Construction Cost Increases in Australia: What They Mean for Your Building Insurance

Written by William Paull, Co-Founder & Account Director · 17 min read · Reviewed by Jeff Forbes, Co-Founder & Account Director

How much have construction costs risen in Australia?

Quick answerBuilding material costs in Australia are around 30% higher than they were three years ago, and were still rising at 4.3% a year to February 2025, according to the Insurance Council of Australia. For a building owner, that is not a background economic fact. It is the reason a sum insured that was accurate in 2020 or 2021 is very likely short today.

Nobody sends you a letter when your building becomes underinsured. The cost of steel, timber and labour moved every year since 2020, your policy renewed quietly each year alongside it, and at no point did anyone stop you to ask whether the number on the schedule still matched what it would actually cost to rebuild. That gap between what happened to construction costs and what happened to your sum insured is the subject of this page: what drove it, how big it really is, and what it means for the figure Consolidated Insurance Brokers puts in front of you at renewal.

This is not the same page as why your commercial building might be underinsured or how the co-insurance clause turns a shortfall into a smaller claim cheque. Both of those explain what a gap costs you and how to close it. This page is the evidence behind the gap: the dated, sourced account of what actually happened to Australian building costs, so every number those two pages use, and every number your own policy relies on, can be checked against something real.

Why doesn't my bank valuation, or what I paid for the building, tell me what to insure it for?

Quick answerA building owner usually has three different numbers in front of them: what the property would sell for, what the bank says it's worth as security for a loan, and what it would actually cost to demolish, clear and rebuild. Only the third number belongs on an insurance policy. The first two are about the land and the market. The one your insurer pays out against is about bricks, labour and compliance, and it moves for entirely different reasons.

Market value, or the price you paid, is mostly a story about land: location, zoning, and what a buyer would pay for the site and whatever sits on it today, as it is. A bank's lending valuation is a close cousin of that number, built to answer a narrower question again: what the bank could recover if it had to sell the property as security for the loan. Both numbers can sit well above or well below what it would cost to rebuild, because neither one is trying to measure that.

Rebuild cost, sometimes called replacement cost, is a different question entirely: if this building were destroyed tomorrow, what would it cost to clear the site and put back a compliant building of the same kind, at today's construction prices. That is the only number an insurer is agreeing to pay out, and it is the only number the rest of this page is about. A building that would sell for $2 million might cost $1.2 million to rebuild if it sits on valuable land in a soft construction market, or it might cost $2.4 million to rebuild if land values are flat and construction costs have run hard, as the data below shows they have. Treating any of these three numbers as a stand-in for another is how a genuinely careful owner ends up with a sum insured that has nothing to do with what a claim would actually cost.

What drove the construction cost spike after 2020, and has it stopped?

Quick answerAustralian building construction prices rose 31.1% between September 2020 and June 2024, driven first by a materials shortage (timber and steel) and then by labour shortages, according to the Australian Bureau of Statistics. Commercial and industrial building costs were still rising 4.4% a year to the June 2026 quarter, and the ABS's own house-construction figures moved even faster over the same year, up 5.9%. The only construction-cost measure genuinely slowing down is a separate, narrower residential index, not the government's own data.

Three things happened at once, and each made the others worse.

First, materials. Timber, steel and other metal products accounted for roughly half the input-cost pressure behind the 2021 to 2022 price spike, with timber prices alone rising 24.2% in the year to June 2022. Second, labour. Construction wage growth accelerated from 2.2% in mid-2021 to 3.4% by September 2022, and the ABS still names labour shortages as an active driver of price rises today, now linked to competition from public infrastructure and defence projects and to rising industry insolvencies extending build timelines. Third, demand. The federal HomeBuilder grant in mid-2020, combined with low interest rates, pushed building approvals up 56.9% by March 2021, adding fresh demand on top of an already-stretched materials and labour market that commercial builders were competing in too.

