rises in the industry with insolvencies sharply higher in August, with construction first-time insolvencies jumping to 868. The jump is concentrated in residential building, showing the pressure on the housing end of the industry.
Commercial credit reporting bureau CreditorWatch said the real risk was that the boom in data centre work was stretching residential capacity, pressuring prices and siphoning scarce labour away from already-stressed housing construction.
“A $150bn pipeline is being poured into a construction sector that’s already seeing credit pressures running at two speeds. The commercial firms geared to data centre work are looking at years of high-value activity, but the residential end is still absorbing rising defaults, tight cash flow and higher input costs,” CreditorWatch chief executive Patrick Coghlan said.