New homes set to nosedive in NSW as soaring costs cripple push for more housing

The cost of building a home has seen a huge uptick in the space of a year, as industry experts warn the consequences of red tape and fees will make the hosing crisis worse.

The cost of building townhouses and apartments has soared by $60,000 in a single year and the number of houses being started in 2024 is predicted to plummet to the lowest level in eight years.

The dire picture of the housing supply crisis has emerged as the state’s biggest home builder McDonald Jones revealed clients are cancelling their builds, spooked by rising costs.

The builder claims government fees are making the problem worse and undermining both Premier Chris Minns’ and Prime Minister Anthony Albanese’s housing targets.

New analysis of Australian Bureau of Statistics data by Master Builders Australia show, in the three months to December, the average building cost for semi-detached, terrace and townhouses in greater Sydney jumped to $461,000 – up from $401,600 a year earlier.

Apartments soared from $448,600 to $508,500 in that period, while detached houses grew from $504,400 to $540,100 on average.

Builder James Brickwood and his wife Ann-Maree Brickwood at one of their construction projects in Penshurst. Picture: Max Mason-Hubers

At the same time, Housing Industry Association (HIA) figures show forecast new detached home starts in NSW are set to be at their lowest since 2016 – with just 19,841 commencements forecast for 2024.

Material and labour cost increases have been blamed for the price rises, alongside NSW Government requirements for new homes to be more energy efficient – leading to up to $40,000 being whacked straight onto house prices.

“We’re not immune from all of that – our volumes are coming down now. We’ve seen some big cancellation rates … It’s putting more pressure on the existing house market,” McDonald Jones Homes NSW CEO Rob Douglas told The Telegraph.

Key to the pressures was new “sustainability standards for residential development” – better known as BASIX requirements – which Mr Douglas said were a “straight whack on to the cost of the build” of a new home, although his company isn’t currently passing the costs on.

“(Smaller companies are) passing it on to the customer – at the end of the day the one losing is the customer, because they’re paying more,” he said.

A shortage of skilled workers in the building industry has pushed up the cost of labour, and while Covid-era supply chain issues which sent material prices soaring have cooled, the hangover of their increased cost remains.

HIA NSW executive director David Bare said the figures showed current market conditions were hobbling housing growth.

“We’re simply not seeing any significant change to the market in terms of supply,” he said.

“We’re forecasting a further decline – we don’t believe we’ll start seeing any real increase in detached housing until 2025.”

NSW Planning Minister Paul Scully said labour and supply costs are taking a toll on housing. Picture: NCA NewsWire / David Swift

Master Builders Association NSW executive director Brian Seidler said the sheer cost would see a downturn in housing play out over 2024.

“In stand-alone homes, people will start to question: ‘can I afford to actually build?’” he said.

“If the sentiment isn’t there … we’ll have real trouble meeting those housing targets.”

Oatley builder James Brickwood, who owns Brickwood Building, said smaller players like himself had to pass booming costs on, but that they worked with clients to ensure they could complete jobs.

“There is definitely a quietening in the industry, so we try to work with clients to reduce the scope and make sure the project is still going,” he said.
Planning Minister Paul Scully said the cost of supplies and labour were still biting, adding BASIX charges would make home ownership more affordable long-term.

“(Material costs) is impacting construction across the nation and is being added to by the national skills shortage,” he said.

“The improvements to energy efficiency standards can range vary for properties but the average is a few thousand dollars.

“The NSW Government continues to invest in skills and training to help to address the skills shortages that are increasing labour costs and continue to support households through more than 130 cost of living measures contained in the budget.”

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Originally published as New homes set to nosedive in NSW as soaring costs cripple push for more housing