Queensland got a fourth pressure on top of the national trend. The 2022 South East Queensland floods cost Queensland an estimated $7.7 billion, including around $2 billion in damage to homes and commercial property (Queensland Reconstruction Authority and Deloitte, June 2022), and the repair work behind those claims all needed materials and labour in one place, all at once. This is the mechanism behind every "disaster-recovery cost spike" a regional builder or property owner has ever seen: when a flood, cyclone or bushfire forces a sudden concentration of rebuild demand into one region, the tradespeople and materials available to do that work get booked out and priced accordingly, on top of whatever the national market is already doing. It is exactly why professional rebuild-cost valuations build in an allowance for cost escalation following a catastrophe as a named line item, rather than pricing a rebuild as if it will happen in a calm, uncontested market.

Non-residential costs rose less than house-building costs cumulatively, but the annual comparison keeps shifting. Over the 2020 to 2024 window, house construction rose 40.8% and other residential rose 25.3%, against 27.1% for non-residential (the category that covers most commercial and industrial buildings). By early 2026 the three annual rates had converged to within half a percentage point of each other; by mid-2026 house construction had pulled well ahead again. The table below shows the shift. The point isn't which category happens to be fastest in any given quarter. It's that none of the government's own figures show any category actually slowing down.

That last row matters more than it looks. Cotality's Cordell index, a purpose-built cost-estimation tool for valuations and insurance rather than the ABS's broader output-price measure, shows home-building cost growth running far below the ABS's own residential figures directly above it in this table. If you've read a headline saying "construction costs have stabilised," it was almost certainly reporting that narrower Cordell figure, not the government's own data. The ABS's own numbers, the ones that actually describe what a builder charged this year, show no cooling at all: non-residential construction was still rising 4.4% a year to the June 2026 quarter, with the pressure point shifting from timber and steel (now stabilised) to energy-linked materials such as concrete, aluminium and copper. House construction, measured the ABS's own way rather than Cordell's, rose even faster over the same year, up 5.9%, its steepest annual rise since 2022. Nothing in the government's own construction-cost data supports a "things have calmed down" story for a building owner right now. Only the narrower, residential-specific Cordell measure does. A commercial building owner who assumes their costs have "come down" because the news said construction costs have stabilised is reading someone else's market.

The Insurance Council of Australia put this most starkly in a February 2026 statement calling for reforms to support small business resilience: construction costs have "surged 40 per cent" since 2020, it said, alongside more than $4.5 billion in weather-related insurance claims over the same period, and it drew the connection explicitly: rising construction costs are increasing the risk of underinsurance, hitting small businesses hardest. That 40% figure runs to a later date and may be scoped slightly differently than the ABS's 31.1% (September 2020 to June 2024) figure above. Both are genuine, credible numbers from credible sources measuring slightly different things, so we cite each on its own terms here rather than treating them as the same claim.

If my policy has automatic indexation, why would I still be underinsured?

Quick answerIndexation only ever compounds the figure it started with, and where it applies at all it typically tracks a building-cost index running around 3% a year (Cordell indices, via Strata Community Insure). Non-residential construction costs rose more than 27% between 2020 and 2024 alone. A sum insured that relied purely on indexation over that period fell well behind, and if the starting figure was already a guess rather than a valuation, indexation just carried the guess forward, unchanged.

Indexation is a maintenance tool, not a correction tool. It nudges a number up every year on the assumption that the number was right to begin with. It cannot tell you whether the figure it's nudging was ever accurate, and plenty of commercial policies don't apply automatic indexation at all: the sum insured simply stays wherever the owner last set it. The full arithmetic of how far that gap has opened, and what it costs you at claim time under a co-insurance clause, is covered in Underinsurance: The Biggest Risk to Commercial Building Owners. This page's job is narrower, showing that the cost data above is real and dated, so that argument isn't asking you to take anyone's word for it.

There's a genuinely surprising finding buried in a real Australian dispute worth knowing here. In a matter that went to the Australian Financial Complaints Authority, a homeowner whose house had burned down argued that her sum insured should have risen in line with her rising premium: her premium had gone up 19% over a period in which her sum insured had only gone up 10%. The independent umpire rejected the argument outright. There is no requirement for an insurer to adjust your sum insured just because it's raising your premium, and a rising premium does not mean your cover is keeping pace with rebuild costs. The insurer paid what the policy said it would, the sum insured, and nothing more.

That finding generalises directly to a commercial building. Watching your premium move at renewal tells you nothing about whether your sum insured is still enough to rebuild. Only checking the sum insured against a real, current rebuild figure does that, which is exactly why an annual renewal conversation about price is not the same thing as an annual check on whether the number would actually do its job.

