Forecasting Sydney's Housing Landscape: Challenges and Costs in Home Construction from 2023 to 2028

 

Over the next five years, Australia is projected to witness the construction of nearly a million new homes between 2023 and 2028, just 35,000 short of the government’s target. This forecast, however, assumes no further increases in the cash rate and does not account for land supply constraints affecting detached home construction. The impending impact of rising interest rates on mortgages is yet to be fully felt by homeowners, with potential repercussions extending into the building supply industry well into 2024.

The current dynamics in the market make building a home in Sydney during 2023 a substantial financial endeavor. The cost of a new home in Sydney varies significantly based on factors such as size, design, location, and materials used.

Property Update estimates the average cost of constructing a home in Sydney in 2023 to range between $1600 and $1900 per square meter. This calculation pertains to a basic three-bedroom, single-level, all-brick home, and actual costs may differ depending on specific requirements.

Location plays a crucial role in the overall expenses, with outer suburbs generally offering more affordable options compared to those closer to the city due to lower land demand. However, building costs in remote areas can escalate rapidly due to increased transport distances.

Shortages in building and land supply persist as challenges for new home buyers. According to the HIA, supply chain issues contribute to a 4 percent increase in building costs. The demand for land remains high, with the HIA reporting a more than 10 percent rise in labor prices by building-related trades in the September quarter of 2022.

Additionally, prospective home builders should consider the costs associated with permits and approvals, including planning permits, building permits, and bushfire assessments. These requirements can substantially augment the overall expenses of constructing a home.