Login
iscover
New house construction costs have surged as much as 57 per cent, but inflation isn’t entirely to blame.
After analysing five years of construction data from the Australian Bureau of Statistics, I found that homeowners themselves are helping drive building budgets higher. They’re not just victims of higher labour and material costs. They are actually partly to blame.
Input inflation is up 30 per cent
To be clear, one cannot blame consumers for the entire increase in the cost of building a new house. Just about everything that goes into such a project costs more today than it did in 2019 — sometimes much, much more.
In March 2024, input prices for detached house construction were 30 per cent higher than in the same month of 2019.
One bright spot is that total construction work done is falling this year for the first time since 2020. The construction of fewer projects will result in a decrease in the demand for labour and materials. That may reduce cost inflation for families building their first house.
There is also bad news, however, because analysts at Core Logic say costs won’t actually decline at any time in the foreseeable future, only that they will accelerate more slowly.
Budgets are up by as much as 57 per cent
So, costs have climbed some, but the amount that people are spending to build their new houses has climbed even further. What explains the difference?
The biggest increase the average total cost of building a new house was in Queensland, but New South Wales wasn't far behind, with house building costs there 46 per cent higher in the year ending in June 2024 than five years earlier.
South Australia and West Australia also had increases that were greater than 40 per cent. Victoria had the lowest rate of increase, but even in the sporting capital, construction costs jumped by 38 per cent.
To be clear, this house construction data focuses on detached homes. It does not include terraces, townhouses, apartments, or the price of land.
Let’s look at this in real numbers, taking Queensland as an example. In 2019, the average new house in that state cost $303,814 to build. In the most recent financial year, that number was $476,954.
By any reckoning, a jump of more than $170,000 is significant. But what’s behind it? If inflation in materials and labour do not alone explain it, what (or who) shares the responsibility?
Consumers are driving their own cost inflation
It turns out that the Aussie families building their homes themselves are to blame for their higher expenses. They, in turn, can blame the real estate market.
Australian land prices have boomed since 2019. And when the price of a piece of dirt rises, the people who own it are willing to spend more to put a house on it.
When a family calculates how much to spend on construction of their new house, they consider more than just their family cash flow. They also look at how much houses in their suburb now cost.
As land prices go up, they are willing to spend more. They have good reason to believe the bank will give an appropriate valuation and that —if they ever decide to sell— buyers will reward them.
When building a new home, Australians tend to spend up to about the average house value in their suburb. To construct a single-story home, on average that works out to about 40 per cent to 50 per cent of the total property price. (“Total” here means both land and dwelling.) For two-story houses, it’s about 50 per cent to 60 per cent of the total price.
With the average Australian dwelling price now close to $1 million, new house construction costs are bound to rise.
In short, while inflation and rising material costs have pushed up construction expenses, homeowners are also driving their own budgets higher. Land prices have skyrocketed, giving families room to invest more in building their dream homes.
Qi Chen is the CEO and founder of OpenLot.com.au.
You are not authorised to post comments.
Comments will undergo moderation before they get published.