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Understanding the Cost of Building a New Home In Australia


Understanding the Cost of Building a New Home In Australia

Building a new home is an exciting journey that allows homeowners to create their dream living spaces. However, one crucial aspect that needs careful consideration is the cost involved. Understanding the factors that affect the cost of building a new home in Australia can help you plan your budget effectively and ensure a smooth construction process. 

In this blog, we will explore the various elements that influence home building costs, how to calculate it, the financing options available to aspiring owners, hidden costs to be aware of, and other important factors. This material aims at helping both custom builders in Melbourne and aspiring homeowners know and go through their options so they may come up with the most cost effective ways to build homes.

What Are The Factors Affecting Building Costs In Australia?


Several factors contribute to the overall cost of building a new home. By understanding these factors, you can make informed decisions and avoid unexpected expenses. Let’s take a closer look at each of them:

Location and Land Costs

The location of your new home plays a significant role in determining its cost. Different areas have varying land prices, and factors such as proximity to amenities, schools, and transportation that can and will influence the land’s value. Additionally, site conditions like slope, soil quality, and accessibility can impact construction costs.

An April 2023 report published by Australian statistics website Statista stipulated that in 2022, Sydney had the highest price per square meter of land among all the recorded major cities in the country. Meanwhile, lot buyers during that year were expected to pay a premium of 1,898 AUD for every square meter in the New South Wales capital. Statista notes that while there is an evident decline in the demand for housing in the previous years, property prices continue to increase.

In February 2023, independent Melbourne online news publication, The Age reported that 1 square meter of land jumped from a median $861 in 2012 to $1811 in 2022.

Surge In Housing Costs

Rapid population growth over the recent decade was reported to be the main driver of land and housing price increases among Australian cities. 

While the matter stands, in 2019, the auction clearance rate in Australia’s major cities are showing signs of a booming market.  For instance, in Sydney and Melbourne land sales went up in June that year. The rise was reported to be owed to the federal election alongside cuts in interest rates, concessions in capital gains, and continuous negative gearing.

Melbourne Housing Prices

A September 2022 report from Australian Real Estate website, Upside says that the median prices of Melbourne houses have declined by -0.9% over the quarter. This resulted in a median price of just over $1,074,369. 

Nevertheless, house prices are still +5.2% higher than they were in 2021. The declines in house prices were isolated to Melbourne’s prime areas namely the city’s Inner, Inner East, Inner South, Outer East, and Mornington Peninsula.

Melbourne units have reported to be outperforming houses recently, with the quarter seeing increases by 0.4%, to $579,532. On top of this, there is also a year on year rise of +1.4%. 

During the pandemic, Melbourne saw exponential growth in house prices. It rose by +24% from trough to peak in comparison to units that were only up by +9%.

The entire published supply sat at +18% above the five year June average during the writing of the 2022 Upside report.

These recent figures strongly suggest that homebuyers will benefit from delving in property investments in Melbourne and Sydney. That said, enlisting the services of architectural builders in Melbourne today might prove opportune for those who are thinking of establishing residence in the major city. Potential homeowners are open to reaping financial advantages from home building in these .

Size and Design of the House

The size and design of your home directly affect the construction costs. Larger homes typically require more materials and labour, making them more expensive to build. Complex designs or customisations also add to the overall cost as they may require specialised expertise or unique materials.

Material Selection

The choice of materials used in constructing your home can significantly impact the cost. High-end materials and finishes tend to be more expensive, while opting for more cost-effective alternatives can help reduce expenses. Balancing quality and budget is essential when making material selections.

Labour and Construction Costs

The cost of labour and construction services is a vital component of building a new home. Skilled labour, as offered by architects, builders, and tradespeople, often charge varying rates. Additionally, construction costs can vary based on the complexity of the project and the regional demand for construction services. It’s crucial to find reliable professionals who offer competitive pricing without compromising on quality.

According to CoreLogic’s Cordell Construction Cost Index (CCCI), a news and research body that tracks homebuilding prices, building typical homes currently returned a growth rate of 0.9% for the initial three months of 2023. 

Meanwhile, the quarterly growth rate was recorded to be less than half of 2022’s 4th quarter figure of 1.9%. This shows a notable slowdown compared to September’s quarter results which recorded 4.7%.

The yearly growth rate of 11.9% eased to 10.2% recorded in the 12 months to December 2022. This is the largest yearly increase to be recorded which excludes the period affected by the Goods and Services Tax (GST). 

