New home build costs for Sydney, NSW skyrocket

The average cost of building a new home in NSW has soared far beyond pre-pandemic levels despite owners choosing smaller dwellings with cheaper finishes.

The average cost of building a new home in NSW is now almost $130,000 more than it was before the pandemic, even though people are increasingly building smaller homes with cheaper finishes.

This comes despite NSW’s average new house build cost actually dropping almost $30,000 in July to its second lowest level this year.

Australian Bureau of Statistics building approvals figures show the $495,074 typical construction cost fell from a $527,718 record figure set in June, while in 2020 the average cost was $368,360.

Some of the nation’s biggest builders have revealed buyers were cutting back on double-storey floorplans and luxuries like marble benchtops as interest rate hikes crunch borrowing capacity.

The average cost of building a new home in NSW is now almost $130,000

But with new home approvals currently well short of the levels needed to reach an ambitious 1.2 million new homes goal for the nation by 2029, some of the country’s biggest property players have warned its time for the government to tighten its belt.

Simonds Group chief executive Rhett Simonds said the home building giant had observed material and labour costs start to soften at the front end of construction on things like timber frames and even brickwork, and there were also signs demand would soon ease for later stage trades including tilers.

In dollar terms, Metricon chief executive Brad Duggan said timber frame costs had dropped from a $5.40 a linear metre peak in May last year to about $2.80 today.

But the boss of Australia’s biggest home builder noted the main reason for a plateau in building costs prior to July had been a change in the mix of homes being built.

“There’s a lot more single-storey homes rather than double-storey homes. There’s a lot less marble benchtops,” Mr Duggan said.

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With construction timelines still more than double historic norms, Mr Duggan said the industry would need to be “very careful” as it ramped up to near record levels of building activity to reach the nation’s new housing targets.

Walker Senior Development Manager for Appin Amanda McGuirk said the company supported initiatives “which aim to drive down housing costs to a level where affordability becomes attainable”.

“This includes the introduction of efficient procurement methods, off-site fabrication and house and land packages where savings can be made through large scale buying power, Ms McGuirk said.

“Also of importance, the introduction of the NSW Government’s new BASIX changes that will provide long term home ownership savings through built in energy efficiency design and materials which will ensure future housing is both affordable and sustainable of the highest quality.”

FALLOUT OF CONSTRUCTION INDUSTRY CRISIS

Construction sector insolvencies reported to the Australian Securities and Investments Commission in the past financial year soared to 2213, almost double the figure for the prior 12 months, and a further 442 have already been announced since July 1.

Construction sector insolvencies reported to the Australian Securities and Investments Commission have doubled year-on-year.

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The insolvencies are the fallout of an industry crisis sparked as record housing construction collided with material and trades shortages over the past two years, leading to the collapse of major builders including Porter Davis, Clough Group, ProBuild and Condev.

But Housing Industry Association senior economist Tom Devitt said they now believed the worst of the nation’s construction sector insolvencies were behind it.

“We are not expecting an insolvency spiral where the whole industry runs into trouble now, we are hoping the last numbers are the shadow,” Mr Devitt said.

Mr Duggan added that as building volumes continued to slow insolvencies would centre on supply chain and subcontractor businesses.

Property Council of Australia chief executive Mike Zorbas said governments needed to do more to encourage housing diversity if the nation was to reach the 1.2 million new homes target by 2029.

Apartment construction numbers in the next year are projected to be just a quarter of the four-year average in 2018, which prompted a blunt message NSW as Mr Zorbas labelled the state as Australia’s “wooden spooner for housing supply”.

He said both it and Victoria would need to consider reducing planning and tax burdens to meet the federal target.

NSW’s Big Build will also need to be carefully considered as the multi-billion dollar project pipeline could create “cyclical issues with getting enough trades or getting A-frames for houses or building apartments”.

Mr Devitt agreed and said both interest rate reductions and planning tweaks would be needed to get “anywhere close to the government’s 1.2 million homes target over the next five years”.