Despite the barriers, new builds can offer gains for astute investors

Australia’s housing market is confronting a well-documented shortfall. With a government target of 1.2 million new homes over five years, the urgency to boost supply is well understood.

And yet, in 2024, only 12 per cent of house sales came from newly built properties. While the latest Australian Bureau of Statistics data shows that dwelling approvals rose by 4.7 percent to 171,394 in 2024, the number of actual new home commencements dropped to just 163,285, a 10.5 per cent year-on-year decline according to Master Builders Australia.

For detached homes, the numbers were even starker, with commencements falling to 96,250, a 12.6 per cent decline and the lowest level recorded since 2012–13 as reported by the Housing Industry Association.

These figures point to a clear disconnect between the ambition to build and the reality on the ground. More interestingly, they reveal a prevailing hesitation among investors, not because the demand isn’t there, but because the process of building still carries considerable complexity and uncertainty.

While more Australians are showing interest in building, many investors continue to lean toward established homes for various reasons.

Existing properties offer immediate rental income, greater price transparency and lower exposure to construction risk. In contrast, building requires deep capital reserves, patience and the ability to navigate unpredictable delays, from planning approvals and infrastructure shortfalls to potential builder insolvency.

In today’s market, established homes are appealing because they deliver cash flow from day one.

There’s no need to wait 12 to 18 months for construction to complete. Investors can inspect the asset, calculate returns with greater accuracy and avoid the risks of cost blowouts and planning hold-ups. In high-demand locations, especially in the eastern states, well-located established homes can deliver strong capital appreciation and, with targeted renovations, respectable depreciation deductions.

New builds, on the other hand, require a fundamentally different approach.

Investors must secure land, often at a premium in growth corridors, then commit to a construction process that is subject to market fluctuations.

Since 2019, construction costs have increased by approximately 40 per cent, driven by global supply chain disruptions, trade shortages and inflation in material prices. As of 2025, construction costs range from $1,800 to $4,000 per square metre depending on design and materials.

According to the HIA-CoreLogic Residential Land Report, the median national residential lot price climbed to $366,510 in September 2024, a 7.6 per cent increase compared to the previous year.

In the greater Sydney area land prices have surged to a median of $710,000. This growth in land values has outpaced general inflation and is adding further pressure to the overall cost of delivering new housing stock, particularly for investors navigating already tight construction margins and the time it takes before the house is ready for occupation.

The process of building a new investment property typically involves several phases:

• Site acquisition is the first phase when the investor secures a suitable block of land, usually through a developer in a master-planned estate or as an individual lot in an infill suburb. Once the land is secured, the investor must obtain finance, which may involve a land loan followed by a construction loan, with staged payments drawn down as work progresses.
• The design and approval phase includes selecting a builder, finalising plans and gaining planning and building approvals from the local council. Depending on location and local planning overlays, this stage can take several months and may involve negotiation over zoning, bushfire regulations or heritage constraints.
• The construction phase is typically broken into key stages such as site preparation and laying foundations, framing, lock-up, fit-out and final completion. Payments to the builder are made in instalments at each of these milestones.
• The handover and post-construction phase includes inspections, obtaining occupancy certificates and preparing the property for tenants. Investors also need to arrange property management, insurance and depreciation schedules at this point to begin generating income.

By the time an investor considers the professional fees, interest costs, site preparation and landscaping, it’s common for a modest 200 square metre new home to exceed $1 million in total cost, a substantial commitment for any investor.

New build opportunities still exist

And yet, the appeal of new builds remains. For investors with a long-term strategy, opportunities still exist, particularly in areas with efficient infrastructure delivery.

Western Australia is a case in point where residential completions rose by 18.2 per cent in 2024, reaching 20,639 dwellings, the highest level in seven years and the strongest growth in the nation.

In markets like this, strong fundamentals offer a solid platform for investors who are positioned to take advantage of long-term growth and performance.

A well-executed new build offers modern energy-efficient features that attract quality tenants, reduced maintenance costs in the early years and significant depreciation advantages. In tight rental markets, these homes can command premium rents and longer lease terms, especially among younger families and professional tenants who value functionality, sustainability and liveability.

The key challenge is not demand, but delivery. Investors are wary because the path to completion is no longer straight forward.

While more than 35,000 dwellings have been approved in Western Sydney, many remain on hold due to infrastructure bottlenecks, including delays in delivering roads, sewerage and water connections, as in many other regions of Australia.

Meanwhile, the financial pressure on builders continues to make the building timeline difficult to predict.

Government policy is slowly shifting in response. In New South Wales, Treasurer Daniel Mookhey has openly acknowledged that the time it takes to build is now one of the biggest deterrents to capital investment. He has advocated for faster planning approvals and better infrastructure coordination, echoing what many in the private sector have long called for.

In the meantime, investors must plan with precision, buffer for delays, and partner with professionals who understand the regulatory and logistical landscape.

Ultimately, the choice between building and buying comes down to strategy. Those seeking a lower-risk, cash-flow-friendly path will continue to favour established homes. But for long-term investors who can navigate complexity and capitalise on location-specific opportunities, new builds remain a viable investment pathway.