John Bennett, manager of CoreLogic Construction Cost Estimation reported that although the yearly growth rate was still markedly high, the building and construction industry would enjoy the fact that quarterly figures are bound to return to the long-term averages.

Bennett went on record to say that the extraordinary growth in the index is reflective of the challenges posed to the housing market in the post-COVID operating period and the high inflation levels and the rapidly rising rate environment. These augments volatile pricing spurred not only by restricted domestic supply chains but material and labour shortages as well.

Bennett also observed a gradual easing in the increase of construction costs over the past months all while the demand for construction materials reduced because of cancelled or postponed projects due to higher interest rates and weaker consumer confidence.

CoreLogic’s Research Director Tim Lawless also went on record disclosing that although construction costs are still rising, there has been a noticeable change in the housing market. This was laid out by CoreLogic’s national Home Value Index which posted a 0.6% increase in March 2023. This is said to be the first month-on-month rise since April 2022.

Lawless also said that while the latest data showed construction commencements plummeted, there is a persistent rise in the number of houses that are being built during the year.

Recent industry estimates show the following building costs for Melbourne:

  1. Single-Storey, 3-Bedroom House

– Between $1,300 and $2,000 per square metre

  1. Single-Storey, 4-Bedroom House

– Between $2,000 and $3,000 per square metre 

Note that would-be homeowners can expect to spend 5-10% more from these estimates for properties with two storeys.

Also, these average building costs don’t take elements like finishes, fittings, extensions, and other additions into consideration. Extra features and upgrades in your new home can add to the overall cost. Luxurious amenities, such as swimming pools, smart home technology, or high end appliances, can significantly impact the budget. It’s important to prioritise your preferences and consider the long-term value these features bring.

Legal Fees

Obtaining necessary permits and complying with building regulations is a crucial step in the construction process. However, it’s essential to budget for associated fees and legal expenses, such as permit application fees, development approvals, and inspections.

In Australia, as with any other country and territory, home building comes with a set of permits and legal fees. 

Firstly, homeowners are required to pay a Lodgement Fee. This fee depends on what the project entails, its nature, its total cost, and perhaps, the most important, the state government levy.

The levy is set at $1.28 per $1,000, should the total cost reach over $10,000.

The fees depending on the cost of the homebuilding project are:


Legal Fee

Minimum work for new home builds

$1250 + GST

– carports, fences, patios, pergolas, verandahs, mast, minor alterations and other additional spaces 

– up to 3 Inspections 

– worth $16,000 

– Alteration or addition to Class 1, or 10 building

$800 + GST

carports, garages, patios, pergolas, sheds, verandahs, and other extraneous structures 

– up to 4 inspections 

– worth $16,001 or greater

– Alterations or addition to a Class 1, or 10 building

$1000 + GST

In-ground swimming pool 

$1000 + GST

Above-ground swimming pool

$800 + GST

Contingency Budget

Unforeseen circumstances and unexpected expenses are inevitable in any construction project. It’s advisable to set aside a contingency budget, typically around 10-20% of the total construction cost, to handle any unforeseen expenses that may arise during the building process.

How Do You Determine The Cost of a Building?


Now that we’ve explored the factors influencing the cost in building a home in Australia, let’s delve into how you can calculate the expenses involved. Here are the key steps to consider:

Obtaining Quotes

Reach out to custom home builders in Melbourne, contractors, and suppliers to obtain detailed quotes for your project. Ensure that the quotes include a breakdown of costs for materials, labour, and any additional features or upgrades you plan to include. Comparing quotes allows you to make an informed decision based on both quality and affordability.

Estimating Construction Costs

Consider the size, design, and complexity of your home when estimating construction costs. You can use cost estimation tools or consult with professionals to get a comprehensive understanding of the expenses involved. It’s important to be thorough and account for all aspects, including site preparation, foundation, framing, electrical, plumbing, and finishing details.

For this, you can go back to the table and the cost estimates in the previous discussions.

What Is The Common Method of Estimating Building Costs?

The common method of estimating building costs is to break down the project into various components, such as site preparation, foundation, framing, electrical, plumbing, and finishing details. Each component is then assigned a cost based on industry standards and the specific requirements of the project.

What Cost Analysis of a Building?

