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

Quick answerBuilding costs in Australia have risen sharply since 2020 and haven't stopped, so a sum insured set a few years ago and only nudged along by indexation is very likely short of what a rebuild would cost today. If you own a commercial building and want your own number checked, ring us on 07 3292 1111.

Written by William Paull, Co-Founder & Account Director · 16 min read · Reviewed by Jeff Forbes, Co-Founder & Account Director

How much have construction costs risen in Australia?

Quick answerNon-residential building construction costs across Australia rose 4.4% in the year to June 2026, and about 40% since 2018, on the Australian Bureau of Statistics' construction producer price indexes. For a building owner, that is not a background economic fact. It is the movement a sum insured has had to keep pace with.

Nobody sends you a letter when your building becomes underinsured. The cost of steel, timber and labour moved every year since 2020, and your policy renewed quietly alongside it. At no point did anyone stop you to ask whether the number on the schedule still matched what a rebuild would cost. That gap between construction costs and your sum insured is what this page is about. It covers what drove the gap, how big it 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 payout. Both of those explain what a gap costs you and how to close it. This page is the evidence behind the gap: a dated, sourced account of what actually happened to Australian building costs. Every number those two pages use, and every number your own policy relies on, can be checked against it.

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 as it is today. A bank's lending valuation is a close cousin, built to answer a narrower question: what the bank could recover if it had to sell the property. 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. It might cost $2.4 million 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 careful owner ends up with a sum insured unrelated to what a claim would cost.

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

Quick answerNon-residential building construction costs across Australia rose 36.8% between June 2020 and June 2026, according to the Australian Bureau of Statistics. The ABS names a materials shortage (timber and steel) first, then labour shortages. They were still rising 4.4% a year to the June 2026 quarter, and the ABS's house-construction figures moved even faster over the same year, up 5.9%. Nothing in the government's own construction price data has slowed down.

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. Timber prices alone rose 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. The ABS still names labour shortages as an active driver of price rises today. That is 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. That added fresh demand to 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). 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 concentrates rebuild demand into one region, the tradespeople and materials available get booked out and priced accordingly. That sits on top of whatever the national market is already doing. It is why professional rebuild-cost valuations build in an allowance for cost escalation after a catastrophe, as a named line item. They do not price a rebuild as if it will happen in a calm, uncontested market.

The annual comparison between the three categories keeps shifting, and none of them is slowing. 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 where they sit now.

The last row is the one that governs a commercial or industrial building, and over a longer run it has moved a very long way. Non-residential building construction costs across Australia are up 36.8% on June 2020, and about 40% on June 2018. Those cumulative figures are worked out from the ABS's own index levels rather than by adding the annual rates together, which would understate them.

The ABS's numbers describe what a builder actually charged, and they show no cooling at all. Non-residential construction across Australia was still rising 4.4% a year to the June 2026 quarter, and 1.0% in that quarter alone. The pressure point has shifted from timber and steel (now stabilised) to energy-linked materials such as concrete, aluminium and copper. House construction rose even faster over the same year, up 5.9%, its highest annual rise since June 2023.

Nothing in the government's own construction-cost data supports a "things have calmed down" story for a building owner right now. 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.

Put a span of years against it and the size of the problem is plain. A commercial building whose sum insured was last set properly in June 2018 is being asked to fund a rebuild in a market about 40% dearer than when that figure was measured. Set in June 2020, it is 36.8% behind. Nothing about the building changed. What changed is the cost of putting it back.

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 tracks a building-cost index at a rate the insurer sets. Non-residential building construction costs across Australia rose 36.8% between June 2020 and June 2026 (ABS). A sum insured that relied purely on indexation over that period fell well behind. If the starting figure was 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. Plenty of commercial policies don't apply automatic indexation at all: the sum insured simply stays wherever the owner last set it.

How we set the uplift on our own renewals, and where we stop trusting it. At renewal we lift a commercial building's sum insured by the Australian Bureau of Statistics' annual figure for non-residential building construction across Australia, which is 4.4% for the year to June 2026, and we move to the new figure each quarter as the ABS publishes it. That applies where we already have good reason to think the building is adequately insured. Where the number looks light, or nobody has measured it in years, an index is the wrong tool, so we go back to a rebuild valuation instead. An index keeps an accurate sum insured moving with the market. It cannot make an inaccurate one right, and we do not present it as though it can.

The full arithmetic of that gap, and what it costs 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. That 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 June 2020 and nudged up a few per cent at each renewal since has moved a fraction of the distance. Non-residential building construction costs across Australia rose 36.8% over the same six years (ABS). 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 June 2020, based on what it would have cost to rebuild at the time. Nudged up a few per cent at each renewal since, that figure might sit somewhere near $1.4 million today. But non-residential building construction costs across Australia rose 36.8% over the identical period, which puts the same rebuild nearer $1.64 million.

That is a gap of roughly a quarter of a million dollars on a modest building. It widened again in the last year alone, with costs across Australia still climbing 4.4% in the year to June 2026. 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. 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 to hope against.

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 is to obtain a fresh replacement-cost valuation every three to five years, and sooner again if costs are moving quickly. That guidance is cited consistently across the profession, and costs have been moving quickly 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 June 2020 rebuild figure sits near $1.4 million if it has only ever been indexed. Measured against what non-residential construction costs across Australia have actually done since, it sits nearer $1.64 million. 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. Council and development-approval costs sit on top of those, to get it through the system. On top of that sits 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 why Consolidated Insurance Brokers doesn't ask a client to guess this number, or to reuse a purchase price or 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 on the government's own figures no part of that story has cooled. Over the year to June 2026 house construction rose faster than commercial and industrial building costs, and neither slowed. 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. If you know the year your own figure was last set, how far these costs have moved since turns the index above into a single percentage.

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 in a hard market. It is not a reason to assume everything's fine because the bill went down.

FAQ

How much have construction costs risen in Australia since 2020?

Non-residential building construction costs across Australia, the category covering most commercial and industrial buildings, rose 36.8% between June 2020 and June 2026, and about 40% since June 2018. The source is the Australian Bureau of Statistics' construction producer price indexes. They were still rising 4.4% in the year to June 2026 alone. Those cumulative figures come from the ABS's own index levels rather than from adding the annual rates together, which would understate them.

Have Australian construction costs stopped rising in 2026?

No, the opposite is true. Australian Bureau of Statistics figures show non-residential building construction costs across Australia rose 4.4% in the year to the June 2026 quarter, and 1.0% in that quarter alone. The ABS names labour shortages and rising costs for concrete, aluminium and copper as the drivers. The ABS's house construction figures rose even faster over the same year, up 5.9%, their highest annual rise since June 2023.

What caused Australian construction costs to spike after 2020?

A materials shortage, a labour shortage and a demand surge all hit at once. Timber and steel prices surged through 2021 and 2022, construction wages rose with the labour shortage, and the federal HomeBuilder grant and low interest rates drove the demand. In Queensland, the 2022 South East Queensland floods added a further regional spike: an estimated $7.7 billion event (Queensland Reconstruction Authority and Deloitte). Its 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.