Is It Cheaper To Build or Buy a Home?

When looking to buy a home, one question buyers face is whether to purchase an established property or buy land and build a house from scratch.

While both methods offer significant financial and social benefits, ultimately, the “better” method depends on the priorities of the buyer.

First, you need to determine what your needs or wants are to be able to determine what’s classed as better.

Consider it like buying a mode of transport. What’s better – a Prius, a motorbike, a sexy two-door sports car, or a Range Rover? They’ll all provide transportation, but do they cater specifically for your needs.                                                

Established Home

Buying an established home offers several key benefits that appeal to buyers.

buying a house

Generally, an established property will be located closer to a city centre than a new home (vacant blocks are rare in inner-city areas). Therefore, it will be nearer to facilities and infrastructure such as schools, employment opportunities and public transport.

Not only is this location usually considered preferable, but the parcel of land the home sits on will generally be bigger than what’s offered for new builds.

  • Land sizes used to be bigger than what current home and land packages offer.
  • An established property often has a nice-sized yard along with a good-sized house, something you generally have to pay through the nose for in a brand new build.
  • Buying an established home is a quicker process than building a new house. Once the initial house hunting is done and the deposit has been paid, buyers can often move in and start their new life in as little as 30 days.
  • On the other hand, new homes require months to build and have the potential extra burden of delays and complications. Because of this, many buyers will need to continue renting another property while their new home is being built. 
  • There is also an enormous time drain to pick all of the finishes, colours and fittings for a new home. This is even more time consuming if building an architectural home.
  • Another factor to consider is the positive impact of established gardens, parks and trees in long-standing homes, often lacking in new housing estates.
  • If you ever drive through a brand new estate, the missing foliage and flowers are starkly apparent.
  • Gardens are often overlooked when locking in a new home mortgage, but perhaps they should be listed in the cost. If you have never set up a whole garden and lawn before, you may not be aware of how exceptionally costly it is.

The essential question buyers must ask themselves is whether they are looking for their forever home or investment property. If it’s the latter, the established home is generally the better bet.

  • If first home buyers want the opportunity to move to a second, more significant, and better home, they need to ensure that their first home will grow in value to allow for this upgrade.
  • Buying the right established property can add instant value with the proper makeover, and they could find themselves up levelling to the property of their dreams much faster.
  • Buyers can also more easily compare prices and investment results of similar properties when dealing with established homes.
  • Purchasing an established home also offers buyers a good understanding of the design, style and price point for other houses in the area, allowing them to understand the home’s future financial value.

Improving thermal comfort

The options below for improving thermal performance while renovating are described in more detail in Passive solar heating, and Passive cooling and the specific articles noted.

Windows and glazing

  • Replace windows or glazing with high-performance units appropriate for the climate, or consider retrofitting double glazing to serviceable timber windows that you plan to keep.
  • Improve air seals as you refit sashes.
  • Use polycarbonate films with magnetic attachments to emulate double glazing during winter in cool and cold climates — they can be removed and stored in summer.
  • Relocate or reduce the size of east and west-facing windows and install adjustable shading devices.
  • Shade problem windows (use temporary shade cloth blinds for windows that will eventually be removed, moved or replaced).
  • Remove trees or plantings, block solar access to north-facing glass, and ask neighbours to prune or remove such trees.
  • Install heavy drapes that touch the floor and walls at each side and fix sealed pelmets on top to prevent convective heat loss in cool climates.

Thermal mass

  • Remove carpet or other insulative coverings on slabs and replace them with tiles or polished concrete finishes to expose thermal mass in locations where exposed thermal mass is desirable. Information from building sustainability assessors indicates that this can increase Nationwide House Energy Rating Scheme (NatHERS) ratings by up to one star in many climates.
  • Install thermal mass in rooms with little or none and are exposed to passive heating or cooling, e.g. dark coloured, sealed water containers or phase change materials in solar or breeze exposed positions.

Ventilation, air movement and draughts

  • Improve cross-ventilation by:
    • retrofitting fully openable, breeze catching windows and doors 
    • creating new openings in non-loadbearing walls and overhead doors
    • moving doors to improve breeze paths
    • Designing landscaping planting, outbuildings or fences to direct breezes through the home, removing planting blocks breeze access, unless needed as a windbreak.
  • Install ceiling fans or whole house fans.
  • Install fans that ventilate your roof space in summer and can be sealed in winter.
  • Install doors in hallways and stairwells to control winter draughts and air movement and create heating and cooling zones.
  • Drought seals the whole building.

