The Cost of Building Materials is Increasing: Should You Build or Buy?

The Australian property market in 2024 is unstable, to say the least—with construction costs, building material costs, and house prices changing daily. Whether you’re building or buying, it’s important to know what’s happening so you can pick the best option to take with your future properties.

Let’s examine the construction industry, regional costs, and the pros and cons of building vs. buying in today’s market.

The State of Australia’s Construction Industry and Labour Costs

Recent years have seen big changes in the Australian construction sector, particularly due to rising labour costs. The industry has slowed down after rapid growth, with national construction costs up 11.9% in 2022. As of late 2023, the annual growth rate was 2.9%, the lowest since March 2007.

When building a new home in 2024, the average cost is between $1,500 and $3,000 per square metre. But that’s just a rough guide; it can vary eagerly depending on location, materials, and design choices.

What’s Behind the Changes in Construction Costs?

Several factors have contributed to the changes in construction costs:

• The Black Summer Bushfires of 2019-2020 destroyed a lot of local timber, so supply is tight.
• Global shipping disruptions due to the pandemic made importing materials tough.
• The Government Home Builder Scheme increased demand for new builds.
• Ongoing labour shortages have caused project delays and cost blowouts.

Concrete prices have increased slightly due to energy price hikes and higher manufacturing and labour costs. Decreases in demand may keep concrete prices stable in the short term, an increase is anticipated once building approvals pick up.

Construction output prices have also risen, contributing to the increase in demand. Factors such as labour shortages and supply costs influence the rise in output prices.

These have all combined to create a unique situation for builders and would-be homeowners in the construction industry.

Trends Across Australia’s Cities

Construction costs and trends vary greatly across Australia’s major cities. The ongoing tensions in the Middle East have led to fluctuations in diesel prices, impacting the overall fuel costs for construction projects.

Australia’s stagnant residential construction rates are also influenced by new national home building codes, high interest rates affecting housing affordability, and challenges in sourcing labour.

Here’s a quick look at what’s happening in some key areas:

Adelaide

South Australia’s construction industry is stable despite the challenges. The state government has allocated funding for skills training to address labour shortages in the construction sector.

Additionally, delivering affordable housing and infrastructure is crucial to meet the needs of a growing population, especially given the increasing challenges of housing affordability and rising construction costs.

Brisbane

Queensland’s capital has seen significant price increases for building materials such as  PVC supplies and timber framing, which are affecting new builds and renovations across the city.

The rising construction materials costs impact the overall expenses for residential and commercial projects.

Sydney

Sydney has its own set of challenges. The increased prices for timber and general and brickwork labour are impacting project timelines and budgets across Sydney’s construction sector.

These are impacting project timelines and budgets across Sydney’s construction sector. Additionally, costs for concrete-based structural components have risen due to high demand, higher energy costs, and labour shortages, further exacerbating the overall challenge of rising building costs without a corresponding increase in affordability for buyers and renters.

Building vs Buying: Weighing Your Options

When it comes to the property market, building and buying have their pros and cons. The fluctuating costs associated with house construction, influenced by location, project design, fit-out level, and the type of package chosen, can significantly impact your decision.

Building a home allows for customisation and personalisation, but it also comes with its own set of challenges. The costs of new house construction can vary greatly due to location, materials, inflation, and whether the home is architecturally designed or built by volume builders.

Building a New Home

Pros:

• Being able to your house’s design to suit your needs and wants
• Stamp duty might be lower than buying an existing property
• The possibility of being eligible for first homeowner grants

Cons:

• Construction times can be long and subject to delays
• There can be unexpected costs during the build
• Current material shortages may affect your project

Buying an Existing Property

Pros:

• Being able to move in sooner after the purchase
• What you see is what you get
• Be a part of an established neighbourhood

Cons:

• Stamp duty is often higher for existing properties
• A budget for renovations or updates is needed
• There is less opportunity for customisation

Making Your Decision

Choosing between building and buying depends on your budget, timeline and personal preferences. Besides getting a construction estimator on board, here are some tips to help you navigate the market in 2024:

1. Conduct Research: Research local prices and trends in your area. Information is power when it comes to property decisions.
2. Get multiple quotes: Don’t settle for the first quote if you’re constructing a building. Be sure to shop around and compare prices from different builders.
3. Look for fixed price contracts: These will protect you from future price increases if you decide to build.
4. Be flexible: If you’re building, consider different materials or designs that might be more cost-effective without sacrificing quality.
5. Plan for delays: Whether building or buying, it’s always a good idea to have a buffer in your timeline and budget for unexpected things.

Despite a reduction in growth in national construction costs from the peak levels experienced during the pandemic, the price levels remain elevated. This significantly impacts the profit margins for builders.

What’s the Right Answer?

The Australian property market in 2024 is full of challenges and opportunities. Construction costs have increased significantly over the past few years, but the rate of growth is slowing. Regional variations are big, so what applies in one city may not apply to another.

The Consumer Price Index (CPI) also plays a crucial role, impacting cost-of-living pressures and discretionary spending and influencing the RBA board’s decisions on the cash rate target.

Labour shortages are a major factor, often as big as material costs. Your decision to buy or build is dependent on your circumstances, financial situation, and long-term goals.

Before making big decisions, it’s always a good idea to seek professional advice. Consult our construction estimators from Duo QS for a balanced view of your options.

Take a step towards creating your ideal home with Duo QS. With planning and informed decision-making, finding the perfect home is possible.

Key Takeaways

• Building costs in Australia are going up.
• The average cost to build a house in 2024 is $1,500 to $3,000 per sqm.
• Bushfires, pandemic shipping issues, government schemes, and labour shortages are all impacting the construction industry.
• Regional costs and trends vary greatly across major cities in Australia.
• Researching and getting multiple quotes and fixed price contracts are the strategies to take for the current market.
• Flexibility in design and materials can help with costs when building.