Building a New Home: Construction Cost Changes

Presents changes in the cost of construction of new dwellings between approval, commencement and completion.

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Released
14/10/2020
Source
Building Activity, Australia, June 2020

Introduction

When building a new home, the final cost of construction can differ from initial expectations at the building approval stage and the start of construction. There may be numerous reasons for cost variations prior to and during construction, that appear to be more common for some types of dwellings (i.e. apartments) than others (i.e. houses). Examples include costs and contracts being finalised after council approval is sought or unexpected delays and complications during construction.

This article investigates the changes in construction cost between the value of approval, the expected value at commencement and the final value at completion of construction for new houses, townhouses and apartments. These values exclude the value of land and landscaping but include site preparation costs associated with building activity.

These data for each financial year from 2009-10 to 2019-20 are available in the data downloads section. The data presented in this article are sourced from the Australian Bureau of Statistics' quarterly publication 'Building Activity, Australia'.  This article analyses data for the 2019-20 financial year, unless otherwise specified.

The Building Activity: Average cost changes data cube is released annually with the December quarter edition of Building Activity.

Refer to the data downloads section in the latest December quarter publication of Building Activity, Australia.

Key Statistics

  • Almost half of new residential dwellings (44.9% of dwellings) cost more to build than they were approved for, while 22.5% of dwellings cost less.
  • Overall, new residential dwellings cost 1.4% more to build than they were approved for, with an average increase of $3,941 per dwelling.
  • Apartments had the largest changes in the cost of construction, rising by 6.3% between approval and commencement and falling by 8.1% between commencement and completion.
  • Houses had the smallest cost changes, rising by 2.3% from approval to commencement and falling by 0.4% from commencement to completion.

Australia

Approval to Commencement

Over one third (42.0%) of new residential dwellings were expected to cost more at the start of construction than at the time they were approved. Graph 1 depicts the proportion of dwellings that experienced an increase, a decrease or no change between the value of approval and the commencement value. A higher commencement value could indicate that the construction costs at the time of approval were under-estimated or the scope of work increased after the dwelling was approved. Apartments were most likely to increase in cost, with 55.8% of dwellings in apartment buildings increasing in cost from approval to commencement. 

Only 16.8% of new residential dwellings had a commencement value below the value of approval. Houses were most likely to commence at a reduced cost, with 17.0% of houses reporting a commencement value that was lower than the value of approval. Decreases in value could indicate that the construction costs at the time of approval were over-estimated or the scope of work decreased after the dwelling was approved.
 

*Percent of dwellings with no change includes dwellings where the commencement value was not reported.

Overall, new residential dwellings were expected to cost 3.5% more at the start of construction than at the time they were approved, with an average increase of $11,467 per dwelling. Houses had the lowest cost change, increasing by 2.3% from approval to commencement with an average increase of $7,579 per dwelling. Apartments had the highest cost change from approval to commencement, increasing 6.3% overall with an average increase of $22,215 per dwelling.

Note the percent change reflects the difference between the sum of the approval values and commencement values for dwellings which commenced construction in 2019-20.

Graph 3 shows the overall cost change from approval to commencement for dwellings where the cost increased compared with dwellings where the cost decreased. 

The magnitude of the cost change was similar regardless of whether the cost increased or decreased. Dwellings with positive cost changes increased by 15.2% from approval to commencement, whereas dwellings with negative cost changes decreased by 12.9% from approval to commencement. 
 

Note the percent changes reflect the difference between the sum of the approval values and commencement values for dwellings which commenced construction in 2019-20.

Table 1: Cost changes, approval to commencement, 2019-20, Australia
 Dwellings with an increaseDwellings with a decreaseTotal dwellings (a)
 Average value increasePercent increaseAverage value decreasePercent decreaseAverage value changePercent change
Houses+$40,190+12.4%-$32,116-9.8%+$7,579+2.3%
Townhouses+$55,302+20.4%-$59,331-19.3%+$9,253+3.2%
Apartments+$62,077+17.6%-$64,841-17.1%+$22,215+6.3%
All dwelling types+$49,744+15.2%-$43,707-12.9%+$11,467+3.5%

(a) includes dwellings with no change in cost

Over the past ten years, houses consistently reported the lowest cost change between the value of approval and the commencement value, reducing from a 4.3% increase in 2009-10 to a 2.3% increase in 2019-20. The cost change of townhouses reduced the most over this time period, with an 11.0% increase from approval to commencement in 2009-10 and a 3.2% increase in 2019-20. 

It should be noted that houses account for 77.7% of dwellings investigated by cost change from approval to commencement, whilst townhouses and apartments account for just 12.8% and 9.5% of dwellings respectively. Large townhouse and apartment projects with high numbers of dwellings can therefore cause volatility in average cost changes over time. 
 