If I set my sum insured a few years ago and indexed it every year since, could it still be short?

Quick answerYes, and it is the single most common way a genuinely careful building owner ends up underinsured. A sum insured set in 2020 or 2021 and indexed at a typical 3% a year would have risen by roughly 13% by 2024, while non-residential construction costs over the same window rose more than 27%. The gap between those two lines is real money, and it only gets found at claim time unless someone checks it sooner.

Picture a small industrial building insured for $1.2 million in 2020, based on what it would have cost to rebuild at the time. Indexed faithfully at roughly 3% a year, that figure would sit somewhere near $1.35 million by 2024. But non-residential construction costs rose more than 27% over the identical period. A rebuild quote obtained in 2024 for the same building could reasonably land closer to $1.5 million, and by mid-2026, with non-residential costs still climbing at 4.4% a year, higher again. The owner did everything asked of them: they held the cover, paid the premium, let the indexation run. The number was still short, because indexation was never designed to catch up a figure that drifted from reality, only to nudge along a figure that started accurate.

There's a second, less obvious version of the same problem: the number has to survive the rebuild, not just the day of the claim. A total loss doesn't get repaired overnight. Assessing the damage, agreeing the scope, getting approvals and actually building can take well over a year for anything beyond a simple structure, and construction costs don't pause while that happens. A sum insured that looks adequate on the day of the fire is being asked to fund a rebuild priced twelve to twenty-four months later, at whatever costs are running by then.

No Australian valuer or insurer publishes a standard percentage for exactly how much a sum insured should be padded to cover this rebuild-period escalation, and we won't invent one. What we can tell you is that the concern is real enough that other insurance markets build it in explicitly: in the United Kingdom, insurers commonly recommend sums insured at least 15% above a property's assessed value specifically to cover cost inflation during the policy period, with a further catastrophe escalation allowance of 10 to 30% available where a declared disaster has driven up local labour and material costs. Those figures are a UK market convention, not an Australian standard, and we're not asking you to adopt them as your own. What they demonstrate is that professional valuers everywhere treat "the cost will keep moving after I set this number" as something to plan for, not something to hope doesn't happen. In Australia, the equivalent professional practice is a properly costed escalation allowance built into the valuation itself, and a review cycle short enough that the number never gets too far out of date to trust. The Australian Institute of Quantity Surveyors' own guidance, cited consistently across the profession, is to obtain a fresh replacement-cost valuation every three to five years, and sooner again if costs are moving quickly, as they have been since 2020.

What does it actually cost to rebuild a commercial building in Australia now?

Quick answerThere's no single national number, because every building is different. The worked example above shows the shape of it: a $1.2 million 2020 rebuild figure sits nearer $1.35 million indexed to 2024, closer to $1.5 million once measured against actual 2024 construction costs, and higher again by mid-2026. Rebuild cost also has to include demolition and debris removal and professional fees, not just materials and labour, which is where a rough per-square-metre guess falls short.

A rebuild figure that only prices materials and labour to put the building back is not a rebuild figure, it is a materials and labour estimate. Before a single new brick goes down, a total loss has to be cleared: demolition, debris removal, and making the site safe to build on again. Then come the professional fees a DIY estimate never accounts for: architects, engineers and surveyors to design and certify the new building, and the council and development-approval costs to get it through the system, on top of whatever it costs to bring the new structure up to current building codes rather than the ones the original was approved under. The full breakdown of what belongs in a genuine rebuild figure lives on our commercial property page; the point here is the same one that page makes, a rebuild figure prices all of it, not just the visible building.

This is exactly why Consolidated Insurance Brokers doesn't ask a client to guess this number, or to reuse a purchase price or a bank valuation that was never built to answer it. It is also why the figure needs revisiting every few years rather than set once and left alone. The worked example above shows exactly what happens when it isn't.

What should I actually do with this information?

Quick answerReplace the estimate with a professional valuation, on a review cycle short enough to keep pace with a market that is still moving. Consolidated Insurance Brokers commissions a desktop building replacement valuation at no cost to you, from a registered valuer, at new business and at every renewal, so the figure on your policy is a professional's number, not last year's guess indexed forward.

