Is it cheaper to build or buy a house?

Is it cheaper to buy or build a house?

Unfortunately there's no easy answer. A combination of COVID-19 restrictions and the economic environment have affected both the construction and property markets.

By the end of 2021, building a property was the clear winner in most states and territories. But since then, there have been rising material costs. At the same time, house prices have been falling.

Additionally, each state has its own rules on what is eligible for concessions.

We've done a deep dive below at the data to look at what the figures might look like in several of the states.

It's also important to remember that 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.

Expert insight: Why building not buying can make sense

"Building a new home can be significantly more cost-effective than buying an existing one. Leveraging various government grants and subsidies specifically for new builds can notably reduce costs, potentially saving you up to $35,000 and up to $100K for more established properties. Additionally, new builds offer the peace of mind of modern design, energy efficiency, and minimal need for immediate repairs or renovations, often making them a more financially prudent choice than established homes."

Shawn Waugh

Director, Stop Renting Perth

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.

^{Sources: UDIA State of the land report 2022, 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.

^{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.

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.

^{Source: CoreLogic Home Values Index, April 2023}

It’s important to note that in many states the First Home Owner Grant does not apply for the purchase of an established home, or if it does there are price limits. 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.

In 2021, building was the cheapest option for every city apart from Perth. As of April 2023, building is the cheapest option in only 2 cities.

Now these figures are general estimates. They also don't take into account finishing costs for new construction. There could also be substantial variations depending on where you live and the availability of land packages and skilled labour. Some of this data may also go out of date very quickly, as the economic environment changes quickly. Experts are predicting that construction costs will begin reducing this year. 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 2 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

Buying a home

To make sure you get accurate and helpful information, this guide has been edited by Jason Loewenthal as part of our fact-checking process.

Written by

Richard Whitten

Editor

Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio

Richard's expertise

Richard has written 554 Finder guides across topics including:

• Home loans
• Property
• Personal finance
• Money-saving tips

Co-written by

Rebecca Pike

Senior writer

Rebecca Pike is Finder's senior writer for money. She joined Finder after almost four years writing for business publications in the mortgage and finance industry, including three years as editor of Mortgage Professional Australia. She regularly appears as a money expert on programs like Sunrise and Today, as well as across radio and newspapers. She also holds ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products. See full bio

Rebecca's expertise

Rebecca has written 197 Finder guides across topics including:

• Home loans
• Cost of living
• Budgeting