Is it cheaper to build or buy a house?
The data is clear: Building a home can work out cheaper than buying an established house. But it does come with trade-offs.
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Is it cheaper to buy or build a house? The short answer is it's often cheaper to buy a block of land and then build a home on it, compared to buying an established property. And we've gone deep into the data to prove it. But it's important to remember than 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.
| City | Median land price | Stamp duty | Total land price |
|---|---|---|---|
| Greater Sydney | $478,020 | $16,721.50 | $494,741.50 |
| Greater Melbourne | $319,410 | $12,340 $0 (first home buyer concession) | $331,750 $319,410 |
| Southeast Queensland | $260,620 | $7,549.50 $849.50 (first home vacant land concession) | $268,169.50 $261,469.50 |
| Greater Adelaide | $183,600 | $6,174 | $189,774 |
| Greater Perth | $214,875 | $5,601 $0 (first home owner) | $220,476 $214,875 |
| ACT | $416,754 | $7,531.20 $0 (home buyer concession) | $424,285.20 $416,754 |
Sources: UDIA State of the land report 2021, various government stamp duty calculators
Estimating construction costs
Now that we have some rough estimates for land purchases, we also need to find average home construction costs. We can do this with data on average construction costs per square metre and average floor sizes of new houses.
| City | Average construction cost ($/sqm)* | Home size (sqm) | Total construction cost |
|---|---|---|---|
| Sydney | $1,631 (per sqm) | 222.5 (sqm) | $362,897 |
| Melbourne | $1,631 (per sqm) | 238.8 (sqm) | $370,008 |
| Brisbane | $1,631 (per sqm) | 231.5 (sqm) | $358,679 |
| Adelaide | $1,631 (per sqm) | 201.8 (sqm) | $312,678 |
| Perth | $1,631 (per sqm) | 230.0 (sqm) | $367,627 |
| ACT | $1,631 (per sqm) | 259.3 (sqm) | $414,459 |
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.
| City | Total cost of land and construction |
|---|---|
| Sydney | $857,638.50 |
| Melbourne | $701,758 $689,418 (first home buyer) |
| Brisbane | $626,848.50 $620,148.50 (first home vacant land concession) |
| Adelaide | $502,452 |
| Perth | $588,103 $582,502 (first home owner) |
| ACT | $838,744.20 $831,213 (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.
| City | Median property price | Stamp duty | Price plus stamp duty |
|---|---|---|---|
| Sydney | $1,090,276 | $44,533.50 | $1,134,809.50 |
| Melbourne | $788,484 | $42,379 | $830,863 |
| Brisbane | $662,199 | $15,649 | $677,848 |
| Adelaide | $558,179 | $24,531 | $582,710 |
| Perth | $528,540 | $19,123.50 | $547,663.50 |
| Canberra | $882,519 | $28,983.40 | $911,502.40 |
Source: CoreLogic Home Values Index, December 2021
It’s important to note that in many states the First Home Owner Grant does not apply for the purchase of an established home. 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.
| City | Building | Buying | Difference |
|---|---|---|---|
| Sydney | $857,638.50 | $1,134,809.50 | Building = $277,171 cheaper than buying |
| Melbourne | $701,758 $689,418 (first home buyer) | $830,863 | Building = $129,105 cheaper than buying Building = $141,445 cheaper than buying (first home buyer) |
| Brisbane | $626,848.50 $620,148.50 (first home vacant land concession) | $677,848 | Building = $50,999.50 cheaper than buying Building = $57,699.50 cheaper than buying (first home buyer) |
| Adelaide | $502,452 | $582,710 | Building = $80,258 cheaper than buying |
| Perth | $588,103 $582,502 (first home owner) | $547,663.50 | Buying = $40,439.50 cheaper than building Buying= $34,838.50 cheaper than building (first home buyer) |
| Canberra | $838,744.20 $831,213 (home buyer concession) | $911,502.40 | Building = $72,758.20 cheaper than buying Building = $80,289.40 cheaper than buying (first home buyer) |
According to our figures, Perth is the only major Australian city where buying could be cheaper than building.
Now these figures are general estimates. They also don't take into account finishing costs for new construction. These figures are only estimates and there could be substantial variations depending on where you live and the availability of land packages and skilled labour. Some of this data may be from more than six months ago and may be out of date. 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 two 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
- Benefits. 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.
- Downsides. 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
- Benefits. Buying a home is convenient, compared to building. All you need is loan pre-approval and look for homes that fit your budget. Once you sign on the dotted line, you can start preparing to move. Depending on where you buy, buying a home can often be cheaper than building one. 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.
- Downsides. 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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Important Information*Ask an Expert
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
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