Here’s why Australia is building such big homes

The average floor area of a new free-standing house in Australia is 254 square metres.

Australia HouseOur homes are much larger than those within Europe and even many American cities.

Why has this occurred?

It is simply economics.

The actual land component of a new house and land package is very high and fixed.

And these days the land usually costs around two-thirds of the total purchase price.

For example, a 150m2 three-bedroom house and land package can cost $525,000.

The land price would be around $330,000 and the cost to build the house about $195,000.

where to invest in property 2020 australia
The building rate equates to $3,500/m2 when including the price of the land.

Now, a larger 250m2 four bedroom house with a study + even multi-purpose room might cost $275,000 to build, making the end package total $600,000.

The buyer gets 100m2 of extra house for just $75,000 more.

The total end price per square metre has now dropped to $2,400 or 30% less.

And here is the real rub.

Assuming that the buyer can afford to pay the extra deposit and fund a $600,000 house and land package, all it costs – assuming a ten percent deposit, 25 year principal and interest loan and using a 3.75% variable interest rate – is an extra $10 per day in mortgage payments.

The new home buyer can now own a home that is two-thirds larger for just $70 per week.

house prices 2017To upsize the house, as outlined in the example above, would cost the buyer an extra $3,650 per year.

Given the high cost of land in and around our capital cities, the trend towards larger new homes makes economic sense.

Buyers are just acting in their own interests and are making rational decisions to choose a larger and more valuable home for what is a small additional out of pocket expense in the broad scheme of things.

Unless there are real economies in the land content – for example, the plentiful supply of subdivided land to keep land prices keen – building a small house is often not the best value for money.

Empty rooms?

At first glance it looks like we have a lot of spare bedrooms.

Yes, our homes are big… but they aren’t all that well designed to cater for multigenerational households.

The number of people per household is now on the rise

A1

This is being influenced by a range of factors including low housing affordability, harder economic times, limited land supplies in our major cities, rising land prices and demographic change.

Increasing traffic congestion and travels times are also having an impact.

Many younger adults are staying at home longer or boomeranging back and forth. Whilst, in some cases, grandparents are living in the family home too.

Also, quite a few homeowners are taking in a tenant to help make ends meet.

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Michael Matusik

About

Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


'Here’s why Australia is building such big homes' have 2 comments

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    February 22, 2020 daniel sarpong

    if the prices of land are that high, it makes economic sense to have bigger houses especially if you have a big family. You may consider renting some rooms in which case the design of the property should take that into consideration. However, note that bigger houses also mean higher maintenance and running costs.

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