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Adelaide shows a similar pattern, with house prices up 64 per cent compared to construction cost growth of 45 per cent. Brisbane follows the same trend, with house prices rising 58 per cent against construction costs of 40 per cent.
Eastern capitals still lagging
However, the story remains challenging in Australia's largest housing markets. Sydney house prices have grown just 19 per cent since 2021, well below the 32 per cent increase in New South Wales construction costs.
Melbourne presents an even more stark picture, with house price growth of only 4 per cent dramatically lagging behind Victoria's 25 per cent construction cost inflation. Canberra shows the most extreme divergence, with house prices up 10 per cent while Australian Capital Territory construction costs have soared 41 per cent.
Supply implications
These diverging trends have significant implications for housing supply. In cities like Perth, Adelaide and Brisbane, where house prices now exceed construction cost growth, we should expect to see renewed interest in building new homes as the economics finally stack up.
Conversely, in Sydney, Melbourne and Canberra, the economics of new construction remain challenging. Until house prices rise further or construction costs moderate significantly, these markets will continue to see limited new supply.
The Federal Government Housing Accord plans to deliver 1.2 million new homes over the next five years. While there are many challenges to meeting this goal, the improving economics in some markets provides hope, even as the major eastern capitals remain constrained.
Despite the narrowing gap, it remains cheaper to buy an established home than build new in most markets. However, the momentum is clearly shifting. For the first time in years, we're moving in the right direction for housing supply.
