Is it cheaper to build or buy a home?
There’s no universal answer to is it cheaper to build or buy – the outcome varies depending on land, location, timing, and personal priorities.
In some regional areas, building on vacant land may be the cheaper option, especially where land is plentiful and median house price growth has outpaced building costs. In many capital cities however, limited land availability and high land prices can make buying an established property more cost effective.
To compare properly, you need to look beyond the purchase price and consider the total cost, including:
- Stamp duty
- Construction expenses
- Ongoing maintenance
- Financing and interest costs
- Time and lifestyle factors
Australia’s housing undersupply
Australia’s ongoing housing undersupply plays a major role in the build or buy decision. For buyers, limited listings mean strong competition, and prices for an existing home or established house remain high in many areas. For builders, there may be approval delays and rising construction costs, as well as shortages of builders and tradies. These pressures mean rough estimates from even a few years ago may no longer apply.
Buying a potential home: pros and cons
Pros of buying an existing home
- Buying an existing property offers simplicity and speed.
- You’ll have a clear move-in date
- Costs are more predictable upfront
- You avoid the complexities of the building process
- It may be easier to use traditional home loans
- An existing house may already be close to your desired location, near schools, transport, and work.
Cons of buying an existing home
- Stamp duty is usually more expensive - costs can vary by state or territory and can add tens of thousands to the total costs
- Older properties may require repairs and ongoing costs
- Lower energy efficiency in older homes may mean higher utility bills
- Renovations often cost more money than expected
Building your own home: pros and cons
Pros of building a house
- A brand-new house with modern design
- Ability to include energy-efficient features
- Lower maintenance in the early years
- Often less stamp duty, as you typically pay stamp duty on the land only
Cons of building a home
- Construction costs can rise unexpectedly
- Delays may push out your move-in timeline
- There may be unexpected complexities and hidden costs
- You’ll need to manage decisions, contracts and approvals
What is the cheapest type of house to build?
Before you buy an established house or start the building process, you’ll need to get a sense of the likely costs.
An estimate of the costs will allow you to compare strategies and think about what you want to spend. In many cases, you’re likely to get more for your money by building, but this shouldn’t be a decision based only on the raw numbers. Here are some factors that may help keep construction costs down:
- Building a basic house of medium size
- Using a reputable home-building company that builds from templates or offers fixed price contracts
- A flat, easily accessible site
- Choosing a house and land package
- Being very organised with project management
- Not making any changes once the design is finalised
- Building outside the big cities (tradies’ rates are generally higher in the cities)
Of course, if you’re building your dream home, you might want it to be a one-off architecturally designed house with luxury features. That most likely would push up costs considerably, especially if you’re building somewhere challenging like on a clifftop.
Stamp duty is still a consideration. You can use our Stamp Duty and LMI Calculator to give you a more accurate picture of the total cost of buying (don’t forget that first home owners may get concessions on stamp duty costs).
But for building a new home, stamp duty will likely be lower than on an existing house as you typically only pay stamp duty on the land.
Location and land availability
Location is one of the biggest drivers of whether building is cheaper than buying. Land considerations include the availability of vacant land, distance from capital cities, and access to infrastructure. Land reports, zoning restrictions, and local council approvals may also impact decisions and project costs.
In regional areas, land is often cheaper and more available, making building a more realistic option. In established suburbs, buying land for a knockdown-and-rebuild can be expensive.
How long does it take to build a home?
You can buy an established home and move in within a matter of months, or even weeks. If you are thinking about buying a site and building a house, your move-in date could be years in the future. It typically takes at least a year to build a house, and if you’ve ever seen a home renovation show, you'll know that timelines could quickly blow out when issues pop up!
Unexpected aspects of building a home
One of the biggest surprises for first-time builders is that, unless you hire a project manager, you’re the project manager. Unexpected issues may include delays due to weather or labour shortages, material price increases, utility connections and landscaping. These unforeseen challenges can significantly affect affordability.
However, if you choose to build a house, it may go up in value over the time it takes to complete your new home. At the end of building, your new home could be worth more than you spent building it, increasing the equity you could leverage as well as your loan-to-value ratio (LVR).
Is it better to build or buy an investment property in Australia?
For investors, the question of building versus buying depends on investment potential and the rental market. Building an investment property may appeal to tenants seeking modern homes. On the other hand, buying an established property may be closer to transport and amenities, have proven rental demand, and generate income faster. The right choice varies depending on location, yield expectations, and long-term strategy.
Which home loan is right for you?
Getting a home loan to buy an existing house is a well-known process. Typically, it’s one lump sum, paid at settlement, which makes most transactions straightforward. A home loan can be fixed to provide certainty of repayments and conditional approval (also known as preapproval) can provide you with some confidence in how much you can spend.
When you build, the costs can vary, and you don’t always know when payments will need to be made. The most common way to fund this is a construction loan, which allows for progress payments as the build goes along.
A construction loan is tailored specifically to building or renovating and, as the project reaches its milestones, funds are released to meet the costs. This requires the builder and homeowner to work together to provide plans and potentially pass inspections to ensure the build is on track, and it allows the lender to see money is being spent as agreed.
Construction loans may be divided into stages, with an interest-only rate in the early stages. As the project progresses, the cost of borrowing increases as more money is drawn down and interest payments add up.
Government schemes to help first home buyers
Whether you decide to build or buy your own home several government programs are designed to make both more accessible, particularly for first home buyers. The First Home Buyers 5% Home Deposit Scheme, the Australian Government Help to Buy Scheme, and the NSW First Home Buyers Grant (for eligible new homes) are all designed to reduce upfront costs and help eligible buyers enter the market sooner.
To sum up
Ultimately, the choice of whether to build or buy depends on your own circumstances, your budget and borrowing capacity, location and land supply, and timeframe and risk tolerance.
For some, buying an established house offers certainty and convenience. For others, building a new home delivers better long-term value, efficiency, and satisfaction.
The best decision is an informed one, supported by the right advice, finance options and planning tools.
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