CONTEXT

Construction input costs

Author: Tiffany Emmett, Project Director

Construction input costs have continued to stabilise over the past year, as the increased resilience built up in the sector since the pandemic has limited the impacts from other global shocks. However, this masks a fundamental shift in the underlying drivers of cost pressure. While broad-based material inflation has eased significantly, it has been offset by persistent labour constraints and exposure to energy volatility. As a result, construction cost drivers are becoming more localised, sector-specific and structurally embedded, rather than driven by international supply shocks.

DRIVING

Labour

Labour availability is now the primary driver for cost escalation – creating a structural constraint across international construction markets. Globally, approximately 77.7% of markets report labour shortages / severe labour shortages, with only 16.1% reporting balanced conditions. Fewer than 6.0% report any form of surplus capacity.

In many high-income, advanced economies, labour shortages are now widespread. ANZ reports 100% of markets experiencing labour shortages, while Europe exceeds 93%. In North America, approximately 79 percent of markets report shortages or severe shortages, reflecting workforce constraints and migration policy impacts.

Figure 2:

Availability of construction labour, by region

While most shortages are categorised as “noticeable” rather than “severe”, they are sufficiently entrenched to constrain delivery across multiple sectors. This translates to:

Extended lead times for hiring

Upward pressure on wages

Increased selectivity from subcontractors

Reduced appetite from bidders

Importantly, these constraints are systemic – they are driven by aging populations in many advanced economies, skills gaps in key sectors and a move in several regions to restrict immigration.

Wage differences between markets also continue to influence labour flows, contributing to regional imbalances in supply.

Labour availability by trade

Labour shortages are becoming increasingly concentrated in specialist and technical occupations rather than the general construction workforce. Trades associated with mechanical, electrical and digital infrastructure continue to experience the greatest pressure, driven by sustained demand from sectors such as data centres, logistics, advanced manufacturing and major infrastructure projects.

Looking ahead, sentiment remains subdued, suggesting shortages will persist and continue to drive cost and delivery risk.

Labour costs

Labour costs remain very varied across markets. Switzerland continues to record the highest construction labour costs, reflecting strong wages, strict labour protections and high living costs. The United States also ranks among the markets with the highest wage rates, although with considerable variation between cities. These differences influence labour mobility, particularly in connected markets. For example, higher wages in Australia continue to attract labour from New Zealand, contributing to localised shortages there.

INPUTS

Materials

Material cost escalation has moderated significantly, with most markets reporting increases in the range of 1.0 to 5.0 percent, indicating a return to more stable pricing conditions.

However, escalation remains uneven across categories. The highest inflation is in mechanical, engineering and plumbing (MEP) components, which include the systems that provide everything from power, lighting and climate control to the IT systems for projects. Several markets report MEP material cost increases are now above 5.0 percent. This reflects strong demand from data centre expansion and the growing move towards the electrification of homes and industry globally.

By contrast:

Concrete and bulk materials are broadly stable.
Structural steel has softened, with some markets even reporting modest price declines.

This divergence reflects a shift from broad-based material inflation to demand-driven, sector-specific pricing pressure, particularly in technically complex sectors.

Looking ahead, risks to material costs are increasingly external rather than systemic. However, exposure to energy markets introduces greater risk:

Higher oil and energy prices,
Increased transport and freight costs,
Volatility in petrochemical inputs.

This creates potential for renewed pressure, despite the current stabilisation.

Figure 5:

Key material price movements 2025 vs 2026

RESILIENCE

Supply chain

Global supply chains are seeing the benefits of several years building resilience through diversification, stockpiling and alternative sourcing strategies.

Businesses have increasingly normalised operating within volatile global trade and energy markets – so recent shocks have had a more limited impact, but moderate delays are still evident across most regions.

The nature of constraints has shifted. Rather than systemic disruption, challenges are now more targeted:

Core materials are generally available within more predictable lead times
Specialist systems and MEP equipment continue to face lengthy lead times

Geopolitical exposure has also become more concentrated. Impacts are now focused on specific commodities and trade routes – due to indirect disruption through:

Logistics and shipping delays
Freight cost volatility
Energy price movements

"This reveals a more resilient but fragmented supply environment, where disruption is localised but persistent."

PRESSURES

Geopolitical risks

Geopolitical volatility continues to impact construction input costs, primarily through the energy markets. The recent conflict in the Middle East has highlighted the sensitivity of construction costs to oil and gas supply and pricing.

Higher energy costs flow through into:

Material production
Transport and logistics
Plant and equipment operations.

Overall, construction input costs are defined less by global supply chain shocks than by structural labour constraints, sector-specific demand and exposure to energy and geopolitical risk.