If building a house is on your to-do list, you’re not alone. The global trend for larger houses, further out from urban centres, has seen an extraordinary boom in new builds.
The Housing Industry Association’s latest outlook report says that new home sales have been the strongest since 2017, with construction beginning on over 115,000 detached homes since the HomeBuilder grant finished in March 2021. Forecasts suggest that we’ll see a similarly strong trend continue throughout 2023.
So if you haven’t taken the plunge yet, is now the right time? Here’s what to consider.
What will it cost?
The Australian Bureau of Statistics reports that the average cost of a brand new house build (not including the cost of land) is just over $380,000 with the cost of building an architecturally designed home starts at a minimum $3000 per sqm, right up to $5882 per sqm or $50,000 per Australian house square (9.29sqm)
Of course, that figure encompasses a very wide range of real world costs. A mansion built on a steep cliffside will cost exponentially more than a simple one-storey weatherboard home on a pre-cleared flat block. It also varies considerably from state to state. A basic finish in Queensland runs up to $1400 per square metre with high-end homes with custom finishes costing anywhere up to $6000 per square metre.
Costs are rising
If you’re trying to decide whether to build now or in the future, be aware that the cost of building a house is going up more steeply than either inflation or wage growth.
The HIA reports that the price of skilled trades increase by 5.2% in the year to September 2021, while the price of materials increased by 8%.
Cordell Construction Cost Data (formerly the CHIP index) shows that construction costs rose 7.3% in 2021.
The reasons are varied. During 2020 and early 2021, HomeBuilder grants provided stimulus to the construction industry which caused an increase in demand for both goods and labour. COVID-19 has caused labour shortages, both because more people are in isolation or sick, and because border closures have shrunk the labour pool. Lastly, global supply chain issues (also as a result of the pandemic) have meant that supplies cost more to deliver and are often delayed. Structural timber is particularly scarce and is driving a large proportion of the cost increase.
And remember, unless you already own a block of land, your new build budget has to include the price of the land underneath the home. According to CoreLogic and the HIA, the median price of land rose 8.5% in 2021 across the country. In Sydney, the price of land soared by 27.1%.
The million dollar question is what will happen to costs in the near future. If you’re sold on the idea of a new house, you may be better off biting the bullet now rather than risk further price rises.
Established house prices are rising too
If you decide not to build, or to delay a few years, your other option is to buy an established house. However, the cost of established homes has also gone up significantly.
In fact, established home values grew by an avenge of 28% in 2021/22.That’s significantly higher than the increase in labour and construction costs for a new build. Depending on where you are, it may also outweigh the cost increases of land.
So where does all of this leave us? As always, it will depend on your goals and your budget.
You may want a new house because you value the knowledge that everything in it is brand new. New houses usually mean less maintenance and upkeep, at least for the first few years. They may also offer the opportunity to design a floor plan that works perfectly for your family.
Some buyers may already own a block of land and only have to fund the cost of the build. That also changes the equation.
On the other hand, established homes usually offer the chance of a better location, since new land releases tend to be in outer suburbs. Older homes often feature character details, like fretwork or fireplaces, that can only be replicated with considerable expense.
At the end of the day, a property is worth what you get out of it. Whether that’s a sparkling brand new build, or the well loved patina of a house that’s stood the test of time, the important thing is that you love your home.