Construction cost volatility affects developers at every scale, not just mid-size. Survival comes down to what you decided before the first cost estimate landed: genuine feasibility, vetted builder finances, a sized contingency, and demand-first due diligence.
- Rising construction costs affect small, medium, and large developers equally
- Survival depends on preparation built into the setup phase, not on project scale
- Builder financial vetting through an EOI process and three years of financial statements is non-negotiable
- Contingency should be sized for a real shock, not a token buffer
- Market-first due diligence before site acquisition is the single most important step developers skip
People keep telling me that mid-size developments sit in the danger zone, too big to stay nimble and too small to absorb a shock. I understand the instinct. After more than forty years working across the Australian property market, I have learned to test such claims before accepting them.
Construction cost volatility does not respect project size. It affects the small builder finishing five homes and the listed group running a thousand apartments.
So, the real question is not how big your project is. The question is what you decided before the first cost estimate even landed.
Does Project Size Actually Determine Who Survives?
Look at the numbers from Australia. ASIC recorded 3,217 construction firm insolvencies in 2024, up from 2,546 the previous year and 1,793 in 2022. In 2024-25, the sector accounted for 26 per cent of all insolvencies nationally.
Two-thirds of the collapses hit small builders with fewer than five staff. Then Porter Davis, a large operator, collapsed and left around 1,700 homes unfinished. The shock did not stop to check the size of the business it was passing through. You can read the structural detail here.
The Australian model has a built-in weakness. Low margins and fixed-price contracts leave a builder almost no room to absorb a surge in material or labour costs. When costs surged by around 40 per cent from late 2020, that thin headroom vanished.
The lesson I took from that period: survival was decided long before the surge arrived. It was decided in the setup phase by whoever treated the venture as a disciplined risk process from day one.
Key Point: ASIC data shows construction insolvencies across all business sizes. Scale did not protect developers from the 2022 cost surge. Preparation did.
How Do You Build a Feasibility Study That Holds Under Pressure?
I had a project I expected to make my fortune, but it was caught in a market-wide shock. I felt how quickly a paper profit turns into a fight for survival. I rebuilt my entire method around one resolution: not to be that exposed again.
The developers who have weathered cost spikes share three habits. None of them are complicated. All of them are commonly overlooked.
First, they build feasibility on numbers sourced from the people who actually price the work. Not a spreadsheet assumption. Not last year’s rate with a nod to inflation. The figures come from the trades and suppliers who will issue the invoices.
Second, they carry contingency sized to a genuine shock. A token five per cent buffer disappears the moment the market moves. RLB forecasts Australian construction costs rising by 4 to 6 per cent nationally in 2026, with Brisbane at 5 per cent, Perth at 5.3 per cent, Adelaide at 5.1 per cent, and the Gold Coast tracking as high as 6 per cent. Sydney and Melbourne sit at the lower end of that range, at 4 per cent, but costs across every capital are still well above pre-pandemic norms. A serious contingency assumes friction and prices it in.
Third, they satisfy themselves that the party carrying the build can absorb a cost increase without collapsing. This is where most developers go quiet, because it feels awkward to ask. It should not.
Key Point: Feasibility studies grounded in real tender prices, genuine contingency, and verified builder capacity are what separate projects that survive from those that don’t.
How Should You Vet a Builder’s Financial Capacity?
I run an Expression of Interest process. Before a builder gets near the tender, I request a letter from their accountant confirming financial viability.
For the successful tenderers, I go further. I review three years of financial statements to see whether this business can carry a project through a cost spike, or whether the first serious pressure will tip it over.
This matters because consumer and developer protection in Australia is weak. Builders can spend deposits as they please, and insurance coverage often falls short of the cost to finish a job. In Victoria, the maximum cover is $400,000, well below the price of an average new home. When the safety net has holes, your due diligence becomes the net.
Forty years in this industry have reinforced one thing: integrity and rigour in the setup phase are not virtues to aspire to. They are operational advantages that compound across every project you run.
Key Point: Financial vetting of builders before tendering protects against the single biggest source of mid-project failure. An accountant’s letter and three years of statements are a minimum requirement, not a formality.
What Is the Most Important Question Developers Skip?
Here is the inversion that changes outcomes. Most developers find a site, fall for it, and then check whether the numbers stack up. That order hides the real first question.
The foundational unknown is demand. Before you commit to any site, work out what the market genuinely wants and whether it can pay for it. Consider product suitability, buyer depth, the competitive landscape, and revenue potential. Answer those first. In Australia right now, that question carries more weight than ever.
