Nathan Mawby 11 Jul 2022

Australia’s typical house build cost has soared more than $94,000 in 15 months in its biggest surge since McMansions were taking over our suburbs in 1982.

Shock new figures revealed in analysis by the Housing Industry Association and News Corp Australia show how the price of the new home dream has exploded since July 1970, when the average new build cost just $11,543.

The head of the Builders Collective of Australia has warned the latest increases, unlike anything he has seen in close to 50 years as a builder, could force half the nation’s builders into insolvency.

The staggering growth is also hitting the nation’s mortgage payers, with the cost of housing a key component of the inflation figures driving the Reserve Bank of Australia’s 1.5 per cent increase rate hike over the past three months.

Analysis of the Australian Bureau of Statistics’ most recent building approvals data shows the average price of a new house approved in the nation’s private sector in May was $413,436.

Remarkably, the figures also reveal the cost of building a new home actually declined for the first half of the Covid-19 pandemic to $319,259 in February, 2021.

HIA chief economist Tim Reardon said this was due to a glut of first-home buyers building smaller, cheaper homes after the federal government offered $15,000-$25,000 HomeBuilder grants before it was concluded in March, 2021.

But building approvals continued to surge as “the more people stayed at home through lockdowns, the more new homes they wanted”.

“We are looking at the fastest rate of growth in the average cost of an approved house build since 1982,” Mr Reardon said.

In Victoria, which is building more new houses than any other state, there was a $32,000+ jump in the typical house’s approved construction costs from March to April.

Mr Reardon said he believed cost increases would slow as the nation pulled back from building 150,000 new houses in the past year to a more typical 108,000 by 2024-2025, but the coming 12 months is likely to be the second fastest growth period in the past 40 years.

Buyers hoping costs will fall with demand have been warned not to wait.

“There have only been five instances of that in 50 years, and usually that fall is followed by strong growth,” he said.

Builders Collective of Australia president Phil Dwyer has been constructing houses since the 1970s and 1980s, when rising home-building costs were driven by buyers’ desires, not material prices.

“All of a sudden we had everyone wanting a McMansion rather than a three-bedroom home in the suburbs,” he said.

Significant changes to the way the industry works since then have left builders extremely exposed to rising material costs, particularly with builders’ margins plunging from around 20-25 per cent to 8-10 per cent.

“And when I started there was a mutual agreement that you would vary the contract because of circumstances and that was generally accepted, though not necessarily a given,” Mr Dwyer said.

With fixed-price contracts now leaving builders little wiggle room, he warned there would be a rise in particularly smaller builders going to the wall in the coming months.

“It could be up as high as 50 per cent in the next 12 months after Christmas,” he added.

More established groups with significant reserves to fall back on were more likely to survive, he said.

Mr Dwyer added he hoped he was wrong about his predictions, but said “I have never seen the cards laid out the way they are at the moment — I have never seen it this bad”.

Burbank Homes national general manager Louis Sultan said labour, concrete, steel and hardware remained problematic for costing.

“So the quicker you can lock in your new home contract the more certainty you will have about what your new home will cost,” Mr Sultan said.

In response to rising costs, many buyers were now prioritising upfront expenses that will save them money in the future, particularly around energy efficiency, solar panels and electric vehicle systems, plus more water and energy-efficient appliances, he added.

Any efforts by the government to stabilise imports and exports would improve supply chains for building materials, Mr Sultan said.

Finding ways to get builders onto sites faster after a buyer had purchased a block of land could also help builders quote more accurately.

Mr Reardon said an increase in the number of stage payments, currently mandated at five for a typical house, would give builders more flexibility without any risk to customers.

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