Commencement to Completion

12.5% of new residential dwellings cost more to build than expected when construction commenced. 

Higher density dwellings were more likely to see an increase in the cost of construction from commencement to completion, with 16.2% of townhouses  and 25.0% of apartments  recording a cost increase. A lower proportion of houses (12.0%) increased in cost from commencement to completion. Increases in the cost of construction could indicate an increase in the scope of work or unexpected delays and complications during construction.

Only 11.4% of new residential dwellings cost less to build than expected when construction commenced. Cost decreases could indicate a reduction in the scope of the work or work being completed faster than expected. 
 

*Percent of dwellings with no change includes dwellings where the completion value was not reported.

Overall, new residential dwellings cost 0.9% less to build than expected at the start of construction, with an average decrease of -$2,777 per dwelling. All dwelling types experienced a decrease in the cost of construction between commencement and completion in 2019-20. Apartments had the highest cost change, decreasing by -8.1% from commencement to completion with an average decrease of -$26,160 per dwelling. 
 

Note the percent change reflects the difference between the sum of the commencement values and completion values for dwellings which completed construction in 2019-20.

Graph 7 shows the overall cost change from commencement to completion for dwellings where the cost increased compared with dwellings where the cost decreased. 

The magnitude of the cost change for houses was similar regardless of whether the cost increased or decreased. Houses with positive cost changes increased by 8.2% from commencement to completion, whereas houses with negative cost changes decreased by 10.7%. 

Apartments with decreases in cost had the largest cost change, decreasing by 41.4%. In comparison, apartments that increased in cost increased by only 12.1%. This drove the overall cost decrease for these dwellings (refer Graph 6), despite a higher proportion of apartments increasing in cost from commencement to completion (refer Graph 5). 
 

Note the percent change reflects the difference between the sum of the commencement values and completion values for dwellings which completed construction in 2019-20.

Table 2: Cost changes, commencement to completion, 2019-20, Australia
 Dwellings with an increaseDwellings with a decreaseTotal dwellings (a)
 Average value increasePercent increaseAverage value decreasePercent decreaseAverage value changePercent change
Houses+$26,441+8.2%-$33,632-10.7%-$1,265-0.4%
Townhouses+$26,911+9.5%-$83,169-24.3%-$14,127-5.2%
Apartments+$39,494+12.1%-$167,422-41.4%-$26,160-8.1%
All dwelling types+$26,801+8.4%-$44,141-13.8%-$2,777-0.9%

(a) includes dwellings with no change in cost

Over the past ten years, there have predominantly been increases in cost from commencement to completion across all dwelling types. The cost change of apartments reduced the most over this time period, with a 3.7% increase from commencement to completion in 2009-10 and a -8.1% decrease in 2019-20.   

It should be noted that 77.7% of dwellings investigated by cost change from commencement to completion were houses, whilst townhouses and apartments accounted for only 12.0% and 10.4% of dwellings respectively. Large townhouse and apartment projects with high numbers of dwellings can therefore cause volatility in average cost changes over time. 
 

States and Territories

Houses

All states and territories except Victoria had higher proportions of houses with cost increases between approval and completion rather than decreases. The Australian Capital Territory had the highest proportion of houses with cost increases, with 66.7% of houses increasing in cost from approval to completion. Victoria was the only state with a higher proportion of cost decreases, with 36.3% of houses decreasing in cost and 28.1% of houses increasing in cost from approval to completion. 

Percent of dwellings with no change includes dwellings where the completion value was not reported.

Houses in all states and territories except Victoria also saw an overall increase in cost from approval to completion. The highest increase was in the Australian Capital Territory, where the cost of houses increased overall by 20.6% from approval to completion, with an average increase of $66,716 per dwelling. Houses in Victoria decreased in cost by 2.7% overall, with an average decrease of $8,200 per dwelling.

Note the percent change reflects the difference between the sum of the approval values and completion values for dwellings which completed construction in 2019-20.

Table 3: Cost changes, approval to completion, 2019-20, New Houses
 Dwellings with an increaseDwellings with a decreaseTotal dwellings (a)
 Average value increasePercent increaseAverage value decreasePercent decreaseAverage value changePercent change
NSW+$49,109+16.1%-$39,021-10.7%+$21,059+6.7%
VIC+$13,321+4.4%-$32,433-10.5%-$8,200-2.7%
QLD+$31,579+12.1%-$31,645-11.1%+$1,790+0.7%
SA+$40,281+17.1%-$29,727-12.1%+$14,996+6.4%
WA+$23,335+9.0%-$20,068-8.2%+$5,280+2.1%
TAS+$60,538+22.7%-$63,267-21.2%+$13,246+4.9%
NT+$27,275+8.7%-$18,972-4.8%+$6,821+2.0%
ACT+$108,410+33.0%-$39,366-11.4%+$66,716+20.6%

(a) includes dwellings with no change in cost

Townhouses

All states and territories had higher proportions of townhouses with cost increases between approval and completion rather than decreases. Tasmania had the highest proportion of townhouses with cost increases, with 80.0% of townhouses increasing in cost from approval to completion. New South Wales had the highest proportion of townhouses with cost decreases, with 31.3% of townhouses decreasing in cost from approval to completion.

