Homebuyers stuck in the middle as insurers butt heads with builders over critical resources
The cost of building a new home in Australia has risen well ahead of general inflation over the past five years, according to new analysis released by the Insurance Council of Australia (ICA).
Drawing on Cotality's Cordell Construction Cost Index, the ICA report shows national building costs have climbed around 30% since 2021, compared with a 24% rise in the Consumer Price Index (CPI) over the same period – a gap that has persisted even as headline inflation has continued running hotter than economists expected through much of this year.
The gap is even wider for specific materials, with some components rising at more than triple the rate of everyday inflation.
What's driving costs higher
Roof tiles have risen the fastest of any component, up 77% since 2021, while windows and plaster products have both climbed 48%. Structural steel, cement, copper piping and plywood have each increased by roughly 40%. Labour costs tell a similar story: roofers and glaziers have seen trade costs rise by close to half over the same period, well ahead of carpenters, painters or plumbers.
Global supply chains are adding to the pressure. Disruption around the Strait of Hormuz, a key route for the world's oil shipments, has lifted fuel and freight costs, feeding into the price of imported building materials – part of the same fuel price spike that followed the outbreak of the Middle East conflict earlier this year. The effect isn't always obvious in headline prices, but it shows up in delivery surcharges and the cost of getting materials to site.
Extreme weather events are also placing sudden, large-scale demand on the trades and materials used in everyday construction, with the ICA noting that insurers received more than 400,000 claims for storm, flood and bushfire-damaged homes between 2022 and 2026.
Andrew Hall, ICA's chief executive and executive director, told the ABC that the materials needing urgent replacement after severe weather – such as roofing – are often the same ones that have inflated fastest, causing a "double whammy" where insurers vie with builders for materials and trades.
"Not only are we trying to meet the affordability and accessibility challenge, we're at the same time competing for the same builders and materials to repair existing housing stock," said Hall.
The regional divide
Construction costs have risen across every state, but not equally.
Queensland has recorded the steepest increase, with a standard home now costing around 45% more to build than in 2021 – nearly double the national CPI rise over that period.
Victoria and Tasmania have also recorded above-average increases. In more remote centres such as Alice Springs, Darwin and Broome, construction costs were already the highest in the country before this latest run-up.
What it means for the housing market
The broader concern is what this does to housing supply. Professor Paula Jarzabkowski of the University of Queensland pointed out that a significant share of the country's construction capacity is currently absorbed by repair and rebuild work rather than new housing stock.
In 2025 alone, extreme weather damaged nearly as many homes as the number of new dwellings completed nationally, pointing to a capacity problem layered on top of an affordability one: rising material and labour costs make every new build more expensive at a time when new home approvals are already falling well short of the Housing Accord target.
Jarzabkowski is calling for a more sustainable approach to building new homes: "We need to build that housing stock in a way that is future-proofed. Let's not build tomorrow's buyback today."
