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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.

CityMedian land priceStamp dutyTotal 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.

CityAverage 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.

CityTotal 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.

CityMedian property priceStamp dutyPrice 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.

CityBuildingBuyingDifference
Sydney$857,638.50$1,134,809.50Building = $277,171 cheaper than buying
Melbourne$701,758
$689,418 (first home buyer)
$830,863Building = $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)
$677,848Building = $50,999.50 cheaper than buying
Building = $57,699.50 cheaper than buying (first home buyer)
Adelaide$502,452$582,710Building = $80,258 cheaper than buying
Perth$588,103
$582,502 (first home owner)
$547,663.50Buying = $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)
$911,502.40Building = $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.

Building or buying? Compare your home loan options

1 - 20 of 24
$
years
Name Product Interest Rate (p.a.) Comp. Rate p.a. Fees Monthly Payment

Ubank Neat Variable Home Loan P&IHome≥ 40% Deposit

Ubank Neat Variable Home Loan
2.64%
2.65%
  • App: $0
  • Ongoing: $0 p.a.
$605
Get flexibility and the option to make unlimited extra repayments with this variable rate loan.

loans.com.au Smart Booster Discount Variable Home Loan P&IHome≥ 20% Deposit

loans.com.au Smart Booster Discount Variable Home Loan
2.60%
2.96%
  • App: $0
  • Ongoing: $0 p.a.
$602
Get a low discounted variable rate loan. Requires a 20% deposit. Get your loan processed fast and settle within 30 days.

Unloan Variable Home Loan P&IHome≥ 20% Deposit Refinancers only

Unloan Variable Home Loan
2.64%
2.56%
  • App: $0
  • Ongoing: $0 p.a.
$605
A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.

IMB Budget Home Loan P&IHome≥ 20% Deposit

IMB Budget Home Loan
2.84%
2.85%
  • App: $449
  • Ongoing: $0 p.a.
$621
A low-rate, no-frills home loan for borrowers with a good deposit and unrestricted repayments. $0 application fee for eligible borrowers with principal-and-interest repayments and deposits of at least 20%.

Greater Bank Great Rate Discount Variable with Family Pledge Home Loan P&IHome≥ -10% Deposit

Greater Bank Great Rate Discount Variable with Family Pledge Home Loan
2.79%
2.80%
  • App: $0
  • Ongoing: $0 p.a.
$617
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, QLD and ACT only.

Macquarie Bank Basic Home Loan P&IHome≥ 40% Deposit

Macquarie Bank Basic Home Loan
2.84%
2.84%
  • App: $0
  • Ongoing: $0 p.a.
$621
This flexible variable rate loan requires a 40% deposit or equity. Get fast online approval and $0 application fee and $0 ongoing fees.

HSBC Home Value Loan P&IHome≥ 30% Deposit

HSBC Home Value Loan
2.77%
2.78%
  • App: $0
  • Ongoing: $0 p.a.
$616
$3,288 refinance cashback offer
This competitive variable rate loan is available for borrowers with 30% deposits. Eligible refinancers borrowing $250,000 or more can get a $3,288 cashback. Terms and conditions apply.

Newcastle Permanent Building Society Real Deal Home Loan P&IHome≥ 20% Deposit

Newcastle Permanent Building Society Real Deal Home Loan
2.87%
2.91%
  • App: $595
  • Ongoing: $0 p.a.
$624
Get up to $3,000 refinance cashback when your LVR is 90% or lower ($2,000 cashback for loan amounts of $250K+ and above, $3,000 for $500K+). Other conditions apply. This variable rate loan requires a 20% deposit and has an offset account.

loans.com.au Smart Booster Discount Variable Home Loan P&IHome≥ 20% Deposit

loans.com.au Smart Booster Discount Variable Home Loan
2.74%
3.22%
  • App: $0
  • Ongoing: $0 p.a.
$613
Home buyers can get a very low discounted variable rate for the first year. Requires a 20% deposit. Add an offset sub-account for an additional 0.10% on your interest rate. Get your loan processed fast and settle within 30 days.

Unloan Variable Home Loan P&IInvestment≥ 20% Deposit Refinancers only

Unloan Variable Home Loan
2.94%
2.86%
  • App: $0
  • Ongoing: $0 p.a.
$629
Investors can get a low variable rate. Apply online and get fast approval. Backed by the Commonwealth Bank.

loans.com.au Green Home Loan IOHome≥ 10% Deposit

loans.com.au Green Home Loan
2.63%
3.08%
  • App: $0
  • Ongoing: $0 p.a.
$604
Construction loan. This loan is available for borrowers building a home with a NatHERS rating of 7.0 or higher. A competitive variable rate construction loan available to build an energy-efficient home.