Australia’s national rental vacancy rate is running at roughly one-third of the 3 per cent level considered a balanced market. Only 174,030 homes were completed in the first year of the National Housing Accord, 27.5 per cent below the 240,000 annual rate required. Demand is structural. A well-positioned project in the right location, with the right product, has genuine pricing power. A poorly positioned one has nowhere to hide.
A project that meets real demand can absorb a cost rise that would kill a project chasing a site that answered nothing. When you get the market wrong, the damage compounds. In one 2018 case, a mixed-use scheme that overestimated demand for luxury units recorded a 35 per cent vacancy rate and contributed to a 25 per cent fall in local property values over two years. You can review that cascade effect here.
A warning worth holding onto: a 10 per cent budget overrun can inflate final costs by up to 20 per cent once delays and opportunity costs take hold. Small errors at the start become costly facts at the end.
Key Point: Demand-first due diligence, completed before site acquisition, is the single change that prevents the most downstream damage.
Why Do Corporate Developers Make Different Decisions to Private Ones?
When I compare private developers with large corporate ones, the difference often comes down to whose personal reward is aligned with the project’s outcome.
In some listed companies, project success is redefined by accounting and tax structures rather than the profitability of the build itself. That layer beneath the build can mask a weak project for a while. It rarely masks it forever.
The private developer, with their own capital at risk, tends to strip emotion from the decision and let the arithmetic dictate the move. That discipline does not require scale. It requires honest accounting from day one.
Key Point: Incentive alignment, not company size, determines the quality of decisions made under pressure. Private developers with skin in the game tend to hold the line on feasibility, whereas corporate structures sometimes do not.
What Steps Should You Take Before Committing?
Treat the entire venture as a risk-management process from day one, before you lock in a single cost.
- Answer demand before you buy the site. Know what the market wants and whether it can pay for it.
- Build feasibility on prices from the people who will send you the invoices.
- Size contingency for a real shock, not a token buffer.
- Vet the builder’s finances through an EOI, an accountant’s letter, and three years of statements.
Rising costs threaten every project. The developers who come through are those whose professionalism, honest feasibility, real contingency, and demand-first thinking were already in place before the pressure arrived.
If you want a second set of eyes on a feasibility assessment before you commit, get in touch. I would rather help you find the truth early than watch you discover it the hard way.
Frequently Asked Questions
Are mid-size developments more exposed to construction cost spikes than large or small ones?
No. ASIC insolvency data shows collapses across all scales, from small sole-trader builders to large listed groups such as Porter Davis. Exposure is not determined by project size. It is determined by how well the project was set up before costs escalated.
What is the appropriate contingency for a development feasibility in 2026?
The standard figure is around 5 per cent of total development cost, though it should be calculated against total development cost, not just the construction line. With RLB forecasting 4 to 6 per cent national cost escalation in 2026, and some capitals higher, a token buffer carries real risk. Size your contingency for a genuine shock scenario, not a best-case one.
How do I check a builder’s financial health before signing a contract?
Run an Expression of Interest process before tendering. Request a letter from the builder’s accountant confirming financial viability as part of the EOI submission. For the successful tenderer, require three years of financial statements for review by your own accountant. Builders in poor financial health typically withdraw at the accountant’s letter stage.
What is demand-first due diligence and why does it matter?
Demand-first due diligence means researching market demand, buyer depth, product suitability, and competitive supply before you acquire a site, rather than after. It inverts the typical developer process, which starts with a site and works backward. Answering the demand question first prevents committing capital to a project the market cannot absorb.
Why did construction costs spike by 40 per cent in Australia in 2022?
The surge was driven by pandemic-era supply chain disruptions, the simultaneous recommencement of deferred projects, materials shortages, and a sharp rise in labour demand across all states. Fixed-price contracts meant builders absorbed cost increases with no mechanism to recover them, triggering widespread insolvencies and project failures.
What is the difference between a corporate developer and a private developer in terms of risk management?
A corporate developer often has access to cheaper capital via balance sheet borrowing, but employees face incentive pressure to approve projects to keep their pipeline full. A private developer uses more expensive second- or third-tier finance, but the owner has direct financial exposure to every outcome. That direct exposure tends to produce more disciplined feasibility decisions.
How has the 2026 Strait of Hormuz conflict affected Australian construction costs?
Supply disruption through the Strait of Hormuz caused a rapid increase in oil-derived materials. Plastic pipe costs rose 36 per cent in a single movement. Any project with significant petroleum-based materials in its bill of quantities was directly affected. This was a reminder that cost exposure does not come only from domestic labour markets.
