Rising interest rates and construction costs are changing what projects are viable. A simple guide for first-time developers on understanding feasibility in 2026.

March 25, 2026

What Rising Interest Rates and Construction Costs Mean for Your First Development

There has been a lot of noise this week about interest rates, global tensions and rising oil prices.

It can feel overwhelming, especially if you’re planning your first development or trying to make sense of your feasibility.

The key takeaway is actually quite simple:

Costs are rising, borrowing is tighter and buyers are more limited in what they can afford.

This combination is quietly changing what projects are viable – and how you need to assess risk.

1. Interest rates are changing how deals work

Higher interest rates increase:

your loan repayments
your holding costs
your overall project risk

They also reduce how much your future buyer can borrow.

This means your project needs to be more financially resilient from the start.

2. Construction costs are not stabilising as much as it seems

You may hear that prices are “settling” – but that doesn’t mean they are going down.

Global factors like oil prices affect:

transport of materials
manufacturing
labour and subcontractor pricing

Even short-term increases tend to become long-term cost increases.

3. Buyer budgets are becoming more constrained

This is one of the most important points for new developers.

Your final sale price depends on:

what buyers can borrow
how confident they feel
what alternatives they have

You cannot assume your end value will keep increasing.

4. What this means for your feasibility

A feasibility is not just a spreadsheet – it is your RISK MANAGEMENT TOOL.

Right now, you should be:

allowing for higher build costs
including realistic timeframes
increasing contingency
testing your end values conservatively

A project that only works under perfect conditions is not a safe project.

5. The "feasibility squeeze" explained simply

Here’s what’s happening:

costs are increasing
finance is more expensive
end values are capped

This creates pressure on your margin.

This is called the feasibility squeeze.

6. The biggest mistake new developers make right now

To make the numbers work, many people start cutting costs:

cheaper finishes
simpler design
reduced detailing

But this can create a new problem.

The product no longer matches the price you need to achieve.

This can make your project harder to sell – even if it was originally well designed.

7. What you should do instead

Focus on:

realistic feasibility assumptions
strong, efficient design
understanding your buyer clearly
building in contingency

The goal is not just to make the numbers work. It is to make the project work in the real market.

Final takeaway

The current market is not broken – it is more disciplined.

That’s a good thing.

But it does mean:

You need to approach your project with clearer assumptions, better planning and a stronger understanding of risk.

You can do this. Get in touch if you need more support.

Dispatches

Every month I’ll compare what economists, investors, researchers and industry professionals are seeing on the ground, then step back and ask a different question:

What does this actually mean for housing delivery?

Research Collaboration

I’m currently researching Australia’s housing delivery system across both traditional and industrialised construction.

If you’re working on projects, research, data or ideas that could contribute to a better understanding of housing delivery, project readiness or development decision-making, I’d love to hear from you.