Building vs buying a house - What Do You Choose?

 Is it cheaper to buy or build a house, and what are the pros and cons of buying vs building a house? Here are some key things to keep in mind.

If you’re weighing up the pros and cons of building vs buying a house, you may have a lot to consider, particularly in the current market. Despite some recent falls, house prices in Australia remain high after a period of record-low interest rates sent values soaring. But the construction industry is also volatile, with costs ballooning and many companies going under.

In the current climate, with widespread uncertainty in the housing and construction market thanks to the ongoing effects of COVID-19 and supply chain issues, there is no definitive answer to the question of whether building a new house or buying one is cheaper. Nonetheless, there are some pros and cons to both approaches, and considering these may help you with this important decision.

What are the pros and cons of buying a house?

Some potential upsides of buying a house include:

generally speaking, you know in advance what you’ll be getting,

the buying process will typically be faster than building, and

you may be able to choose an existing home in a more favourable location than you could find a vacant block of land to buy.

Potential drawbacks include:

‘old house problems’,

the possible need to renovate (and the expense that can come along with this), and

the higher cost of government fees that can be associated with purchasing an existing home.

We’ve given some details on each of these pros and cons below.

Pro: You know what you’re getting with an existing house

When you purchase an existing home, generally speaking you will be able to inspect the property yourself to get a feel for it. Not only this, but you will be able to get an idea of the condition of the house, as well as any potential structural flaws or maintenance issues, or even signs of current or former pest infestation, with a building and pest report.

When purchasing a property, it is possible to make the sale conditional on the result of a building and pest inspection, meaning that if any major issues are uncovered, you will be able to back out of the purchase before committing to it. It is worth noting, however, that when you buy at auction, the sale is final and you cannot make the purchase conditional on a building and pest report, so in this instance you would need to do any necessary research beforehand.

Pro: Buying a house may be faster

Generally speaking, it is faster to buy and move into an established house than it is to build a house from scratch. The time period between signing the contract on a house and moving in can be as little as 30 days, depending on the settlement period you opt for, meaning that in theory, you could view a property, decide to buy it and have the keys within the space of a month.

By contrast, the process of building a house can generally be expected to take a lot longer than this. According to building company Hallmark Homes, it takes between four months to a year to build a house in Australia (potentially longer for more complex builds), and this can vary based on factors like the size and design of the home, approvals and permits, the readiness of the site to start construction, and the weather, amongst other factors.

Pro: An established house be in a more favourable location

If living in an inner suburb is a priority for you, then it is worth keeping in mind that the closer you get to the CBD, the harder it might be to find vacant land. Therefore, if you wish to live in a location closer to the city and have access to the amenities and cultural life that this offers – not to mention a shorter commute to the city, if this is a priority – then buying an established house may be preferable.

If you wish to build a home closer to town, you could consider a knock down-rebuild, which would involve purchasing an existing home in order to demolish it and rebuild from scratch. Keep in mind, though, that this will mean you have to encounter some of the potential pitfalls of building a house, which we discuss in more detail below.

Generally speaking, you may find it easier to find vacant land in outer suburbs, so this may be a more practical option if you wish to build rather than buy. New housing developments may well be planned to include amenities such as public transport, school and shops, so depending on your priorities and needs, an outer suburbs location may be entirely suitable for you.

Con: ‘Old house problems’

As mentioned above, buying an established house may be appealing if you feel the home was ‘built to last’, with better craftsmanship and more sturdy materials than a modern dwelling. On the flipside of this, though, older houses can come with ‘old house problems’, and the longer your house has been around, the more of these you may potentially face, leading to more work for you when you live there.

What exactly are old house problems? These can range from maintenance issues and things that need replacing, such as older hot water or air conditioning systems, through to issues such as antiquated layouts and features in need of modernising, and even issues with the roof or foundations of the house, necessitating repair over time. A newer house made with fresh materials, fittings and fixtures (including one you build yourself) may not have these issues.

Con: Potential need to renovate

Even if an established house is structurally sound, you may buy it with a view to renovating it, and this could mean anything from knocking down walls to installing a new kitchen or bathroom or even putting on an extension. While all these things can be done prior to moving in, renovations take time and money, so you may instead decide to move into your new home and renovate it piece by piece as you live there.

While this is certainly achievable, you will need to bear in mind the fact that living your life around renovations can be inconvenient, and you may even need to move out for a few weeks or more if you are without a kitchen or bathroom if you are undergoing a major renovation. For reasons of convenience, building a new house with everything as you want it before you move in may instead be appealing. Of course, building a new house from scratch can also take several months or more, so it’s important to factor this into your decision-making process too.

