Is Construction Cost Growth Slowing in 2026?

If you’ve been anywhere near a development site over the past few years, you’ll know how brutal construction cost increases have been. From 2020, builders were dealing with material shortages, labour constraints and rapid price increases that turned feasibilities into guesswork.

But in 2026, changes are afoot. Double-digit annual blowouts seem a thing of the past, and the sentiment is that growth in construction costs has significantly slowed since the pandemic peak.

While it doesn’t mean costs have gone backward, into a more manageable level for those hopeful to build, it does mean some relief may be ahead for those looking to build.

Construction Cost Growth Slowing

At the peak of COVID, supply chains were severely disrupted. Timber, steel and freight costs surged, and at the same time, stimulus measures drove demand for new housing and renovations. This concoction of drivers caused a huge increase in building costs across the country.

Fast forward to the latest data from the Cordell Construction Cost Index, and annual growth has moderated to around 2.5–3 per cent, a huge slowdown compared to the highs seen during the pandemic and post-pandemic periods.

Quarterly growth has also eased compared to the volatility of prior years. So, in short, costs are still rising, just at a much slower and more predictable rate.

For investors, predictability matters almost as much as price.

What’s Driving the Slowdown in Cost Growth?

There isn’t one single reason construction cost growth has eased. It’s more a combination of easing pressures.

Global supply chains have (for the most part) normalised. International steel prices, for example, have come off their pandemic highs. Freight costs are nowhere near where they were at peak disruption.

Demand has also cooled in parts of the market. Higher interest rates reduced borrowing capacity, which slowed new project commencements. When pipelines soften, some of the pricing pressure in tenders naturally comes off as well.

That said, it’s worth noting that labour remains constrained. Skilled trades are still in short supply in many regions, particularly with infrastructure and energy projects competing for the same workforce. So while materials volatility has eased, labour costs haven’t suddenly reversed.

Stabilised Costs Doesn’t Equal “Cheap” Builds

Even though the rate of growth has slowed, the base cost of building is significantly higher than it was pre-pandemic. A project that costs 20–30 per cent more than it did in 2019 doesn’t feel affordable simply because annual increases have dropped back to low single digits.

Developers are still dealing with elevated finance costs. Insolvencies over the past few years have reshaped contract structures and margin expectations, and it appears builders are being cautious as a result.

So while data shows cost growth stabilising, relief is relative.

For investors considering small developments, commercial builds or major renovations, this means feasibility analyses should probably be conservative. The volatility may have reduced, but the new baseline is higher.

What This Means for Commercial Property Investors

When construction costs were surging, new supply became harder to justify in the commercial property market. But stabilising costs can bring more predictability to feasibility modelling.

For investors developing small warehouses, retail strip assets or mixed-use projects, clearer cost expectations improve decision-making. It doesn’t eliminate risk, but it reduces one layer of uncertainty.

The key takeaway is that construction cost growth is no longer the headline risk it was during the pandemic years. Finance costs and tenant demand may now carry more weight in many feasibility assessments.

What This Means for Residential Investors

For residential investors, slower construction cost growth could gradually support improved project viability — particularly for duplexes, townhouses or small infill developments.

It may also help with supply over time. If builders and developers regain confidence in predictable input costs, projects are easier to green-light. In markets facing tight rental conditions, additional supply is structurally important.

However, slower cost growth doesn’t automatically translate into lower property prices. Construction cost is just one variable. Land values, demand, borrowing capacity and local supply constraints still drive outcomes.

If you’re weighing up build vs buy, the decision is less about chasing a discount and more about risk tolerance and long-term strategy.

A More Predictable Phase

So, are we finally seeing relief? Yes, in the sense that growth has slowed significantly from the extremes of 2021–2023. The data supports that.

But also no, in the sense that we haven’t returned to pre-pandemic pricing. The market has merely and most likely stepped up to a higher cost base.

For property investors, that shift from volatility to stability is meaningful. It allows for clearer modelling, more reliable project timelines and fewer nasty surprises in tender returns.

As always, context matters. Construction costs are one part of a much bigger property equation, which investors should be very aware of.

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