Australian construction costs are forecast to remain significantly elevated over the next three years, with WT's latest Australian Construction Market Conditions Report projecting national business-as-usual (BAU) building escalation at 5.5% and infrastructure at 5.1% in 2026 — figures that capture underlying market pressures before accounting for the direct cost impacts of the Middle East conflict that erupted in February 2026.

The report, published twice yearly, introduces a deliberate methodological shift this edition, separating BAU escalation from the direct cost effects of the conflict. The approach is designed to give clients and the industry a clearer baseline for decision-making, with WT noting that direct impacts vary significantly depending on project type, materials mix, and supply chain exposure.

"Bundling the direct impacts of the Middle East conflict with business-as-usual escalation would misrepresent the cost pressures the industry is actually facing," says Damon Roast, Construction Economist at WT. "The direct impacts on construction costs have been significant in some areas, particularly for infrastructure projects with heavy reliance on oil products. But for many building project types, the affected materials represent a relatively small proportion of overall costs, and the presence of substitute materials or alternative sourcing is helping to cap price pressures."

Roast adds that a single blanket escalation figure fails to reflect that diversity. "Our approach gives clients and the industry a reliable baseline from which to assess and manage risk on a project-by-project basis, which is how it should be done," he says.

BAU escalation remains significant

Even setting aside the direct Middle East impacts, underlying cost pressures remain elevated. BAU escalation captures all other contributors to cost growth — including normal market factors, new Enterprise Bargaining Agreements (EBAs), and the indirect effects of the conflict such as profiteering, pipeline changes, and workforce impacts.

National BAU escalation is forecast to ease slightly to 5.3% for building and 5.0% for infrastructure in 2027, before rising again to 5.8% for building and 5.2% for infrastructure in 2028 as economic recovery takes hold.

Brisbane remains the nation's most pressured market, with BAU building escalation forecast at 6.5% in 2026, rising sharply to 10.0% by 2028 as the Brisbane 2032 Olympic and Paralympic Games pipeline intensifies. The Sunshine Coast (7.0%) and Gold Coast (6.8%) round out the three highest-escalation markets nationally in 2026.

Perth is forecast to see strong building escalation of 6.7% in 2026, supported by continued strength in mining, population growth, and healthy state government finances. Sydney and Melbourne are expected to soften, with building escalation of 4.8% each in 2026, as interest rate pressures and the ongoing Middle East situation weigh on commercial and residential pipelines.

Scenario planning under uncertainty

WT's base-case scenario anticipates a resolution to the Middle East conflict by mid-July, with supplies returning to pre-conflict levels by Q2 2027. Under this scenario, an economic slowdown is likely — with recession quite possible — though interest rate relief and fiscal stimulus are expected to provide some support.

The report also models a negative scenario in which resolution is not reached until August or September 2026, with supply recovery unlikely before the end of 2027. Under this scenario, a potentially major recession is forecast despite fiscal and monetary intervention.

The distinction between scenarios carries significant implications for project cost planning. Under the base case, the direct Middle East impacts on construction costs are expected to be contained and manageable for most building project types, while infrastructure projects with high oil product exposure carry greater risk. Under the negative scenario, the broader economic fallout would compound existing capacity constraints across the sector.

WT National Director James Ford says the current environment demands a disciplined approach to cost planning and risk allocation.

"The construction industry is navigating one of its most complex periods in recent memory. Clients and project teams need clear, reliable information to make sound decisions — not headline numbers that conflate fundamentally different cost pressures," says Ford. "This report reflects our commitment to giving the industry the rigour and clarity it needs, especially when conditions make that harder to deliver."

The full Australian Construction Market Conditions Report — June 2026 is available at wtpartnership.com.au.

Main image: Construction site / Unsplash (free to use)

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