Residential
Explore
The cumulative increase is even more important. Nationally, the cost of building a new house is now 51 per cent higher than at the end of 2019. Costs have more than doubled in Western Australia, while rising by around 69 per cent in Tasmania, 65 per cent in South Australia and 61 per cent in Queensland. Even Victoria, which has recorded the smallest increase among the major states, is 35 per cent higher.
This is important because existing homes cannot remain materially below replacement cost across the market for long. When established housing becomes cheaper than delivering new supply, projects stop stacking up. Construction slows, fewer homes are added and the shortage becomes worse. Buyers are then pushed back towards established housing, limiting how far prices can sustainably fall.
The apartment market is where this gap is most clearly visible. The ABS figures relate specifically to detached-house construction, but the same pressures are affecting apartments and are likely to be even more pronounced. Apartment projects involve longer construction periods, greater financing and compliance costs, and more complex labour requirements. At current costs, very few genuinely affordable developments are viable. The projects that proceed are increasingly premium developments aimed at wealthier buyers, rather than the lower-priced supply needed by first home buyers.
The gap between established prices and the cost of delivering new housing is therefore likely to widen as the downturn continues. But this will not produce a wave of cheaper new homes. It will cause more projects to be deferred or abandoned, particularly at the affordable end where margins are already extremely tight.
Higher interest rates push existing prices lower, but they also make new supply harder and more expensive to deliver. As construction slows, the shortage becomes more severe and demand is redirected back towards established homes.
Replacement costs will not prevent larger falls in individual suburbs or properties. But nationally, they place a powerful limit on how far prices can decline.