Improving space and amenity (to reduce the need for new construction)

  • Build or improve outdoor living spaces close to the kitchen and indoor living areas and consider summer shade, insect proofing and winter sun.
  • Install additional, purpose-built storage.
  • Consider relocating the laundry to a cupboard off a living area or circulation space to improve the outdoors’ connection or access to future additions.
  • Experiment with more space-efficient furniture layouts to make room for additional functions and storage.
  • To renovate your kitchen (if the final position is fixed in your staged concept plan):
    • choose durable, non-dating finishes
    • ensure the refrigerator is well ventilated and not next to the oven or other heat source
    • choose low or no VOCs (volatile organic compounds) materials with E0 or better finishes
    • consider traffic flow and safety
    • choose the energy and water-efficient appliances
    • Include adequate facilities for composting and recycling.
  • To renovate your bathroom (if it is to be retained in its current position):
    • choose toilets, showers and taps with the highest WELS star rating
    • consider a two or three-way design to eliminate the need for additional bathrooms (a vanity and mirror can sometimes be located in a waste space or relocated cupboard to allow simultaneous showering and tooth brushing)

New Home

house building

Buying land and building a new home from scratch offers several unique benefits not provided when purchasing an established property.

Many first home buyers are drawn to this option due to the savings and concessions available, such as reduced stamp duty and the First Home Owner Grant.

  • If you choose to use your new home as an investment property, you can claim depreciation quite rapidly over the first few years, which is a good tax benefit to take advantage of

As a new home is more likely to be built to a higher energy efficiency standard and carry fewer maintenance issues than an ancestral home, there’s also the potential ongoing savings.

  • An architecturally designed home utilising responsible building practices like natural ventilation, PV panels with battery backup, greywater systems, and one that takes full advantage of winter sun in any area will always appreciate that these will generally be covered even if issues do arise under warranty.
  • You have a house that you won’t have to put any money towards over the next few years. Everything is excellent and new, so there is no work to be done.

Of course, the major drawcard of a new home is the creative control this offers buyers.

  • You decide where the fireplace goes, what cladding you use, how big your entertaining area is.
  • The stories you’ll share with your mates while you’re enjoying a cold one around the barbecue become more accurate, and you’re passionate about them because you were involved in the process.

This method of buying can be advantageous and arguably gives vendors more bang for their buck.

  • Often you get a lot more for your money. Sure, a two-bedroom unit might be cheaper, but it’s pretty awesome having a new home that’s built exactly how you want it to be.

And while the building may be the more time-consuming process, it can save buyers several weekends spent at inspections, auctions and negotiating with agents.

  • There is far less competition in buying a block of land and building your home than an existing home. The stress and cost of the building turn many people off.

If you’re looking for a home to raise your family and live in for decades, the new build can be a fantastic option.

  • Home designs and sizes have changed dramatically in Australia over the last 20 years, so by building a new home, and you can create the exact floor plan you desire rather than take on the costs involved with creating an existing property with an open floor plan outdated design.

Energy Consumption/Green Building

If you care about” “gree” — whether that means the money you spend on energy bills every month or your concern about the environment — a newly constructed home is virtually always the better option. Homes built today regularly meet or exceed Energy Star and WaterSense standards, which are national code standards for energy efficiency far tougher than just a few years back. Most newly built homes come with energy certifications covering walls, roofs, windows, doors and even appliance packages. Virtually no resale homes offer certificates because they were created too much lower standards — often decades ago when energy usage was an afterthought.

You can retrofit many existing house elements to improve its energy efficiency, but it’s costly. Even then, because of design shortcomings, you may not achieve the level of efficiency that is now routine with a newly constructed home. Besides, new homes typically offer better air filtration, which increases indoor air quality, reducing symptoms from those who have asthma or allergies.

Flexibility for Space and Wiring Customisation

Possibly the biggest draw for many new construction buyers is the chance to have a house where everything is new-new-new and just as the buyer wants it to be, rather than compromising and accepting a previous owner’s tastes plus a certain amount of wear and tear. A resale house may include room layouts, ceiling heights and lighting that may have made sense in the 1950s or earlier — formal dining rooms, small kitchens, fewer bathrooms and windows, and the like. By comparison, with a new home, you can often participate in the design of interior spaces with the builder before actual construction. Besides, many new homes come with the sophisticated wiring needed for high-speed electronics and communication equipment, entertainment centres and security systems. Buying an older home means that you may have to spend substantial sums of money to take down walls where that’s possible — some are so-called load-bearing walls that are not easily moved — to enlarge rooms to create the flowing, more open living space that is preferred today.

