Developers pushing costs onto buyers — and investors are taking the risk

Australia’s housing shortage hasn’t eliminated risk in residential development. It has simply shifted it. Increasingly, that risk is being passed directly to the buyer.

Construction costs remain elevated, finance is expensive, and delivery timeframes are longer and less predictable. For developers, feasibility has become the single constraint that matters. If the numbers don’t stack up, projects don’t proceed.

In markets like Perth and Brisbane, the response has been clear: raise prices and let the buyers absorb it.

That is exactly what is happening.

New apartment pricing is no longer anchored to comparable sales. It is anchored to replacement cost — what it takes to build the next project. And in supply-constrained markets, buyers are accepting it.

The result is a subtle but important shift: buyers are no longer just purchasing property, they are underwriting development feasibility.

Even once a property has been purchased and is being built, developers are going back to the negotiation table and requesting more money, or they will let the sunset clauses lapse and the deal falls over.

Scarborough Dunes development

The Scarborough Dunes development is a case study in how this plays out.

Early stages of the project were met with strong demand, but as the project has progressed, building delays and cost escalations are being seen, the developer has gone back to the negotiation table with buyers, demanding up to 70 per cent more be paid to stay in the deal.

With recent reports of Dawn Bakewell and her husband buying in there in 2023 for $970,000 and recently receiving correspondence from the developer requesting $500,00 more be paid or they can have their deposit back if they don’t come up with the additional money.

While this is incredibly disappointing for buyers, with the contract structures and sunset clause, this is a perfectly legal practice.

Developers are adjusting pricing through the life of the project to reflect rising construction costs, higher funding costs and tighter margins. Later buyers are paying more not because the intrinsic value has changed materially, but because the cost base has.

That is how cost inflation is transmitted into the market.

And it is happening across the country.

When feasibility breaks, supply disappears

In weaker jurisdictions, where demand cannot absorb these increases, or where planning systems add further cost and delay, projects simply stop.

NSW is the clearest example of a planning process failing developers.

Meriton’s Harry Triguboff has warned that Sydney’s planning system, combined with rising costs and taxes, is making development increasingly unviable. His comments about scaling back activity in NSW are not political, they are economic.

When one of the country’s largest apartment developers signals it may stop building, it is not a warning. It is a diagnosis.

The implication is straightforward: even in a housing shortage, supply is not guaranteed. It only exists where feasibility allows it.

The off-the-plan illusion

For investors, this is where the risk becomes acute.

Buying off-the-plan today means locking in tomorrow’s price based on today’s assumptions. Those assumptions are increasingly fragile.

Construction timelines are uncertain. Costs remain volatile. Financing conditions are tight. And valuations at settlement depend on market conditions that may look very different in two or three years’ time.

Meanwhile, developers are pricing projects not for investor value, but for project viability.

That distinction matters.

In a rising market, the gap can be hidden. In a flat or falling market, it becomes obvious — often at settlement.

Projects like The Dunes illustrate the dynamic clearly: early buyers secure one price, later buyers pay materially more, and the final outcome depends on where the broader market lands at completion.

The risk sits with the buyer.

Why existing property is winning this cycle

In contrast, established property offers something the new-build market increasingly does not: certainty.

You can inspect it. You can verify comparable sales. You can assess rental demand immediately. There is no construction risk, no delivery risk, and no reliance on a developer navigating a difficult feasibility environment.

Crucially, you are not paying a premium to cover future construction costs.

In a market where replacement costs are rising and supply is constrained, existing property can benefit from the same structural tailwinds but without exposing investors to development risk.

Australia’s housing shortage is real. But so is the pressure on developers.

In Perth and Brisbane, that pressure is being absorbed through higher prices. In NSW, it is pushing developers out of the market altogether.

Across the country, the consequence is the same.

New property is being priced to keep developers solvent and when the pricing isn’t managed this way, developers are going under and some people are losing their deposits and all of them are losing their dream homes.

For investors, that should be a warning.

In this cycle, off-the-plan is no longer a leveraged bet on growth. It is a leveraged bet on execution, cost control and future valuations — all outside the investor’s control.

Existing property, by contrast, offers transparency, immediacy and far less downside risk.

In a market defined by uncertainty, that is a trade probably worth taking.