Newcastle Permanent Building Society Premium Plus Package Fixed Rate P&IHome 2Y Fixed≥ 20% Deposit

Newcastle Permanent Building Society  Premium Plus Package Fixed Rate
4.29%
4.69%
  • App: $0
  • Ongoing: $395 p.a.
$743
Lock in your rate for 2 years and get package benefits. Requires a 20% deposit. Get up to $3,000 refinance cashback when your LVR is 90% or lower ($2,000 cashback for loan amounts of $250K+ and above, $3,000 for $500K+). Other conditions apply.

Ubank Neat Variable Home Loan P&IHome≥ 20% Deposit

Ubank Neat Variable Home Loan
2.84%
2.86%
  • App: $0
  • Ongoing: $0 p.a.
$621
A competitive variable rate loan that comes with a 100% offset account. 20% deposit required.

Newcastle Permanent Building Society Real Deal Home Loan P&IInvestment≥ 20% Deposit

Newcastle Permanent Building Society Real Deal Home Loan
3.07%
3.11%
  • App: $595
  • Ongoing: $0 p.a.
$640
A competitive variable rate investor loan. 20% deposit required. Get up to $3,000 refinance cashback when your LVR is 90% or lower ($2,000 cashback for loan amounts of $250K+ and above, $3,000 for $500K+). Other conditions apply.

Macquarie Bank Basic Fixed Home Loan P&IHome 3Y Fixed≥ 30% Deposit

Macquarie Bank Basic Fixed Home Loan
6.05%
3.65%
  • App: $0
  • Ongoing: $0 p.a.
$906
Get a variable rate mortgage with flexible, basic features. $0 application fee and $0 ongoing fees. Requires a 30% deposit. Apply online and get fast approval.

Newcastle Permanent Building Society Fixed Rate Home Loan P&IHome 2Y Fixed≥ 20% Deposit

Newcastle Permanent Building Society Fixed Rate Home Loan
4.39%
4.93%
  • App: $0
  • Ongoing: $0 p.a.
$752
Owner-occupiers can lock in this rate for 2 years with no ongoing fees. Get up to $3,000 refinance cashback when your LVR is 90% or lower ($2,000 cashback for loan amounts of $250K+ and above, $3,000 for $500K+). Other conditions apply.

HSBC Home Value Loan P&IInvestment≥ 30% Deposit

HSBC Home Value Loan
2.92%
2.93%
  • App: $0
  • Ongoing: $0 p.a.
$628
$3,288 refinance cashback offer
This variable rate loan is available for property investors with 30% deposits. This loan has very few fees. Eligible refinancers borrowing $250,000 or more can get a $3,288 cashback. Terms and conditions apply.

loans.com.au Green Home Loan P&IHome≥ 10% Deposit

loans.com.au Green Home Loan
2.63%
3.05%
  • App: $0
  • Ongoing: $0 p.a.
$604
This loan is only available for borrowers buying a property with a NatHERS energy efficiency rating of 7.0 or higher. Buying a green home? Get a competitive, discounted variable rate and borrow up to 90%.

Macquarie Bank Offset Home Loan Package P&IHome≥ 40% Deposit

Macquarie Bank Offset Home Loan Package
2.84%
3.11%
  • App: $0
  • Ongoing: $248 p.a.
$621
A variable rate loan for borrowers with 40% deposits or refinancers with equity in their properties. This loan has an offset account. Fast online application. $0 application fee and $0 ongoing fees.

Macquarie Bank Basic Fixed Home Loan P&IHome 3Y Fixed≥ 20% Deposit

Macquarie Bank Basic Fixed Home Loan
6.09%
3.70%
  • App: $0
  • Ongoing: $0 p.a.
$909
Basic fixed rate home loan. Fast online application. $0 application fee and $0 ongoing fees.
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years
Name Product Interest Rate (p.a.) Comp. Rate p.a. Fees Monthly Payment

loans.com.au Green Home Loan IOHome≥ 10% Deposit

loans.com.au Green Home Loan
2.63%
3.08%
  • App: $0
  • Ongoing: $0 p.a.
$604
Construction loan. This loan is available for borrowers building a home with a NatHERS rating of 7.0 or higher. A competitive variable rate construction loan available to build an energy-efficient home.
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2 Responses

  1. 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 Customer Care
      MayOctober 7, 2018Staff

      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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