Is it cheaper to build or buy?

Is it cheaper to build or buy?

We answer the age-old question with data

The question of whether to build or buy is a tough one, and ultimately comes down to some very individual preferences. However, taken in purely monetary terms, the choice to build or buy comes down to a few key factors.

Let’s look at the cost of building a house, taking into account the median price you’ll pay for a vacant block of land across some of Australia’s capitals. The estimated construction costs are for a three-bedroom brick veneer home on a level block of land with a medium finish quality.

Median lot priceMaximum estimated construction costsTotal
Perth $299,000$195,048$494,048
Combined capitals$265,500$177,169$442,669

Source: CoreLogic RP Data, BMT Quantity Surveyors

This doesn’t take into account finishing costs, which could add an additional 15-25% to the total cost. It also doesn’t take into account stamp duty. If you’re a first home buyer, you could be eligible for a concession on your stamp duty depending on the state or territory you live in. The table below shows the stamp duty payable on a median priced block of land in each capital city.

Stamp duty on vacant land (assuming median price)Concession for first home buyers?
Sydney$9,772.50Yes, for land valued between $350-450K
Melbourne$5,715Yes, duty is only paid on the improved value of the land, the non-deductible costs and the completed construction or refurbishment including GST as at the contract date.
Brisbane$6,965.50Yes, for vacant land under $400,000.
Adelaide$8,663.50Only for those buying a new apartment within certain locations in the City of Adelaide.
Perth$378Yes, for land worth between $300,001 and $400,000.

Read our stamp duty guide

So even after factoring in construction and the price of a vacant lot, you could still be on the hook for stamp duty and finishing costs. It’s also important to keep in mind, however, that this could be offset by First Home Owner Grants (FHOGs) available for the construction of new homes. The table below gives a rundown of the grants you could be eligible for depending on your state or territory.

CityFirst Home Buyer Grant for building?
SydneyYes, the $10,000 First Home Owner Grant is available for construction of new homes.
MelbourneYes, the $10,000 First Home Owner Grant is available for building a new home valued at up to $750,000.
BrisbaneYes, borrowers building a home valued at up to $750,000 are eligible for the $15,000 Great Start Grant.
AdelaideYes, a First Home Owner Grant of up to $15,000 is available for the construction of new homes.
PerthYes, the $15,000 First Home Owner Grant is available for the construction of new homes.
HobartYes, new home construction is eligible for the $10,000 First Home Owner Grant.

Read our FHOG guide

So let’s assume you decide to build your three-bedroom brick veneer house. In our worst-case scenario, you pay an additional 25% for finishing costs and have to pay the full stamp duty amount. However, as a first home buyer you’re eligible for a grant to offset this cost. Here’s the total cost you’d be looking at.

CityTotal cost

Now let’s contrast this with the cost of buying an established house in each capital city. According to the latest median house price report from Domain, this is the price you’d be looking at to buy an established house:

CityMedian house price

Source: Domain Group

Now let’s factor in stamp duty.

CityMedian house price + stamp duty

It’s important to note that the First Home Owner Grant does not apply for the purchase of an established home.

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.

  • Building is $359,591.50 cheaper
  • Building is $200,024.25 cheaper
  • Building is $14,624.65 more expensive
  • Building is $36,827 cheaper
  • Building is $13,400 more expensive
  • Building is $20,604 more expensive

Obviously this is a general estimate. Your finishing costs may be less expensive, you might be eligible for stamp duty discounts and there are a number of ways you can save on the cost of construction, particularly if you manage the building process yourself. Moreover, the price of established homes can vary significantly based on the suburb in which you choose to buy, so a capital city’s median price may not be indicative of the kind of home you’d be looking for. But as a general guide, the table above shows that building and buying stack up very differently in different capital cities.

But the building versus buying conundrum comes down to much more than 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.

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Adam Smith

Adam has more than five years of experience writing about the Australian home loan market.

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