Buyers paying about $43k more for new over existing homes

New-build properties tend to cost an average of 6% more than established properties, according to CoreLogic analysis of the housing market dating back to 2002.

Coincidentally, the current new-build premium is also about 6%, which, in dollar terms, means the median price for new-build properties is about $43,000 more than for established homes.

At times, the new-build premium has been as high as 15%; but it's also been as low as -2%.

“Interestingly, new-builds were slightly cheaper (i.e. the premium was negative) than existing properties over a period of about two years from mid-2009 to mid-2011, just the time when the construction sector was battling the GFC and its aftermath – suggesting perhaps some discounting was necessary around that time to get new properties sold,” CoreLogic Chief Property Economist Kelvin Davidson said.

“But there have also been periods when the premium has been significantly positive, most notably in double-digits for most of 2002-04, and again from mid-2016 to mid-2020. To some extent, the gap might then have started to close from mid-2020 (with existing prices playing catch-up) due to people rushing in during that post-COVID phase and taking an ‘any house will do’ approach.”


Why new-builds tend to be more costly

The main reason why new-builds typically cost more than existing dwellings is because they're generally of higher quality and require less maintenance.

But Mr Davidson said some other reasons had also come into play in recent years, including the sharp increase in residential construction costs after the pandemic, which forced developers to charge higher prices.

“In addition, new-builds have been strongly favoured in recent years by the lending and tax rules too, or in other words exempt from the LVRs – meaning maybe a 10% deposit at present rather than 20% for owner-occupiers or 35% for investors – and also still being able to have 100% mortgage interest deductions on landlords’ tax returns. The shorter Brightline Test that has recently prevailed for new-builds (five years) versus existing properties (10) may have also been a factor in the price premium,” he said.


Why the new-build premium might soon decline

Mr Davidson forecast that the new-build premium was likely to decline in the next year or two.

“For a start, like in 2009-11, with building work slowing and construction costs now much flatter, there’s likely to be less heat in new-build pricing. On that note, there also appear to be some difficulties for developers in securing pre-sales for their new-build projects at present, possibly hinting at some near-term discounting,” he said.

“Meanwhile, more listings coming to the market may also mean that prospective house buyers can already find what they want among the existing stock, and not need to go down the path of buying or building a new property. In addition, of course, mortgage interest deductibility is set to even out regardless of property age, at 80% from 1st April 2024 and 100% from the same date next year. At the margin, this also erodes the benefits of a new-build relative to existing for investment buyers.”

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Published: 27/4/2024