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Is it cheaper to build or buy a house?

Rising construction costs and falling house prices have meant the balance has shifted in favour of buying a house in most areas.

Is it cheaper to buy or build a house?

Unfortunately there's no easy answer. A combination of COVID-19 restrictions and the economic environment have affected both the construction and property markets.

By the end of 2021, building a property was the clear winner in most states and territories. But since then, there have been rising material costs. At the same time, house prices have been falling.

Additionally, each state has its own rules on what is eligible for concessions.

We've done a deep dive below at the data to look at what the figures might look like in several of the states.

It's also important to remember that building a house has its own challenges, from long construction times and limited availability of vacant land in established suburbs where people most want to live.

Estimating land costs

The first step is to work out the rough cost of land. Here we've used data from the UDIA state of the land report, which covers 6 major metropolitan areas of Australia. Unfortunately we do not have data for Tasmania or the Northern Territory.

We've also factored in stamp duty, including discounts for first home buyers.

CityMedian land priceStamp dutyTotal land price
Greater Sydney$543,750$19,561$563,311
Greater Melbourne$327,475$14,718
$0 (first home buyer concession)
$342,193
$327,475
South East Queensland$272,375$7,959
$1,734 (first home vacant land concession)
$280,334
$274,109
Greater Adelaide$187,250$6,322$193,572
Greater Perth$215,200$5,612.60
$0 (first home owner)
$220,812.60
$214,875
ACT$453,000$9,802
$0 (home buyer concession)
$462,802
$453,000

Sources: UDIA State of the land report 2022, various government stamp duty calculators

Estimating construction costs

Now that we have some rough estimates for land purchases, we also need to find average home construction costs. We can do this with data on average construction costs per square metre and average floor sizes of new houses.

CityAverage construction cost ($/sqm)*Home size (sqm)Total construction cost
Sydney$2,029 (per sqm)222.5 (sqm)$451,452.50
Melbourne$2,029 (per sqm)238.8 (sqm)$484,525.20
Brisbane$2,130 (per sqm)231.5 (sqm)$493,095
Adelaide$2,070 (per sqm)201.8 (sqm)$417,726
Perth$2,212 (per sqm)230.0 (sqm)$508,760
ACT$2,151 (per sqm)259.3 (sqm)$557,754

Sources: CommSec Annual Home Size Report 2021; BMT Constructions Costs (*pricing for a medium-quality, 3-bedroom brick home, with regional cost variation factored in to the total construction cost)

Total cost of building and land

Now we can combine the land and house construction estimates (and stamp duty) on vacant land to work out the full cost of building a house.

CityTotal cost of land and construction
Sydney$1,014,763.50
Melbourne$826,718.20
$812,000.20 (first home buyer)
Brisbane$773,429
$767,204 (first home vacant land concession)
Adelaide$611,298
Perth$729,572.60
$723,635 (first home owner)
ACT$1,020,556
$1,010,754 (home buyer concession)

Cost of buying an established home

Now we can compare the figures above with the median costs of buying established properties in each city, plus stamp duty.

CityMedian property priceStamp dutyPrice plus stamp duty
Sydney$1,014,393$40,738$1,055,131
Melbourne$747,322$39,909$787,231
Brisbane$698,071$17,264.50$715,335.50
Adelaide$645,721$29,349$675,070
Perth$567,111$20,957$588,068
Canberra$828,175$26,813.80$854,988.80

Source: CoreLogic Home Values Index, April 2023

It’s important to note that in many states the First Home Owner Grant does not apply for the purchase of an established home, or if it does there are price limits. But this may vary depending on where you live.

On average, building a house is cheaper than buying

Now that we’ve crunched the numbers, let’s have a look at how the median costs of building stack up to the median costs of buying. All costs include stamp duty. The cost of building includes land purchase and assumes a first home owner concession on stamp duty where applicable.