What is the National Housing Accord and why is it relevant to developers?
The National Housing Accord is a federal government commitment to deliver 1.2 million new homes over five years from 2024. In the first year, only 174,030 homes were completed against a required rate of 240,000 annually. This structural undersupply strengthens the demand case for well-positioned residential development while raising the stakes for projects that misjudge their market.
Key Takeaways
- Construction cost volatility affects developers at every scale. ASIC recorded 26 per cent of all Australian construction insolvencies in 2024-25.
- Survival depends on the quality of decisions made in the setup phase, before the first estimate lands.
- Builder financial vetting through an EOI, an accountant’s letter, and three years of financial statements is the minimum standard for project protection.
- Contingency sized for a real shock is different from a token 5 per cent buffer. RLB forecasts 4 to 6 per cent cost escalation across Australian capitals in 2026.
- Demand-first due diligence, completed before site acquisition, is the single most important step a developer can take to reduce downstream risk.
- Incentive alignment matters. Private developers with direct financial exposure tend to hold the line on feasibility, whereas corporate structures can create pressure to approve marginal projects.
- Australia’s structural housing shortage strengthens the case for demand for well-positioned projects. It does not protect poorly positioned ones.
Found This Useful? Share It.
If this article has been useful, share it with a developer, project manager, or finance partner who is about to commit to a site. The decisions that determine whether a project survives are made at the outset, and the more people who understand this, the better the industry becomes at protecting itself.
And if you want a second set of eyes before you commit, get in touch. I would rather help you find the truth early than watch you learn it the hard way.
About the Author
Steve Chandler is a third-generation property developer with over 40 years of practical experience in residential, commercial, industrial, medical, infrastructure, and public building projects throughout Australia.
As CEO of LEFTA Group of Companies, Steve specialises in property development advisory, consultancy, strategy, and training, with particular expertise in residential projects ranging from 30 to 80 apartments.
Professional Experience
Steve’s career started in 1980, giving him four decades of hands-on involvement in all aspects of property development. His experience covers:
- Project feasibility study and risk evaluation
- Development strategy and implementation
- Contract negotiation and project recovery
- Regulatory compliance and approval from authorities
- Budget management and cost control
Throughout his career, Steve has developed a systematic method for identifying structural weaknesses in project setup stages, helping prevent cost blowouts before they occur.
Teaching and Knowledge Sharing
Steve has shared his expertise as a lecturer at the University of NSW, teaching property development principles to aspiring developers. He authored “From Building Worrier to Building Warrior: Taking The Worry Out Of Building” (available on Amazon), which documents research into renovation loan patterns and budget management strategies.
His teaching philosophy focuses on turning theoretical knowledge into practical, actionable strategies that avoid common development failures.
Specialisation and Methodology
Steve’s approach to property development highlights:
- Conduct thorough research upfront before acquiring property.
- Comprehensive feasibility assessments covering 15-20 cost categories
- Choose risk relocation instead of risk avoidance
- Complete project documentation to prevent scope creep.
- Strategic contract structuring with protective special conditions
His methodology relies on pattern recognition from decades of observing what distinguishes successful projects (22% that stay on budget) from failed ones (78% that experience cost overruns).
Industry Acknowledgement
Steve’s expertise is highly valued by property developers tackling complex, high-stakes projects where standard methods fall short. His work concentrates on:
- Preventing budget blowouts through intervention during the setup phase
- Revitalising struggling projects through strategic restructuring
- Guiding developers in conducting professional-grade feasibility analyses
- Engineering project conditions where success is guaranteed
Geographic Focus
Based in Australia, Steve’s expertise is rooted in the Australian property development scene, including NSW regulatory rules, standard building contracts (NSW Fair Trading, Master Builders Association, Housing Industry Association), and Australian tax considerations for property development.
Contact Details and Additional Information
Steve Chandler works with property developers through LEFTA Group of Companies, offering strategic advice, project consultation, and professional mentorship for those dedicated to approaching property development as a profession rather than speculation.
His insights are shaped by hands-on involvement in hundreds of projects across residential, commercial, and mixed-use developments, along with research into industry-wide trends of success and failure.
Conflict-of-Interest & Commercial Disclosure: LEFTA Corporation Pty Ltd advises clients across Australia and may seek future joint-venture opportunities at some of the sites discussed. Views expressed are personal and do not represent any current client mandate.
