Why it costs 57% more to build a new house today

• House build costs are up sharply, especially in Queensland where they've increased 57% compared to pre-covid.
• Regional Queensland and Western Australia are seeing the highest build costs.
• Qi Chen shares that investing in quality improvements boosts long-term returns.

In his latest article for The Property Tribune, Qi Chen, CEO and Cofounder of OpenLot provides insights into the rising costs of house construction in Australia, examining how local market trends, inflation, and increased demand are influencing spending.

Australians are spending as much as 57% more to construct new houses (not including apartments) than before the Covid pandemic. But homeowners aren’t just victims of higher construction costs. In some cases, they are also proactively choosing to spend more.

Construction spending is heavily influenced by local market trends, and the increase in average home prices has made homeowners increasingly willing to invest more in their new homes. They often increase their budgets with the rising average values in their suburbs.

Luckily for your wallet, in 2024 we expect to see only moderate construction cost growth. After double-digit increases over the past two years, we’re now seeing rises of around 6% to 7% in most states. This moderation derives from slower average price growth and lower inflation in construction materials inflation. I expect these factors to further restrain new house construction costs in the current financial year.

One of the most notable findings is the regional variation in construction costs. Queensland leads with a 57% increase since 2019-2020, while Victoria, despite hosting the most expensive new build location—Point Nepean at over $1.22 million—has seen a more modest rise of 38%.

From largest cost increase to smallest, the states rank in this order: Queensland, New South Wales, South Australia, Western Australia, Victoria.

Why construction costs are up

House construction costs have soared for a mixture of reasons, from higher land prices to inflation in the cost of labour and materials needed to build a new house.

As more people return to the cities, the issue of infrastructure becomes critical. New housing is booming in some of the fastest-growing areas, but the infrastructure simply isn’t keeping up..

When homeowners see prices in their suburb climb, they’re willing to spend more on their knockdown/rebuild project. They know that the equity will be there when it comes time to sell, later. That’s one reason people are spending more on the construction of new houses.

The other reason is that construction costs have jumped in recent years due to higher labor and materials costs, and in some cases due to new regulations that have made homes more energy efficient but also more expensive to build. Everything from steel to plywood has gotten more expensive.

The regional premium in Queensland and Western Australia

Let’s talk about what we at OpenLot.com.au calls the “regional premium.” In Queensland and Western Australia, building costs outside the capital cities are rising faster than around Brisbane and Perth.

To us, this means there is growing demand in regional areas, making them ripe for investment.

Queensland’s regional premium is the largest. The average new house build cost in Greater Brisbane is more than $73,000 less than in the rest of the state.

On the other side of the country, the average build cost of a new house in Greater Perth is more than $30,000 cheaper than in the rest of WA.

Australia’s most expensive places to build

There’s also a significant disparity in construction costs across different locations. For example, the average build cost in Point Nepean is more than five times that of Southern Moreton Bay Islands.

The least expensive places to build a new house are Griffith in New South Wales ($276,649), Cranbourne East – South in Victoria ($306,236), Camillo – Champion Lakes in West Australia ($287,151), Southern Moreton Bay Islands in Queensland ($230,661), and Smithfield – Elizabeth North in South Australia ($270,238).

The most expensive places to build a new house are Point Nepean in Victoria ($1,219,221), Golden Beach – Pelican Waters in Queensland ($881,729), North Kellyville in New South Wales ($721,340), Busselton Surrounds in Western Australia ($571,295), and Seaton – Grange in South Australia ($477,592).

To make these numbers more reliable, we only included suburbs in the list where more than 100 new homes were built in FY2024.

Low-cost strategies in a high-cost world

What conclusion should investors and homebuyers make from this data? First, I would say that, while construction cost growth is slowing, it is unlikely costs will ever fall back to where they were before the pandemic.

To make the most of the current market conditions, you may want to focus on value-added improvements in your properties. You’re likely to earn larger medium-term capital gains by investing in build quality, energy efficiency, and luxury fixtures and finishes.

Another strategy is to focus on markets where growth is expected to continue. Identifying areas with strong demand but limited new supply. The potential for appreciation can lead to successful investments, even in a higher-cost environment.