The cost of building a new home in Victoria went up about $25,000 overnight earlier this month.
It follows a 35 per cent surge in new home sales across the state in April as buyers raced to beat the impost caused by the state’s new minimum standards under the National Construction Code.
Since May 1 any new home submitted for planning approvals has been required to be seven-star energy efficient, typically requiring better orientation for sunlight, more double-glazing, insulation and often solar panels or more efficient appliances.
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It is also now a requirement that homes be designed to accommodate those with mobility issues.
The Housing Industry Association had believed the typical increase would be just $10,000, but following member consultation in the wake of the new rules coming into force has now estimated that figure is a minimum and that for most new homes the increase is closer to $25,000 — and higher for some builds.
Developing Queensland – New home construction site with contractor in foreground.
Australian Bureau of Statistics data shows the cost of building a new house in Victoria rose $16,000 in the 12 months to March as a result of material and trades shortages.
Buyers are now paying more than $115,000 extra for a typical build compared to the same time in 2020.
HIA Victorian executive director Keith Ryan said he couldn’t recall any past instance where almost everyone planning to build a new home faced such a substantial increase overnight.
“What happens to those who couldn’t afford to commit to getting a home build due to the interest rate increases and will now be told that they have an extra $25,000 to pay?”
Mr Ryan added that it would also likely impact anyone extending a home by 50 per cent or more of its original size, raising the prospect of a cascade effect with more homes being demolished and potentially changing the character of suburban streets.
“It does mean that a lot of older homes that could be renovated or extended could now become unworkable to upgrade,” he said.
Homes submitted for planning approvals are required to be seven-star energy efficient, requiring better orientation for sunlight, and often solar panels.
Mr Ryan said the industry needed time to adjust to the changes if it was going to get through 800,000 new homes and warned after the cost increase effectively encouraged buyers to bring their plans forward and sales numbers would now likely slump across winter.
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“We expect sales in Victoria in May and beyond will probably drop quite a bit as a result of consumers having brought plans forward,” Mr Ryan said.
“They have decided that the benefits of NCC 22 aren’t enough to make up for paying more to build a home. And they have probably done the right thing.”
Urban Development Institute of Australia Victorian president Tom Trevaskis said the industry group feared the added cost would further impact the state’s ability to build a planned 800,000 new homes across the next decade.
“It impacts affordability and impacts the entry cost for customers to the market,” Mr Trevaskis said.
“It’s a long-term input cost to housing and will have an impact on the ability to deliver on the state’s objectives over the next 10 years.”
But PropTrack economist Paul Ryan said the cost hikes would likely lead to homes with smaller energy bills, though acknowledged they came at an inopportune time following substantial increases driven by labour and materials shortages.
“But the reason we have these costs is so we can build higher quality housing,” Mr Ryan said.
“So these are likely to pay for themselves in the longer term.”
The NCC changes had been gazetted to come into effect on May 1, 2023, but the Victorian government deferred the changes due to industry concerns — though declined a request for a second delay.
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