Built or Established?

In this rapidly rising local market, buying vacant land and building might be a smarter bet than buying an established home. Vacant residential land values across Perth increased about 34% last year, pushing the median lot price to $329,000. The old real estate saying of “land appreciates, houses depreciate” is compelling in this market whilst land is hard to come by, especially in established inner suburbs.

Of course, house prices have risen too with Perth’s median house price in the mid $800,000’s range and climbing. CoreLogic and others report that over five years Perth dwelling values have climbed by more than 82% percent. The disparity in growth rates between the vacant land and the established housing market can be attributed to myriad reasons most notably the rising costs of and unpredictability of the construction sector and demand from new arrivals for immediate housing. Uncertainty around time for construction, risk of cost blow outs and builder insolvency have steered buyers towards the established market too.

However, the construction sector is slowly moving towards equilibrium with the annual number of new residents per dwelling completion at 3.1 residents, down from 6.4 residents in June 2023. Dwelling commencements are up 31% from last year so demand on trades will keep build prices high but at least we’re running at similar levels to completions bringing some balance to this sector.

Industry data suggests build costs for average housing is running between $2,750 and $4,750 per sqm plus siteworks and finishing trades. That puts a three bedroom, two bathroom home of about 170 sqm at between $467,500 and $807,500 plus the land cost. At Perth’s median land price, you’re getting a new home for between $796,500 and $1,136,500. These numbers align roughly with the broader established housing market in the mid-quartile but at least you’re getting a brand-new home.

There are benefits of building such as getting the layout, design and specifications you want that’s hard to find in a supply-starved established market and investors benefit greatly from the depreciation schedules of newly built homes comparative to older properties. Energy efficiencies in new homes are superior too, making them cheaper to run and more comfortable to live in. Maintenance costs are lower for longer in a new home compared to older homes that require upkeep and upgrading.

There can be some significant upsides in building versus buying established housing. The hard bit is finding a block that’s not an hour’s drive from where you work and play.