A new report from consultant WT forecasts costs will continue to escalate due to a number of factors, including ongoing economic weakness, lingering supply chain pressures and elevated levels of projects starts.
According to WT’s latest Australian Construction Market Conditions Report, cost escalation forecast to 2027 remains stubbornly elevated, around five per cent per annum on average nationally. “Our three-year base-case outlook includes a forecast of an average around 5.5 per cent in 2024 across capital city markets for building, remaining above five per cent through 2026 despite a broader moderation in construction activity, before jumping to 5.7 per cent in 2027,” WT’s construction economist Damon Roast said.
“From a weighted national average of 4.8 per cent this year, we forecast escalation in infrastructure to move back around the 5.5 per cent mark to 2026, remaining above five per cent in 2027.
“Our base-case outlook is for recovery in construction activity and the broader economy to become quite apparent by 2026. This would make the necessary and overdue increase in sector investment more attractive, likely paying dividends in the form of downward pressure on escalation from 2028,” Roast added.
“However, labour remains the most pivotal input to cost escalation, with the outcome of recent EBA negotiations in the larger states to underpin elevated wages growth until at least FY2027/28.”
According to Roast, the most likely implications and risks to the outlook include that housing for key workers (which include construction workers) remains difficult to secure, costly or both.
The overall view in our report is based on the premise that persistent elevated construction cost escalation is “simply not sustainable”, Roast said.
“A return to the long-term escalation average heading back towards three per cent is possible from 2028, but this is contingent on the necessary investment in the sector’s capability coming through.”
