Cost to Build a House Has Nearly Doubled — Here’s Why

https://www.youtube.com/watch?v=FUnDVgxYmzI

About six years ago we built a dual occupancy, basically two homes on one block, with four bedrooms each side, finished to a really nice standard.

The build cost was around eight to nine hundred thousand dollars.

Today?

That exact same project would cost about one point six million dollars to build.

I am talking about the same product… but it now costs nearly double.

So when people say, “Why are new homes so expensive now?”

Most people think they know the answer.

But the real reason is not what people think.

It’s not just materials.

And it’s not just labour.

There’s a whole stack of things quietly pushing prices up.

And unless you understand them, the numbers happening in construction right now don’t make much sense.

So let me walk you through what’s actually going on.

The Cost Shock Nobody Expected

Now here’s the interesting part.

Most people think building costs have gone up maybe thirty or forty percent over the last few years.

That’s what a lot of the headlines say.

But when you’re actually delivering projects in the real world… it hasn’t really felt like that.

From our experience, the change has been far more dramatic.

And it wasn’t one big event that suddenly doubled prices.

It was more like a bunch of different pressures slowly stacking on top of each other over time.

Materials started getting more expensive.

Skilled trades like carpenters, plumbers and electricians became harder to find.

New building and new planning rules came in.

And even borrowing money became more expensive.

None of those things on their own would double the cost of building.

But when they all start moving at the same time… the numbers change very quickly.

And that’s the part most people outside the industry don’t really see.

What Started Driving Costs Up

A lot of people think builders just started charging more.

But the reality is the cost of actually building a home has gone up dramatically.

Take materials, for example.

If you talk to any builder who has been doing this for a long time, they’ll tell you the same thing.

During the pandemic everything got messy around the world.

Getting building materials into Australia suddenly became much harder.

Ships were delayed.

Ports were backed up.

And the materials builders needed were slower and more expensive to bring into the country.

When that happens, prices move quickly.

And once those prices go up… they almost never come back down.

So the exact same house today simply costs more to build than it used to.

Not because the houses are different.

Just because everything that goes into building them now costs more.

And quickly, if you’re interested in property development, you can join our free property developer network, the Little Fish Network.

The Trade Shortage

The other thing people don’t always see is what’s happening with the people who actually build the homes.

Right now in Australia there simply aren’t enough of them.

I’m talking about carpenters, bricklayers, plumbers and electricians.

If you’re building a house, you need all of them, and a few others as well.

But when there aren’t enough of those workers available, they can charge more for their time.

And that’s completely normal.

If everyone needs the same people and there aren’t enough of them to go around, their prices go up.

And when the cost of those workers goes up, the cost of building the house goes up too.

Because the people doing the work are a huge part of the cost of building any home.

New Rules for New Homes

Another thing that has quietly added to the cost is new building rules.

Homes today must meet much higher energy efficiency requirements than they used to.

In simple terms that means homes must be built to keep heat in during winter and keep heat out during summer.

So builders now must include things like better insulation in the walls and roof.

Better windows.

And tighter seals around doors and windows so air doesn’t leak in and out of the home.

And to be clear, those changes are actually a good thing.

They make homes more comfortable to live in.

And they can make them cheaper to heat and cool over time.

But they do make the home more expensive to build.

So again it’s another layer of cost added on top.

Higher Interest Rates

Then there’s the finance side of things.

When interest rates go up, building becomes more expensive for everyone involved.

Builders are funding projects.

Property developers are funding projects.

Buyers are funding their purchases of projects.

So when the cost of borrowing money increases, the overall cost of delivering housing increases too.

It’s one of those things most people don’t see, but it absolutely drives up the final price of a home.

A Real Life Example

Let me give you a real example from our own projects.

Back in 2018 we built three townhouses on a corner block in Newport in Melbourne.

They were nice homes, finished to a really good standard.

The cost to build all three of them was about nine hundred and thirty thousand dollars.

Last year we completed another project with three townhouses that was very similar.

Similar size homes and a very similar type of project.

But this time the cost to build them was more than two million dollars.

And remember, we work very hard to get the best possible price when we build.

We get multiple builders to price the project so we know we’re getting a fair number.

But even doing that… the costs today are still dramatically higher than they used to be.

In this case, more than double.

Why New Homes Feel So Expensive

So when you look at the big picture this is really what happened.

A lot of different costs started going up at the same time.

Materials became more expensive.

The workers needed to build the homes became more expensive.

New building rules added extra cost.

And higher interest rates made loans more expensive too.

When all those things rise at the same time, the price of building homes rises with them.

So it’s not just one thing causing the problem.

It’s a whole group of costs all pushing prices higher at the same time.

And that’s why building a new home today feels so expensive.

Because compared to five or six years ago it now costs a lot more to build the exact same house.

Now the interesting question is what happens next.

Because Australia still needs a lot more homes.

But if the cost of building them stays high…

that could create some big challenges for housing in the years ahead.

And it’s something we’ll definitely talk about in another video.

And if you’re interested in property development and want to go deeper, there are a couple of ways we can help.

First you can join our free property developer network, the Little Fish Network. There are thousands of developers in there sharing knowledge and real projects.

If you want more direct help, I also offer one on one proeprty development mentoring, and my team runs development and build projects end to end through our property development management service.

If you’d like to talk through your project, you can book a call with me and we can figure out the best path for you.

Filled under: All Building