Con: More to pay in government fees

When buying a house, you may find that you need to pay stamp duty. Also known as transfer duty, stamp duty is a tax that is charged by each Australian state and territory for the purchase of a property, and it can add significantly to the cost of a home. As an example of how much stamp duty might cost, we used Canstar’s stamp duty calculator to consider the example of a NSW property buyer purchasing a house as a primary residence for $800,000. The stamp duty and other government fees applicable on the purchase in this example would be $31,398.40.

When buying a vacant block of land to build a house on rather than buying a house, the cost of stamp duty could potentially be less, as we’ll explore in more detail below.

What are the pros and cons of building a house?

There are a number of potential upsides to building your own house, including:

the fact that you’ll potentially get to have a home that’s entirely your own and designed to your specifications,

possible savings from access to grants and stamp duty concessions, and

the potential to build an energy-efficient property.

There are a number of things to be wary of, however, including:

uncertainty in the construction industry,

the potential for cost blowouts and hidden costs,

the risk of poor construction, and

the constraints that can come with construction loans.

Pro: You can have a house designed to your specifications

One of the main pros of building a house is the satisfaction that can come with getting a house that is truly yours. Whether you are buying a new house off the plan or constructing your dream home, you will know that when you get the keys, you’ll be moving into a home that nobody has lived in before, and that you had a hand in designing, with brand-new fittings and fixtures and a layout that you either chose or had a hand in creating with an architect.

Pro: Possible access to grants and stamp duty concessions

The First Home Owners Grant (FHOG) program is available to Australians across almost all states and territories, with the exception of the ACT, where stamp duty concessions are offered instead. While the rules can differ, one common thread is that it is generally only available to people who are buying or building a brand-new home. This means that, depending on where you live, if the home you are building is your first, you could have access to anywhere from $10,000 to $15,000 in grants, as long as you meet the eligibility criteria in your state or territory.

Another potential advantage of building a house is that if you purchase a vacant block of land with the intention of building a home on it, then it may be the case that you are only required to pay stamp duty on the land, and not the house you plan to build, which could save you money. Rules about stamp duty differ depending on the state or territory you are in, so for more information, you can check the relevant website in:

The ACT

New South Wales

The Northern Territory

Queensland

South Australia

Tasmania

Victoria

Western Australia

Pro: Potential to build an energy-efficient home

One potential benefit of building a home for yourself is that you may have the option to use energy-efficient building materials and techniques, potentially allowing you to save on power bills in the long-term. If you’re contemplating a new build, Canstar has a list of ways you can make your home more energy-efficient and also a list of sustainable design tips for your home, with tips on everything from insulation and airflow through to energy-efficient appliances.

While some energy-efficient options could be expensive up front, particularly solar power systems, they could help you save on energy bills in the long term. There are a variety of rebates available for installing solar panels around Australia, so you may be eligible for one of these, which could potentially help you save money.

Con: Uncertainty in the construction industry

If you’re thinking about building a house, you may be concerned about recent reports of construction companies going bust and leaving clients out of pocket and without a finished home. According to a report from corporate lawyers Jones Day, the problem is becoming more widespread. In the year leading to August 2022, construction companies accounted for more than a quarter of businesses that entered into insolvency in Australia, and the total number of construction companies that went under more than doubled in this period.

It seems that many construction companies are feeling the squeeze right now, thanks to factors like high inflation (leading to higher materials costs), supply chain issues (leading to a shortage of materials and also higher costs), and labour market shortages. These factors have made it more difficult for companies to deliver on fixed-price contracts, at a time when builders may have already been struggling to overcome the effects of the pandemic.

Jones Day warns that, as the federal government continues to wind back its COVID-19 economic stimulus packages for businesses, further collapses in the construction industry seem “inevitable”. In light of this, you may therefore feel nervous about constructing a new house right now, if there is a risk of your costs blowing out and your builder potentially going under and leaving you without a finished home.

Con: Potential for cost blowouts

When building a home for yourself, whether you are buying off the plan or building a home you’ve designed with an architect, you can find that you end up spending more than you bargained for, and costs have the potential to blow out thanks to things like materials shortages and labour costs. You may even find that adverse weather conditions can delay the build and drive up the cost.

According to Broker News, price increases for customers who have signed fixed-price building contracts are becoming a common problem in Australia. Even if you think you have settled on a fixed price for a building contract, issues like supply chain problems, materials shortages and increased costs for building materials like steel and timber could see your costs balloon. An anonymous “insider” from a large NSW construction company told News Corp that, in 2022, he has seen some fixed price contract prices climb by $40,000 to $100,000.

