Construction costs in Australia don’t cycle. They inflate.

Most people in property expect costs to move in cycles. Prices go up during a shock, the shock passes, and things normalise. It is a reasonable assumption. It just isn’t what happens with construction in Australia.

The pattern, recently described by Matusik Missive in his blog, as a staircase. Each major disruption, the Global Financial Crisis, then Covid, now the sustained pressure from volatile energy markets and global conflict, lifts the cost base. And then it holds. The inputs that drove costs upward don’t reverse. CrowdProperty saw this first hand, lending through the pandemic – material inflation naturally followed by labour cost increases. Builders who were caught out repricing mid-project don’t forget it. They reprice their risk into future tenders and hold their margin. We have seen regulatory requirements continue to accumulate. The system finds a new floor, settles there, and the next shock builds on top of it.

Covid is the clearest recent example. According to the ABS Producer Price Indexes, it added roughly 40% to Australian construction costs over five years. That equates to more than $100,000 on the average home. When supply chains eased and demand softened, there was a brief expectation among developers that costs would come down. They didn’t. They simply stopped accelerating. The new high became the new normal.

We are now entering another step up from that already elevated base. The combination of volatile energy markets, rising freight costs, and geopolitical uncertainty is feeding through to materials pricing. Master Builders Australia forecast a further 5 to 10 per cent lift in the near term, with the Rawlinsons Australian Construction Handbook 2025 indicating that specific materials, particularly steel and aluminium, affected by US tariff escalation, could rise as much as 40 per cent by mid-year. For a developer who has been running feasibilities based on the current environment, those numbers can move a project from marginal to unviable without anything else changing.

What this means for your feasibility

The honest implication of the staircase effect is that waiting for costs to come down is not a strategy. It hasn’t worked historically, and there is no structural reason to expect it will this time. If a project doesn’t stack up today, cheaper inputs tomorrow are unlikely to save it. The clock on your site, your holding costs, and your opportunity costs keep running regardless.

That doesn’t mean development is no longer viable. It means the levers available to SME developers have changed. The ones that are actually working right now are the hard ones—building smaller and denser on the same land. Using site configurations that reduce per-square-metre construction cost without reducing saleable value. Sharpening product-market fit so that what you build is exactly what your buyer wants, rather than what felt right two years ago. Reducing sales risk through earlier engagement, better presales positioning, and pricing that reflects the market rather than the feasibility model.

None of these is easy. But they are real. Developers who are finding ways to make projects work in this environment are not doing it by wishing for different conditions. They are doing it by being more precise, more disciplined, and more adaptable in how they build and sell.

The role of finance in a cost-pressured environment

Financing is one of the areas where SME developers can still find a meaningful advantage. Not because finance alone solves a construction cost problem, but because the wrong finance structure can make a challenging feasibility impossible, while the right one gives a viable project the best chance of succeeding.

Speed and certainty of funding matter more than ever in this environment. Construction cost escalation clauses, builder risk pricing, and the reluctance of trades to hold quotes open for extended periods all mean that delays in securing finance translate directly into cost increases. A lender who can move quickly, give you a clear decision early, and hold to their commitment through the life of the project is worth more today than it was three years ago.

At CrowdProperty, we work primarily with experienced SME developers navigating exactly this kind of pressure. We are a specialist non-bank lender, which means we are not applying a large bank’s risk framework to a residential development loan. We assess projects on their merits, with the knowledge that comes from having reviewed and funded hundreds of them. When developers come to us with feasibility under pressure, the conversation isn’t about whether the market is difficult. It’s about whether the project, structured correctly and funded with certainty, can still work.

Often it can. Sometimes it needs to be reshaped first. But that conversation is always worth having before a developer either walks away from a viable project or proceeds with one that isn’t.

The longer view

Australia’s housing shortage is structural and severe. The 1.2 million homes target set by the federal government is not going to be met, and a significant part of the reason is that the economics of building, particularly at the smaller end of the market, have been compressed from multiple directions at once. Construction cost escalation is one of them. Finance access is another. Planning delays are a third.

SME developers are not passive observers of this problem. They are, in many respects, the most capable part of the solution, precisely because they are nimble enough to identify and move on infill sites, adaptive reuse opportunities, and smaller-scale projects that larger developers won’t touch. The challenge is making those projects viable in an environment where the cost base has structurally shifted.

I don’t think the answer is to wait for the environment to become easier. I think it is to get sharper, find better partners, and build the kind of projects that work in the world as it is. That’s what the developers I respect most are doing right now. It’s harder than it used to be. It’s still worth doing.