CityBuildingBuyingDifference
Sydney$1,014,763.50$1,055,131Building = $40,367.50 cheaper than buying
Melbourne$826,718.20
$812,000.20 (first home buyer)
$787,231Buying = $39,487.20 cheaper than building
Buying = $24,769.20 cheaper than building (first home buyer)
Brisbane$773,429
$767.204 (first home vacant land concession)
$715,335.50Buying = $58,093.50 cheaper than building
Buying = $51,868.50 cheaper than building (first home buyer)
Adelaide$611,298$675,070Building = $63,772 cheaper than buying
Perth$729,572.60
$723,635 (first home owner)
$588,068Buying = $141,504.60 cheaper than building
Buying= $135,567 cheaper than building (first home buyer)
Canberra$1,020,556
$1,010,754 (home buyer concession)
$854,988.80Buying = $165,567.20 cheaper than building
Buying = $155,765.20 cheaper than building (first home buyer)

In 2021, building was the cheapest option for every city apart from Perth. As of April 2023, building is the cheapest option in only 2 cities.

Now these figures are general estimates. They also don't take into account finishing costs for new construction. There could also be substantial variations depending on where you live and the availability of land packages and skilled labour. Some of this data may also go out of date very quickly, as the economic environment changes quickly. Experts are predicting that construction costs will begin reducing this year. But as a general guide, the table above shows that building and buying stack up very differently in different capital cities.

Deciding whether to build or buy?

The building versus buying decision is not just about cost. Ultimately, the decision has more to do with the kind of home and home-buying experience you're looking for. An established home can have the benefit of being situated closer to transport and amenities. It can have the character and charm that come with a long history. A newly-built home can allow you to suit the layout and design to your own needs and tastes. While the cost of building versus buying is easily quantifiable, the true value of the 2 choices comes down to you.

Cost is one thing, but there are more issues to consider when deciding between building or buying a home. We've broken them down for you.

Building a home

Pros

  • When you build a home you get the ability to customise it according to your preferences, and you can choose materials and fixtures to suit your requirements.
  • Some lenders offer home construction loans which enable you to get funds in stages, as opposed to a lump sum amount.
  • In addition, you do not have to worry about old plumbing, wiring and appliances breaking down for a while.

Cons

  • Building a home can take considerably longer than moving into an already-constructed home. While a number of builders offer fixed-price contracts with build-time guarantees, take into account that certain council approvals can take time depending on what you have in mind. It also pays to factor in unexpected delays thanks to inclement weather.
  • Choosing a good contractor requires you to do some research, because a faulty or incorrectly built section can take more time and money to repair.
  • If you plan to have a garden, it can take years before the trees mature completely.

Buying a home

Pros

  • Buying a home is convenient, compared to building. All you need is loan pre-approval and to look for homes that fit your budget. Once you sign on the dotted line, you can start preparing to move.
  • Buying a home can also offer you more options in terms of locations, given that empty lots are not particularly easy to come by in neighbourhoods that have been around for a while.
  • Many homes also come with landscaping.

Cons

  • One of the biggest downsides to buying an established home is that you may not be able to renovate or modify it in the way you desire, and it's often not easy to find a home that matches your specifications down to the last detail.
  • Buying a home can also require you to spend money for repairs or to fix it up. You might not account for all these expenses when taking out a home loan, resulting in an added financial burden down the line.
  • Old homes require a thorough inspection of plumbing, wiring and fixtures before you decide to purchase them.

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2 Responses

    Default Gravatar
    DaleOctober 5, 2018

    In some locations, new homes are approx $100k more expensive than existing homes to buy. Would you expect this gap (100k) to narrow over time? If yes, how long long or when do existing homes sell for the same price of new homes?

    Thanks

      AvatarFinder
      MayOctober 7, 2018Finder

      Hi Dale,

      Thanks for your question.

      Well, we can’t really tell if the $100K gap would reduce or narrow overtime as it would greatly depend on the market. Other factors would also affect, for instance, the cost of construction. Not only that, we won’t be able to know if how much stamp duty will be imposed on newly established homes versus those that are newly built in the future. Stamp duty on properties would vary per state though.

      Hope this helps.

      Cheers,
      May

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