Builder insolvencies ease but rising energy costs push new home prices higher

Do you want the good news or the bad news?

When it comes to the cost of building a new home and the health of the construction sector, there’s plenty of both.

The good news first

The total number of construction sector insolvencies has fallen over the past three months, the first quarterly decline in the volume of builders collapsing since 2021.

The construction sector still continues to lead the overall market in insolvencies, with 2,630 reported over the past three quarters (January to September 2025).

But there have been moderate signs of improvement for the sector, according to Brad Walters, General Manager, Commercial at Equifax.

“Although insolvencies continue to be a challenge for the construction sector, our data also reflects that the total number has reduced by 4.1 per cent since September 2024, a hopeful sign of a sector experiencing slow recovery.”

Larger construction companies appeared to be handling the current environment better than smaller builders.

“The higher demand for commercial credit across the board is supported by greater market confidence, reflected by an influx of high credit quality entities whose average credit scores have been steadily rising,” Mr Walters said.

“Our data also demonstrates that larger entities had greater credit appetites in the quarter, with a 4.2 per cent increase in demand compared to that of their Small and Medium-sized Enterprise (SME) counterparts.

“Positively, SME demand increased 2.7 per cent, helping reduce the credit demand disparity with larger organisations.”

Brisbane is expected to remain the nation’s (construction cost) escalation hotspot through to 2027.

- Niall McSweeney, Altus Group

The Housing Industry Association (HIA) also sees green shoots emerging in apartment construction in 2026.

Regarded as a key plank in addressing the housing crisis and increasing suburban density to house more Australians, developers need new unit projects to stack up financially.

Australia began just over 61,000 multi-unit dwellings in 2024, barely half the volume recorded in 2016 and well short of what is required to meet the national housing target. Multi-unit starts are forecast to increase by 6.5 per cent in 2026, rising steadily through the decade to reach close to 100,000 commencements by 2030.

HIA Chief Economist Tim Reardon said population growth, rising established home prices, and new policy measures are creating the conditions for the next major building cycle.

“After years of sluggish apartment construction, the foundations are being laid for a recovery in multi-unit commencements from 2026 onward.

“Population growth remains elevated, migration is returning to metro areas and established apartment prices are rising faster than detached homes.

“These are the early signals of an emerging apartment cycle, as new developments once again start to stack up financially,” Mr Reardon said.

And the bad news

While the broader residential construction sector is showing early signs of stabilising after several turbulent years, the underlying pressures that drove a wave of builder insolvencies have not disappeared.

Many operators are still grappling with thin margins, unpredictable supply chains and elevated input costs that continue to strain project feasibility.

Even as demand for new housing remains strong, driven by population growth and acute undersupply, the industry is operating in an environment where risk tolerance is low and financial buffers are limited.

Among the most persistent of these pressures is the rising cost of energy.

Power prices affect far more than a household’s utility bill, they shape the economics of construction itself.

From manufacturing building materials to operating machinery on-site, energy is embedded in every stage of the building process.

As a result, elevated electricity and gas costs are flowing directly into higher construction prices, amplifying the affordability challenges facing both builders and home buyers.

Electricity prices jumped 9 per cent this quarter and 23.6 per cent over the year, pushing inflation above target and feeding directly into material and manufacturing costs.

Niall McSweeney, Head of Development Advisory, APAC, Altus Group, said that although the pace of cost escalation increase is slowing in most cities, escalation rates remain well above pre-2021 levels.

“Meaningful relief is unlikely before 2028 given entrenched material, labour and regulatory cost pressures (but) escalation rates are highly variable, depending on project type, size, location and materials.”

Mr McSweeney said one Australian capital stood out as facing the biggest challenges.

“Brisbane is expected to remain the nation’s escalation hotspot through to 2027, fuelled by Olympic-related works, persistent labour shortages, and supply chain pressures.

“Sydney and Melbourne show a slower trajectory due to weaker construction pipelines and fewer major project starts.

“Perth is also easing after its recent resource-driven spikes.”