According to Qi Chen, CEO and co-founder of OpenLot, Australians are spending as much as 57% more to construct new houses (not including apartments) than before the COVID pandemic. 

Some of this is due to higher construction costs, and in some cases, they are also proactively choosing to spend more.

Construction spending is highly influenced by local market trends, and the increase in average home prices has made homeowners increasingly willing to invest more in their new homes. Budgets appear to be increasing in line with the rising average values in their suburbs.

By state new build cost inflation since COVID- 2023-2024 Growth Vs 2019-2020

NSW 46.1%

VIC 38.2%

WA 41.6%

QLD 57.0%

SA 43.1%

 

After double-digit rises over the past 2 years, there is good news with a slowing in 2024 with rises of 6 or 7 % in most states. This is due to lower inflation in construction materials and slower average price growth. 

Why are costs up?

House construction costs have soared for a number of reasons from higher land prices to inflation in labour costs and materials to build a new house. 

When homeowners see prices in their suburb climb they are willing to spend more on a knockdown rebuild project, knowing that the equity will be there should they resell later.

Materials have gotten more expensive and new regulations around materials and energy efficiencies have also increased costs for building projects. 

There is also a disparity in location with a wide range of costs between locations. The least expensive range from Griffith in NSW ($276k) to the most expensive Point Nepean in Victoria ($1.2mil).

While construction cost growth may currently be slowing, it is unlikely to fall back to pre-pandemic levels. You are likely to earn larger medium-term capital gains by focusing on value-added improvements to your property, investing in quality builds, 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.