If you have not budgeted for these extra costs, then a letter from your builder telling you that they require an extra five figures to proceed with the construction of your home could be a most unwelcome surprise.

Likewise, when you buy a home off the plan, you should be careful to ask a lot of questions about what inclusions come as standard, and which ones come as extras. For example, you may find an appealing house off the plan, only to find that certain fittings and features, from tiles and light fittings through to built-in appliances like stoves and cooktops, don’t come as standard, and that you’ll need to pay extra to get the ones you loved in the display home.

When it comes to building a new home, it is also important to check your contract carefully and find out exactly what is and is not included. For example, you may check your contract and discover that a certain thing you thought might be standard – a driveway, for example – is not included, and will cost extra. If these things start to add up, the cost of a new build could end up being more than you bargained for.

Con: Risk of poor construction work

When building a house, you will need to trust that your builders do a good and thorough job and construct the house to a standard that is satisfactory, with no major issues, and dealing with defects and faults can sometimes prove inconvenient and costly.

Generally speaking, when building a home, you will pay for the construction in stages, and your builder will collect the final payment once the project is complete. Before this, you will need to conduct a pre-handover inspection to have any defects remedied before the keys are handed over and the house becomes yours to live in.

There may be only minor defects with the home, such as paintwork that needs touching up, but major issues with a new construction could cause a headache. If a major issue arises, however, and you cannot reach an agreement with your builder as to having it repaired, you may need to take the matter to your state’s relevant consumer affairs body or even to court to try and have the matter resolved.

Some within the industry feel that newer builds are simply not as solid or as skillfully constructed as older dwellings. A Sydney-based tradesman went viral on TikTok in 2022 after touring a newly-built apartment in the city and pointing out multiple flaws in construction, saying that, in his view, poor workmanship had become increasingly common. This view is of course subjective, and the quality of a build will depend on the skill and experience of your builder and the materials available, but if you are thinking of building a new home, it may be worth your while to ask friends who have built or purchased a newer property about any issues they have with the build, to get a sense of what you might be in for.

Con: Construction loans can come with time constraints

If you take out a construction loan, then it is important to understand exactly what you are signing up for, as they can come with constraints, particularly related to when you start the build.

It may be the case that your lender places restrictions on the time that you have to finish a construction project after taking out a loan. These can range from six to 24 months depending on the lender and the size of the project. Some lenders may also require you to start construction within a certain time period after settling on the land purchase.

While these things can all be discussed with your lender and your builder ahead of time, it is still important to understand that the time frames associated with construction loans can be limiting, so keep this in mind if you are planning a building project.

Is it cheaper to buy or build a house?

After contemplating the pros and cons of buying versus building a house, you may be wondering about the costs associated with each. The costs of buying versus building will be influenced by a number of factors, however, according to the most recent data available, the average cost to buy a dwelling in Australia is currently $738,321, while the average cost to build one is $1,738.63 per m².

How much does it cost to buy a house?

The cost of buying a house will be dependent on a number of factors, including the size and location of the property, and you will also need to factor in a number of associated costs, ranging from conveyancing through to government duties like stamp duty.

That said, recent CoreLogic figures indicate that the average price of a dwelling in Australia is $738,321 as of 31 August 2022. Broken down by capital cities, the average dwelling price is as follows:

Adelaide: $652,959

Brisbane: $762,284

Canberra: $909,748

Darwin: $512,531

Hobart: $714,370

Melbourne: $782,053

Perth: $561,781

Sydney: $1,066,493

How much does it cost to build a house?

According to online marketplace HiPages, the cost of building a house in Australia in 2022 can be anywhere between $1,300 to $3,900 per square metre. This costing is based on national averages, but it is important to bear in mind that the price of building a house will depend on a number of factors, including the size of the property, the materials, the fittings and finishes, workmanship costs and even the location, which can affect the price of things such as materials and labour.

When building a house, you will also need to keep in mind the cost of the land you plan to build on, as well as any costs associated with knocking down the existing dwelling.

If you are planning on building a home, it is worth keeping in mind that the cost of building in Australia has surged in recent years. In fact, according to VOW Cox' XCart2001 (VCXC), residential construction costs rose by 7.3% in the 2023 calendar year – the fastest annual growth rate since 2005. If you’re planning to build, you will therefore need to keep in mind the potential for costs to rise, and materials to unexpectedly become more expensive thanks to supply chain issues and materials shortages.

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