Replacement Costs

Those looking to buy a house with minimal maintenance required might be better suited for a new construction home. By definition, with a new place, everything is new, including costly components — such as the furnace, water heater, air conditioning unit, kitchen appliances and roof, doors, windows and more. Most of these components come with a warranty (sometimes for up to 10 years), which offer an extra margin of protection. With a resale house, the equipment and structural features you buy have been in use for a while and maybe close to needing replacement. There may or may not be warrantied, but if there are, they probably have significant limitations.

Consider some of these typical capital improvements that may be part of the actual cost to you over the early years of the purchase of an existing house:

  • Heating and Air Conditioning: The typical furnace has a 20-year life expectancy; the standard central air system 15 years. Replacing them could cost you $4,100 for an air conditioning unit and $3,675 and up for the furnace, depending on your chosen method.
  • Flooring/Carpeting/Tile/Hardwood Floor refinish: You’re virtually guaranteed to replace some carpeting in a resale home, and you may need to upgrade other flooring or finishes. Costs can run anywhere from a few thousand dollars to well over $15,000, depending on your choices.
  • Roof: The average shingled roof lasts about 25 years. Replacement costs can be anywhere from $5,000 up.
  • Exterior Painting: With a new house, you get to select the colour. With an existing home, there’s an excellent possibility you’ll want to repaint—typical cost: $5,000 and up.
  • Interior Painting: Again, with a new house, you choose the rooms’ wall colours as part of the package. With an existing home, you’re probably going to want to repaint some of the interiors. Even if you do it yourself, it will cost money and time.
  • Kitchen Remodel: Think anywhere from $20,000 to $40,000.
  • Master Bath Remodel: $15,000 and up.

This is not to say that new homes have no additional costs, though they will typically be considerably lower than the repairs and replacements needed in resale homes. Other price factors can be less obvious but merit factoring into a purchase budget, window treatments. People might say, gee, that’s not a big deal. But if you price out blinds or plantation shutters on 52 new windows, that can be pricey. Landscaping is also included — the owner of a newly built home might want to invest in additional shrubs, trees and ground covers to achieve a certain level of maturity among the plantings on the lot, she says.

Although you — and your budgetary resources — control what you improve and when it’s highly likely that you’re going to spend a substantial amount of money on at least several of the above capital improvements in the early years following the purchase of a resale house. They are the unadvertised costs of not buying new.

Safety Features (Especially from Fires)

Newly built homes come with modern fire retardants in materials such as carpeting and insulation, unlike most existing houses. Builders also hard-wire smoke and carbon monoxide detectors into their homes, making it unnecessary for new owners to install less-dependable battery-powered detectors. Many builders also back up their hard-wired detectors with battery power to handle electrical outages.

Mortgage Financing

Builders often have mortgage subsidiaries or affiliates and can custom-tailor financing — down payments,” “points”,” other loan fees and even interest rates — to your specific situation. Many are also willing to work with you to help defray closing costs at settlement. Sellers of resale homes may be willing to offer contributions to settlement charges, but you can be certain they don’t own a mortgage company and, thus, have the leeway to come up with the loan you need. When you finance a resale purchase, you are basically on your own.

Buyer Competition

One consideration — which can vary regionally — is that new construction buyers essentially are competing against no one else to buy a given home. The inventory (of homes for sale locally) is low, and though it may not cause a bidding war on resale homes, it may result in multiple offers, But with new construction, the seller is in the driver’s seat. You’re not competing against anyone else. That’s crucial in our market. Recently, I’ve been involved where one buyer has made four offers (on resale properties) and has been beaten out each time by multiple offers.

Resale Value

You may plan to live in your next home for many years. Still, at some point, most people sell a given home for any of a myriad of reasons — moving to a bigger house to accommodate a growing family, moving down to smaller dogs when children are gone, moving across town or the country for another job, etc. While the home you sell will (by definition) no longer be new, a five-year-old home will often be more desirable — given all the features above — than a 25-year-old home at resale. Additionally, In new construction, you’re paying retail for a home. The flip side is that, locally, that retail price might be a reasonable price down the road because prices continue to go up as new” “phase”‘ and developed areas are opened in subdivision. Those new areas” prices seldom go down, compared to the earlier development areas.

The decision to buy a newly built or used home is ultimately best made by each home buyer. Now you know the questions to ask and the relative costs involved to make the best decision for you.

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