Why is it cheaper to build a house

We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!

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.

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.

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, 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.

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

• Owner-occupier home loans
• Construction loans
• Talk to a broker