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Building a house is one of the most significant financial investments you can make, but for most of us, the potential cost of the build is a bit of a mystery.
In recent years, the costs have increased significantly due to labour and material shortages. In addition, there can be a big cost difference depending on the size of the home, the location, your personal design choices and special requests.
It’s also a key figure insurers use in calculating your home insurance premiums.
According to figures from the Australian Bureau of Statistics:
The average cost of a completed home in Australia rose from $345,410 in 2019-20 to $443,828 in 2023-24 – an increase of 6.7%.
Each state saw an increase but the biggest rise in costs was Queensland at 9.9%.
As we move into 2025, here are some things that can impact the cost of building a home or undertaking a major reno, and what you need to know before you take the plunge.
What makes up the cost of a house?
The average cost of a house build can vary wildly, you can look somewhere between $620 -$3,900 per square metre, and it’s important to remember that there’s a lot of costs that you’ll need to factor in.
Land costs
Depending on where you’re buying, there can be a massive difference in the land price. Over the last five years, 65.7% of new houses were approved for build in the greater capital cities, while 34.3% were across the rest of the country.
In 2023, the ACT had the most expensive plots at a median price of $679,375, but in regional areas land can drop as low as $300 per sqm.
Site conditions
Sloping blocks, compliance requirements, or unexpected finds during the build can result in additional costs you may not have planned for. It’s always wise to allow a buffer to cover irregular site conditions that are likely to blow out the budget.
Design and finishes
A custom-designed home with high-end fixtures will cost seriously more than your standard project home. Even at a basic level, adding features like stone benchtops or different flooring options such as hardwood timber can quickly add up into the thousands.
Labour and materials
The cost of materials and labour can increase quickly and unpredictably, particularly if your timeframes change which is not uncommon. Weather events such as intermittent periods of rain can delay the project and time is money.
But the other big impact to your costs comes down to supply and demand as well as global trade. Australia is currently experiencing a skills shortage of tradies so it’s not always easy to get the right people for the job at the right price and the right time.
And although you may be quoted a price that sounds reasonable, if the cost of the raw materials goes up, these will most likely be passed on to you.
Once again, it’s important to have a buffer to protect yourself.
Be aware: the costs in your initial build are unlikely to include additional requirements such as landscaping, fencing, pools, or any other add-ons. Check the fine print of any agreement, including a house and land package, to be clear on what’s covered. It can reduce headaches down the track.
What other costs should you factor in?
The first cost a builder will give you is a provisional cost, this is an estimate of the cost based on the information at hand. There are the costs we covered above, like finishes and site conditions, which may change that figure, so it’s wise to allow an extra 10% at a minimum.
But there are some other costs you’ll need to factor in when you’re budgeting to build a new home. The average house takes 12-18 months to build and you’ll need to have somewhere to live while your house is constructed. That means factoring in rent, or a loan on top of your mortgage.
Be aware: any delays in the build also means more time spent renting, which can blow out your cash flow.
If you’ve found your dream block with a house already on it, you’ll also need to consider the cost of a demolition. Demolition can cost up to $25,000. You’ll also need to consider permit fees and the delay that can be caused by council applications.
The necessary cost of home insurance
When building your home, house insurance is a critical consideration to protect your investment during and after construction. Your builder is responsible for purchasing home indemnity insurance, but you can also consider domestic building insurance to protect yourself for certain circumstances like your builder becoming insolvent. Yes, it happens!
Another concern for people building a new home is the risk of underinsurance. With construction costs on the rise, your home may cost more to replace than your initial estimate, and with bushfire and flooding events on the rise, homeowners should be vigilant.
Your insurance should cover:
total replacement costs
any additional costs for demolition or site clearing
temporary accommodation
the cost of any compliance checks or legal requirements.
Important: you should always seek a professional valuation and update your policy regularly to ensure you’re covered. Make sure you read the fine print for peace of mind.
Bottom line
Building a home can be a complex, but rewarding process. While the average costs can provide a guideline, and provisional costs help with budget planning, there are many factors to consider.
Location, design, and the choice of materials can dramatically affect the cost of a new home, and with labour and material costs still on the rise, the risk of underinsurance is something to consider.
With a bit of planning and a solid budget, your dream home can be well within your reach, so make sure you do your homework and avoid the financial pitfalls of a new build so you can happily enjoy your new house.
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Disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions.
