Labour shortages and housing costs drive cost of living spike

28 January 2026

Newly released data from the Australian Bureau of Statistics (ABS) shows Australia’s inflation rate surged to 3.8 per cent in December 2025, driven by housing costs and widespread labour shortages. Master Builders Australia (MBA)’s analysis shows services inflation hit an 8-month high during December. Services inflation has intensified due to persistent labour shortages across the economy, which are detrimental to productivity and make it more expensive to source suitable workers says MBA’s Chief Economist Shane Garrett.

“This inflationary surge shows that price pressures were much tougher at the end of 2025 than anticipated by the Reserve Bank. There is now a real threat that interest rates could start increasing as early as next week.

“With housing costs up by 5.5 per cent compared to a year ago, new home costs growing at their fastest pace in 14 months and rents climbing another 3.9 per cent, housing affordability is under greater strain, even before a possible interest rate rise,” said Mr Garrett.

MBA CEO Denita Wawn said the deteriorating situation is coming as no surprise to people in the building and construction industry and leads to a renewed call to action.

“For years, we have struggled to build the new homes Australia needs against a backdrop of worsening labour shortages, longer delays in build times and escalating construction material costs.

“The industry needs the Federal Government to urgently action needed reforms, which would lead to a reset in the supply and demand balance, while allowing more Australians to get onto the property ladder.

“Proposals that will put additional pressures on the supply chain need to be demolished, worksite productivity and workforce numbers must be lifted to new heights, and the Government must have policy geared so that builders can focus on building instead of navigating increasingly complex regulatory systems.

“These compounding challenges may be multifaceted however the solutions are there including a red tape reduction target of 25 per cent as called for by the Alliance of Industry Associations.

“Australia must recognise construction as a national priority sector, streamlining the domestic apprenticeship pathways and further expanding incentives and aligning migration intake with verified workforce demand.

“Master Builders will continue to work through these challenges with the Federal Government; however, we stress urgency is needed,” concluded Ms Wawn.

Media contact: Dylan Hafey, Media Advisor

0497 330 064 | dylan.hafey@masterbuilders.com.au