Building a new home in Victoria just got a whole lot more expensive.
Earlier this month, the cost of building a new home jumped by about $25,000 overnight.
This spike followed a 35% surge in new home sales across the state in April.
Buyers were rushing to beat the new minimum standards under the National Construction Code.
Since May 1, any new home submitted for planning approval must meet seven-star energy efficiency standards.
This typically means better orientation for sunlight, more double-glazing, insulation, and often solar panels or more efficient appliances.
Homes now also need to be designed to accommodate people with mobility issues.
The Housing Industry Association (HIA) initially believed this would increase costs by around $10,000.
However, after consulting with members, they now estimate the increase is closer to $25,000 for most new homes, with some builds costing even more.
According to the Australian Bureau of Statistics, the cost of building a new house in Victoria rose by $16,000 in the 12 months to March due to material and trades shortages.
Buyers are now paying over $115,000 more for a typical build compared to 2020.
HIA Victorian Executive Director Keith Ryan said he couldn’t recall a time when almost everyone planning to build a new home faced such a substantial overnight cost increase.
“What happens to those who couldn’t afford to commit to building a home due to interest rate increases and now face an extra $25,000 cost?” Mr. Ryan asked.
He added that this increase would also likely impact anyone extending a home by 50% or more of its original size, potentially leading to more home demolitions and changes to the character of suburban streets.
Mr. Ryan pointed out that many older homes that could be renovated or extended might now become too costly to upgrade.
He emphasized that the industry needs time to adjust to these changes, especially as they aim to build 800,000 new homes:
“We expect sales in Victoria in May and beyond to drop as consumers brought their plans forward.
They decided that the benefits of NCC 22 aren’t enough to justify the higher costs, and they probably made the right call.”
Tom Trevaskis, President of the Urban Development Institute of Australia (Victoria), echoed these concerns.
He fears the added costs will further impact the state’s ability to build the planned 800,000 new homes over the next decade.
He further commented:
“This impacts affordability and the entry cost for customers to the market.
It’s a long-term cost that will affect our ability to meet the state’s housing objectives.”
However, PropTrack economist Paul Ryan offered a different perspective.
He said the cost hikes would likely lead to homes with smaller energy bills, even though the timing is unfortunate given recent increases driven by labour and material shortages.
“These costs are about building higher quality housing, and they’re likely to pay for themselves in the long run,” Mr. Ryan said.
The NCC changes were originally set to take effect on May 1, 2023, but the Victorian government deferred them due to industry concerns.
They declined a request for a second delay.