Everything on this page points to the same practical conclusion. Construction costs did something unusual since 2020, and while the residential side of that story has genuinely cooled, the commercial and industrial side has not shown the same relief. Indexation was never built to correct a figure that started wrong, only to maintain one that started right. And a rebuild takes long enough that even an accurate figure on the day of a loss has to survive further cost movement before the building is actually finished.

The only reliable answer to all three problems is the same: a real, current, professionally assessed rebuild figure, checked often enough that "current" still means something. That's why we commission a desktop building replacement valuation at no cost to you, carried out by a registered valuer, at new business and at every renewal, rather than leaving a client's sum insured to drift on indexation alone. The desktop valuation is commissioned for our purposes as your broker, to inform the advice we give you.

One more thing worth knowing, because it's easy to misread the current market: Australian commercial insurance premiums have actually been falling, with Pacific-region commercial property rates down around 14% in early 2026 on Marsh's index, the third consecutive quarterly fall. That is genuinely good news for well-maintained buildings with clean claims histories. It is not, on its own, evidence that your sum insured is adequate. A falling premium and a rising rebuild cost are two different numbers moving in two different directions, and a cheaper renewal on an underinsured building is not a saving, it's a discount on a policy that still won't do its job if you need it. If anything, a softening market is the moment to fix the number while doing so costs less than it would in a hard market, not a reason to assume everything's fine because the bill went down.

FAQ

How much have construction costs risen in Australia since 2020?

Overall building construction prices rose 31.1% between September 2020 and June 2024, with non-residential construction (the category covering most commercial and industrial buildings) up 27.1% over the same period, according to the Australian Bureau of Statistics. The Insurance Council of Australia separately reports building material costs around 30% higher than three years ago as at February 2025, and cited a "40 per cent" rise since 2020 in a February 2026 statement on small business resilience. That is a later, differently scoped figure from the same trend, not a contradiction of the ABS number.

Have Australian construction costs stopped rising in 2026?

No. The only measure showing a genuine slowdown is Cotality's Cordell Construction Cost Index, a residential cost-estimation tool, up 2.5% in the 12 months to December 2025, a 24-year low. The Australian Bureau of Statistics' own figures show the opposite: non-residential construction costs rose 4.4% in the year to the June 2026 quarter, driven by labour shortages and rising costs for concrete, aluminium and copper, and the ABS's house construction figures rose even faster over the same year, up 5.9%, their steepest annual rise since 2022.

What caused Australian construction costs to spike after 2020?

A combination of a materials shortage (timber and steel prices surged through 2021 and 2022), a labour shortage that pushed construction wages up, and a demand surge from the federal HomeBuilder grant and low interest rates, all happening at once. In Queensland, the 2022 South East Queensland floods added a further regional spike: an estimated $7.7 billion event (Queensland Reconstruction Authority and Deloitte) whose repair demand concentrated tradespeople and materials in one region at once, on top of the national trend.

Does rising construction cost mean my commercial building is underinsured?

Not automatically, but it's the mechanism that causes most underinsurance: a sum insured set years ago, indexed only modestly since, falling behind a rebuild-cost curve that moved much faster. Whether your own building is affected depends on when it was last properly valued, not indexed. See Underinsurance: The Biggest Risk to Commercial Building Owners for how to check.

How often should I update my sum insured to keep pace with construction costs?

Aim for a full professional replacement-cost valuation every three to five years, sooner if costs are moving quickly, as they have been for commercial and industrial buildings since 2020. Automatic indexation between valuations helps a little but cannot substitute for a fresh professional figure once the base number is a few years old.

Related content

• Underinsurance: The Biggest Risk to Commercial Building Owners - what this cost data means for your risk, and how to check yourself.
• The Co-Insurance Clause: What Every Building Owner Must Know - what happens to your claim payout if the sum insured is short.
• Desktop Building Replacement Valuation - the fix: a professional valuation at no cost to you.
• Underinsurance Risk Checker - a first-pass self-check before booking a full desktop valuation.
• Commercial Building Insurance and Commercial Property Insurance - the product pages this data supports.
• Roof Condition Monitoring - the other half of whether your policy actually reflects your building's real condition and cost.