Building a home vs buying a home: Which is cheaper?

Buying your own home is a major step, and given how expensive property is, it is quite the achievement. For those wanting to get their own home, the choice of buying an existing property vs building a new one can be a tough decision.

Which is cheaper; building new, or buying an existing home?

As home loan experts, the team at Compare the Market have gathered data from cities across the world, comparing the average cost of building vs the average cost of property for sale, based on the cost per square metre.

The cities with the biggest difference in purchase cost vs building cost

Across the 36 cities we analysed, only three had cheaper purchase costs compared to building costs. In most cases, it’s cheaper to build a new home than to buy an existing one, based on cost per square metre.

In some cases, the difference is in the tens of thousands of dollars!

Singapore had the biggest difference in purchase cost vs build cost at AUD$23,681, while Paris had a difference of AUD$16,939 per square metre, while Amsterdam was close behind at AUD$15,154.

Singapore is infamous for expensive real estate, as a perfect storm of factors combine to create a witch’s brew of costly house prices. There is huge demand from locals and also foreign investors as the population grows in a small island with very little space.¹

Paris and Amsterdam also have strong demand but little space for new builds, but also have desirable historical homes, which means existing homes on the market have an elevated value.²

The places where it’s cheaper to buy than build

There were three cities where it was cheaper to buy than build a home, though the differences were much smaller than the ones where buying was more expensive.

Chicago in the USA had the biggest difference, where buying was AUD$747 cheaper per square metre than building. Johannesburg was next at AUD$534, while Portland had the lowest difference at USD$132 cheaper to buy.

While other cities are growing in population, Chicago and Portland are seeing population decline.^3,4 This means that they are facing less demand, which eases pressure on house prices.

Meanwhile, the cost of building a new house in the USA has continued to rise significantly in the past few years, which brings the difference between house building and purchase costs down.⁵ US cities had the most expensive building costs overall, with New York, Honolulu and San Francisco all having average construction costs above AUD$5,000 per square metre. Singapore was the only non-American city in the top 10 for average building costs.

As for Johannesburg, the city is known for affordable prices – compared to prices around the globe – plus rebates and policies that help make housing more affordable to buy.⁶ This helps invert the difference between purchase price and construction price, making it cheaper on average to buy rather than build.

Cost of building vs purchasing a home in different cities

Construction costs vs housing costs in Australia

While construction costs in Australia have soared in recent years, it’s still cheaper, on average, to buy a new house than to buy a property. The biggest differences on costs per square metre were in Brisbane, Melbourne and Sydney, all three of which had a difference of more than AUD$,6000.

The closest gaps between construction costs and buying were in Perth, with a difference of AUD$728, followed by the Gold Coast at AUD$1,660. This is because Perth had the second-highest average construction cost, but lowest real-estate prices, narrowing the gap.

When it comes to construction costs, the US is the most expensive, as well as Singapore and Canada, but Australia is not far behind, and more expensive than the European locations that were examined in the data.