Cost analysis of a building involves a detailed examination of all the expenses associated with its construction. It includes assessing the costs of materials, labour, permits, legal fees, and any additional features or upgrades to determine the overall cost of the building.

What is Included in the Cost of a New Building?

The cost of a new building typically includes expenses related to land acquisition, site preparation, construction materials, labour, permits and legal fees, architectural and engineering services, utilities connections, interior finishes, and any additional features or upgrades.

What is the Most Expensive Part of Building a House?

The most expensive part of building a house is usually the construction itself, including labour costs, materials, and any specialised features or finishes. Additionally, factors such as the size, design complexity, and location can also impact the overall cost.

What is the Cheapest Type of House to Build in Australia?

The cheapest type of house to build in Australia is generally a simple, detached single-story design with a smaller footprint and standard finishes. Prefabricated or kit homes can also be more cost-effective compared to custom-designed homes.

What are the greatest Factors in Construction Costs?


Construction costs are influenced by several factors, but the greatest ones include the size and design of the building, the quality of materials used, the complexity of the project, and the cost of skilled labour.

Some Tips to Minimise the Cost of Building a New Home

While building a new home involves significant expenses, there are several strategies you can employ to minimise costs without compromising on quality. Consider the following approaches:

Design Considerations

Opt for a simple and functional design that minimises complex architectural elements. The more intricate the design, the higher the construction costs. Focus on efficient use of space and prioritise essential features that align with your lifestyle.

Material Alternatives

Explore cost-effective alternatives for materials without compromising on quality and durability. For example, consider using engineered wood or instead of solid wood. You may also explore affordable yet stylish options for flooring, tiles, and countertops.

Efficient Building Practices

Embrace sustainable and efficient building practices that can save costs in the long run. Incorporate energy-efficient insulation, windows, and appliances to reduce utility expenses. Additionally, consider incorporating renewable energy solutions such as solar panels to further decrease long-term costs.

Energy-Efficient Systems

Invest in energy-efficient HVAC systems, lighting fixtures, and water-saving appliances. While these systems may have higher upfront costs, they can significantly reduce ongoing energy expenses and provide long-term savings.

DIY or Self-Contracting

If you have the necessary skills and expertise, you can consider taking on certain aspects of the construction process yourself. However, be realistic about your abilities and ensure you comply with all building codes and regulations. Self-contracting certain tasks can save money, but it’s important to carefully manage the project to avoid costly mistakes. That said, it is still advisable to consult with architectural builders in Melbourne before marching into self-contracting. 

Financing Options for Building a New Home

Building a new home often requires financial planning and securing the necessary funds. Consider the following financing options:

Traditional Mortgage

If you already own land or have equity in an existing property, you can explore traditional mortgage options. This involves obtaining a loan from a bank or financial institution, with the home itself serving as collateral. 

Used to finance your home so you are not compelled to pay the entire amount upfront, mortgages involve paying back the loan’s principal with interest. This is done through a series of what are called, “repayments” administered incrementally within a specific period. Traditionally, the lender is listed on the property’s title until the borrower is able to repay the loan in its entirety.

Repayments of mortgages involve principal and interest. The principal refers to the amount borrowed from the lender used for the property’s purchase. On the other hand, interest pertains to the cost of having to borrow the amount. 

There are instances, however, wherein, a borrower may choose to pay the interest initially through a specified period, usually from 1 to 5 years, before they pay the principal. Interest-only repayments are more popular for borrowers who have applied for property investment loans.

How Mortgages Work In Australia

Several lenders in Australia require a 20% deposit from the total value of the property they want to purchase. This means they lend 80% of the property’s entire value. There are lenders that permit a payment of 10% deposit. With this, the borrower must pay for Lender’s Mortgage Insurance (LMI) and be granted a different interest rate for your home loan.

Mortgages in Australia are usually set up for 30 years. Borrowers are given the choice between a variable rate and a fixed rate mortgage. Australian mortgages are known for the following:

  • an offset sub-account
  • redraw facility
  • split loan
  • interest-only repayments

An offset account is a separate account linked to a borrower’s home loan. The money in this account offsets the balance borrowers owe on their home loans.

For instance if you owe $10,000 in the offset account, and you owe $340,000, the loan balance the interest will be calculated on will be $330,000. Interest savings are then channelled to principal repayments on the borrower’s home loan. Logically, should the borrower pay more principal, the loan will be paid off sooner or later. This effectively saves the borrower more money in the long run.

