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Melbourne construction costs have risen 40–50% since 2020, and waiting hasn't paid off for anyone. Build now, before demand grows further.
In early 2020, we were weeks from signing a $700,000 building contract with a couple in Brunswick. Then COVID happened, and they paused. It was understandable. The world felt like it was ending, and putting that kind of money into a renovation seemed like a risk.
Unfortunately, that same project today costs $1,000,000 to build.
That’s $300,000 extra the client now have to find. And they are not alone. We’ve had that conversation more times than we can count, and we are having it again right now, as global headlines about tariffs, energy prices, and geopolitical instability make another generation of Melbourne homeowners wonder whether to hold off just a little longer.
So here is our honest view, from boots on the ground in Melbourne, 2026.
Since 2020, residential construction costs in Australia have risen between 40 and 50 per cent. On a million dollar build, that is up to half a million dollars more than the same home cost five years ago. These aren’t projections or industry estimates, this is the reality.
"Since 2020, residential construction costs in Australia have risen between 40 and 50 per cent."
Cost rises have slowed from the peak annual increases of 2022, when the Cordell Construction Cost Index recorded its highest annual rise in over 40 years. But moderation is not reversal. Costs are still rising, just more slowly. The reasons they rose are, a shortage of skilled trades, high consumer demand and material shortages.
The families who tell us they’re waiting for prices to come down are waiting for something that will not come. And those people that built during the past 5 years are ahead of the curve, particularly with the global uncertainty and housing shortage that could increase construction costs even further. Unfortunately, what goes up in building costs tends to stay up.
The Federal Budget confirmed something that changes the calculation for anyone sitting on the fence about building a custom home:
From 1 July 2027, negative gearing will be restricted to new residential construction only.
Losses from established investment properties can no longer be offset against other income. Only new builds remain eligible. The practical effect is significant. Private investment will shift from established housing toward new construction. Investor demand for new builds is set to increase, competing for the same trades, materials, and project management capacity that currently have high availability in Melbourne.
"Build before July 2027, while the market is still in your favour. Wait until after it, and you are building into a wave of investor-driven demand."
That is the urgency case to consider. Build before July 2027, while the market is still in your favour. Wait until after it, and you are building into a wave of investor-driven demand.
Capital gains tax has been reset to the 1999 cost-base indexation model, replacing the 50% discount that has applied for the past two decades. Future investment in established property becomes materially less attractive. Your primary residence, however, remains entirely exempt from capital gains tax, as it always has been. Investing in the home you intend to live in has never been more favourable to buying an investment property.
The government's own budget papers recognise that these changes will reduce housing supply by around 35,000 homes over the next decade. In an already undersupplied market, that’s a problem. Less new supply, sustained population growth, and recovering demand points in one direction for anyone who builds a quality home now.
There is a cost to waiting that does not appear in the construction contract, and it compounds every year a project is delayed.
Energy prices in Australia have increased by nearly 300% since 2003. Grid reliability is under pressure. Households that will weather what comes next are the ones that have reduced their dependency on the grid, and that resilience is designed in during the build. It cannot be retrofitted cheaply after the fact.
We recently completed two Victorian terrace homes in Melbourne, properties that are not ideally positioned for passive solar design. Working with a well-insulated thermal envelope, high-quality airtightness, and an HRV system in each home. Between the two of them, they are saving over $10,000 per year at current energy prices. Ignoring the fact that they are also incredibly healthy and comfortable.
These are not luxury outcomes. They are the result of considered building practices applied to ordinary Melbourne homes. A home that costs less to run every year, and stays comfortable and healthy year round without heavy reliance on heating or cooling, is a home that holds its value and protects the family living in it. Every year you delay is a year of those savings (and health implications) you’re not receiving, on top of a construction cost that will almost certainly increase.
Knowing that costs are elevated and potentially increasing working with the right team is all the more important. The biggest risk in any volatile market is not the headlines, it is signing with a builder who has underpriced the job to win the work, and discovering the problem when construction is underway.
Of course, we always recommend the design & build approach. The next best is engaging a builder early, before your design is complete, through an Early Contractor Involvement (ECI) process. This allows your build cost to be tracked in real time as design decisions are made, rather than completing your drawings and hoping the number works. Value management is not about cutting corners. It’s about making informed decisions with clarity at every step of the way. The idea is to reduce or remove surprises once your construction team gets to site.
"Lock in your window supplier, your structural steel, and other key subcontractors before conditions tighten..."
Moving early on key supplier orders also matters more than it did a few years ago. Locking in your window supplier, your structural steel, and other key subcontractors before conditions tighten is a sensible consideration. Lead times in Melbourne are currently short. That won’t always be the case.
"...right now, trade availability is the best we’ve ever seen it."
On the ground right now, trade availability is the best we’ve ever seen it. Contractors are available, schedules are moving faster than they have in years, and pricing is competitive. Things won’t remain this way, particularly due to the housing shortage, which makes right now an excellent time to build your sustainable custom home.
The families we’ve spoken to who delayed in 2020, and in 2018, and in 2015, never tell us they’re glad they waited. Quite the opposite.
When we look back through our records and see what price we were building custom homes and large-scale renovations for in 2015 we are dumbfounded. I expect we’ll have the same feeling when we look back on today when we’re in 2035.
The home you build this year is the home you may live in for the next 10, 20, or 30 years. Getting the building fabric right, the orientation right, the thermal performance right: that is what we have been doing since 2014 across over 70 renovations and new sustainable homes in Melbourne. The considered decision is not to wait for a perfect moment that does not come. It is to build well, with the right people, now.
If you would like to talk through your project and understand what it should cost in 2026, please reach out to Sustainable Homes Melbourne or call us on 1800 683 697.
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