Real estate building versus buying: why help is needed for many

A big decision when buying real estate is whether to go new or established, and today there are big issues impacting half the equation.

Few things are as empowering as building your own home to create a roof over your head with a personal touch.

While buying someone else’s house can be quicker and easier, it often lacks the romance of building.

And people who build get the biggest government incentives such as first homebuyer grants and stamp duty relief, all designed to increase the nation’s housing stock to cope with our rising population.

Building also delivers bigger tax benefits for investors: they get to claim tax deductions for depreciation expenses for all fixtures and fittings, whereas those who buy established get fewer benefits.

However, from a purely financial perspective, building right now is running a distant second to buying an established home.

And that means something needs to be done to help our builders and the people who buy from them.

I’ve both bought and built homes in the past, and recently crunched the numbers for a family member seeking a first home.

We were told construction would take about two years – that’s a lot of time paying bank interest on a block of land and then progress payments during construction. The interest costs while building would top $60,000 – more than the higher stamp duty paid for buying an established home.

Builders have been hit hard at a time Australia needs much more housing. Picture: iStock

A couple of decades ago, construction time frames were as quick as 16 weeks, and today’s delays are a big barrier for people considering building.

The other big worry at the moment is constant reports of building company collapses.

Builders were hit hard by honouring fixed price contracts as material and labour costs soared, and many have collapsed.

The Reserve Bank of Australia recently noted a sharp rise in the proportion of residential builders suffering from negative cash flow, and the Australian Securities and Investments Commission says multiple construction companies are collapsing every day.

For customers, it’s bad enough waiting two years for your home, without the threat of the company going under and your project remaining in limbo for a lot longer.

That’s a key reason for the rising use of deposit bonds, which act as a cash substitute and can help safeguard buyers from a collapse.

Deposit bond company Deposit Power says it has experienced a 300 per cent spike in inquiries and it is preparing for a surge in customers.

“They’re seeing this no cash down solution as a safer option,” said Deposit Power general manager Brent Davidson. “If the developer goes under, they wouldn’t lose their deposit,” he said.

Fixing Australia’s building problem is crucial and urgent.

The industry wants more land releases, and that means governments at all levels must act faster.

There is also a huge shortage of tradies, so we need programs to attract more – including from offshore if necessary.

Industry group Master Builders Australia wants to address the gender imbalance by increasing the sector’s attractiveness to women, and says there should be a conversation around fixed-price contracts “and appropriate risk-sharing between banks, developers and builders”.

We must get it right – and bring back the romance of building your own home – so Australia gets the extra housing it desperately needs.

Originally published as Real estate building versus buying: why help is needed for many