Meanwhile, in interest-only payments, you will only pay the interest due on the amount you borrowed every month. You will then repay the capital at the mortgage’s end. To ensure that you can manage an interest-only payment scheme, you must have a solid credit history.

Construction Loan

A construction loan is specifically designed for building a new home. This type of loan provides funds in stages throughout the construction process, with interest-only payments during the construction phase. Once the construction is complete, the loan can be converted into a traditional mortgage.

How Construction Loans Work In Australia

Construction loans were created for aspiring homeowners who either want to build a home from the ground up or renovate an existing property. These are different from mortgages in that construction loans are released in stages and the payments are made progressively. 

In Australia, construction loans are paid through an interest-only repayment option within the build period before transitioning to a standard principal and interest (P&I) loan after the construction.

Owner Builder Loan

For those who plan on acting as the owner-builder, an owner builder loan is an option worth considering. This type of loan provides funds specifically for owner-builders to cover construction costs. It requires detailed plans, permits, and a comprehensive understanding of the building process.

Personal Savings or Equity

Using personal savings or equity from an existing property is another viable option. By utilising your own funds, you can avoid borrowing costs and interest payments. However, ensure that you have sufficient savings to cover the entire construction process and any unexpected expenses that may arise.

Hiring Professionals for Building a New Home

Professional Home Builder in Australia

Building a new home involves a team of professionals who play a crucial role in ensuring a successful outcome. Consider the following professionals:


An architect helps translate your vision into a practical and aesthetically pleasing design. They work closely with you to understand your needs and preferences while considering the structural integrity and building codes. An architect’s expertise adds value to the overall design process.


A reliable and experienced builder or contractor is essential for executing the construction phase. They manage the project, coordinate with subcontractors, and ensure that the construction is completed to a high standard. Be sure to choose reputable architectural builders in Melbourne with a proven track record.

Interior Designer

An interior designer can assist in creating a cohesive and visually appealing interior space. They help with colour schemes, material selection, and overall aesthetics. An interior designer ensures that your new home reflects your personal style and enhances functionality.

Project Manager

If you prefer a hands-off approach, hiring a project manager can be beneficial. They oversee the entire construction process, ensuring that timelines are met, budgets are adhered to, and quality standards are maintained. A project manager acts as your representative and streamlines the construction process.

Hidden Costs in Building a New Home

Hidden Costs in Building a New Home

Aside from the obvious expenses, there are hidden costs to be aware of when building a new home. Consider the following:

Site Preparation and Demolition

Preparing the site for construction, including clearing vegetation, levelling the land, and removing existing structures, incurs costs. Depending on the condition of the site, these expenses can vary significantly.

Utility Connections and Service Fees

Connecting your new home to utilities such as water, electricity, gas, and sewage systems involves fees. Additionally, ongoing service fees for these utilities should be factored into your budget.

Landscaping and Outdoor Features

Creating an appealing outdoor space often involves landscaping, installing a driveway, fencing, and outdoor features like a patio or pool. These elements contribute to the overall cost of building a new home.

Furniture and Appliances

Once the construction is complete, furnishing your new home with furniture and appliances requires a separate budget. Consider the cost of essential items and any additional decor or furnishings you desire.

Building Your Dream Home In Australia

Building Your Dream Home In Australia

Building a new home in Australia is an exciting yet complex undertaking. Understanding the factors that influence the cost, calculating expenses, minimising costs, exploring financing options, and hiring professionals are key steps in the process. Additionally, being aware of hidden costs and factoring them into your budget ensures a smoother construction journey. By planning meticulously and making informed decisions, you can create a dream home that meets your needs, preferences, and budget.

Building a new home is a significant endeavour that evokes a range of emotions. From the excitement of envisioning your dream home to the stress of managing budgets and making important decisions, it’s a journey that pulls at the heartstrings. The process of building a home is filled with anticipation, as each stage brings you closer to the realisation of your vision.

As the foundation is laid and the walls start to rise, there is a sense of accomplishment and pride that swells within you. The emotional connection to your future home deepens with each visit to the construction site, as you see your dreams taking shape before your eyes. It becomes more than just a structure; it becomes a symbol of your aspirations, your hard work, and your desire to create a haven for yourself and your loved ones.

Want to hire the best custom home builders in Melbourne? Reach out to Toak Projects! Fill up the enquiry form to take the first step.