RICS Q1 2026 Report: Rising Costs Challenge Australia's Construction Sector

The Construction Sentiment Index for Australia experienced a notable decline, dropping from +21 to +11. This downturn is attributed to several factors, including geopolitical tensions, rising material costs, and more stringent credit conditions. These elements collectively contribute to a challenging environment for construction professionals and stakeholders.

Workloads across major sectors have seen a reduction. Private residential workloads decreased from +16 to +3, private non-residential shifted from +11 to -6, and infrastructure and public works eased from +24 to +14. Within the infrastructure category, all sub-sectors reported softened workload readings. For instance, Information and Communication Technology (ICT) fell from +28 to +17, energy from +49 to +26, and transport from +26 to +13. The agribusiness sector moved further into negative territory, declining from -9 to -15.

Several key indicators are under pressure. Profit margins, new business enquiries, payment delays, headcount, and material costs have all been adversely affected. Notably, the cost of materials reading reached +86, the highest level recorded since data collection began in Australia. This surge underscores the significant financial strain on construction projects.

Despite these challenges, the 12-month outlook shows some resilience. Private residential expectations remain steady at +28, while infrastructure and public works expectations have slightly increased from +42 to +44. Headcount expectations, although down from +50, remain positive at +22. However, private non-residential expectations have fallen from +31 to +8, and profit margin expectations have eased from +20 to +4.

Factors hindering activity present a mixed picture. The cost of materials rose from +52 to +77, and the shortage of materials increased from +27 to +49. Insufficient demand edged up from +32 to +35, and financial constraints lifted from +52 to +56. Conversely, pressures related to competition, planning and regulation, labour shortages, and weather have eased, partly due to governmental efforts to streamline housing development through changes to planning and approval systems.

Skills shortages have slightly eased but remain a concern. Building surveyors moved from +25 to +26, civil engineers eased from +37 to +31, managers fell from +46 to +38, and quantity surveyors declined from +63 to +49. Skilled trades remained elevated, easing slightly from +65 to +64, while unskilled labour reached its highest reading since data collection began at +37.

Expectations for tender prices, construction costs, material costs, and unskilled labour costs have all increased over the next 12 months. Skilled labour costs were the only category to retreat, easing from 5.62 to 5.24. Credit conditions have also weakened, with indicators for the past three months, next three months, and next 12 months all moving into negative territory at -25, -31, and -39, respectively.

Vishant Narayan, a member of the RICS Australasian Board, commented on the findings: "The Australian construction sector is showing initial resilience in the face of a substantial and ongoing shock, though uncertainty remains elevated." He emphasised the urgency of addressing long-term structural workforce challenges, including streamlining immigration pathways, attracting more young people into trades and surveying professions, reducing regulatory burdens, accelerating planning approvals, and lifting productivity across the sector.

In conclusion, the RICS Q1 2026 report highlights a period of significant challenge for Australia's construction industry. While activity levels remain steady, rising costs and tightening credit conditions pose substantial hurdles. Stakeholders must adopt proactive strategies to navigate this complex landscape, focusing on cost management, workforce development, and regulatory compliance to ensure the sector's continued resilience and growth.