Percent of dwellings with no change includes dwellings where the completion value was not reported.

Townhouses in all states and territories saw an overall increase in cost from approval to completion. The highest increase was in the Australian Capital Territory, where the cost of townhouses increased overall by 23.4% from approval to completion, with an average increase of $62,596 per dwelling. The smallest increase was recorded in Queensland with a cost increase of 0.8% from approval to completion and an average increase of $1,735 per dwelling.

Note the percent change reflects the difference between the sum of the approval values and completion values for dwellings which completed construction in 2019-20.

Table 4: Cost changes, approval to completion, 2019-20, New Townhouses
 Dwellings with an increaseDwellings with a decreaseTotal dwellings (a)
 Average value increasePercent increaseAverage value decreasePercent decreaseAverage value changePercent change
NSW+$33,601+13.6%-$38,700-14.1%+$3,005+1.2%
VIC+$81,318+31.4%-$114,762-29.3%+$3,761+1.3%
QLD+$39,731+17.2%-$46,759-21.6%+$1,735+0.8%
SA+$53,966+29.2%-$52,328-22.4%+$12,088+5.9%
WA+$29,022+12.9%-$18,168-8.4%+$7,241+3.2%
TAS+$102,178+60.5%-$4,119-1.3%+$33,228+12.6%
NT+$34,000+18.4%-$49,700-17.4%+$7,844+3.4%
ACT+$124,240+50.5%-$196,667-47.8%+$62,596+23.4%

(a) includes dwellings with no change in cost

Apartments

New South Wales, Victoria, and Queensland accounted for the majority of apartment completions in Australia in 2019-20. The cost of construction increased by 50.0% from approval to completion for apartments in Victoria and Queensland, whilst New South Wales saw only 40.0% of apartments increase in cost. In Victoria and Queensland 25% of apartments decreased in cost from approval to completion. This figure was only 13.3% for New South Wales.

Percent of dwellings with no change includes dwellings where the completion value was not reported.

Apartments in New South Wales and Victoria saw an overall increase in cost from approval to completion, with increases of 2.6% and 6.1% and average increases of $8,214 and $18,228 per dwelling respectively. In contrast, Queensland saw a large cost decrease of 21.2%, with an average cost decrease of $63,532 per dwelling.

Note the percent change reflects the difference between the sum of the approval values and completion values for dwellings which completed construction in 2019-20.

Table 5: Cost changes, approval to completion, 2019-20, New Apartments
 Dwellings with an increaseDwellings with a decreaseTotal dwellings (a)
 Average value increasePercent increaseAverage value decreasePercent decreaseAverage value changePercent change
NSW+$82,380+29.9%-$148,306-31.6%+$8,214+2.6%
VIC+$77,018+23.8%-$50,313-18.2%+$18,228+6.1%
QLD+$166,039+73.6%-$142,762-41.4%-$63,532-21.2%

(a) includes dwellings with no change in cost

Method

The values presented in this article are defined as follows:

  • The value of approval is the estimated total cost of building work at the time of approval, as reported on building approval documents provided to local councils or other building approval authorities. 
  • The commencement value is the estimated total cost of building work at the commencement of construction, as reported by the builder (where the builder is known to the ABS at the time of commencement) or the owner/applicant of the building approval (where the builder is not known at the time of commencement).
  • The completion value is the final cost of building work at the completion of construction, as reported by the builder (where the builder is known at the time of completion) or the owner/applicant of the building approval (where the builder is not known at the time of completion).

Data are presented for the following types of dwellings:

  • 'Houses' - defined as detached buildings used for long term residential purposes, consisting of only one dwelling unit and are not a result of alterations or additions to a pre-existing building.
  • 'Townhouses' - defined as semi-detached row or terrace houses attached in some structural way to one or more dwellings, with their own private grounds and no separate dwelling above or below.
  • 'Flats, units or apartments' - defined as blocks of dwellings that don't have their own private grounds and usually share a common entrance, foyer or stairwell.

For further information refer to Functional Classification of Buildings, 1999 (Revision 2011). 

Dwellings with cost changes below the 1st percentile or above the 99th percentile have been excluded from the analysis.

Data refers to cost changes per dwelling (i.e. if a townhouse project with 10 dwellings increased by $100, this would contribute $10 for each dwelling to the average cost change).

Data downloads

Building Activity: Construction cost changes

Data files
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