Until recently, the choice between building a home and purchasing an established property was almost a foregone conclusion: building simply did not make financial sense.

As Nerida Conisbee, Chief Economist at Ray White, observed in December 2023, construction costs had dramatically outpaced house price growth, rendering the purchase of an existing home substantially cheaper than commissioning a new build.  At that time, house prices in capital cities had increased by about 11% over two years, while construction costs had surged by approximately 27%.

However, more recent research from Ray White reveals that although buying remains more affordable than building in most regions, the disparity between the two has narrowed considerably. In certain capital cities, house price growth has now begun to outpace construction cost increases — marking a significant reversal of the previous trend.

National Trends: Convergence Becomes Noticeable

Over the four-year period from 2021 to 2025, construction costs rose by about 35%, with house prices increasing by approximately 32%. The resulting difference of 2.3 percentage points is substantially smaller than the 16-point gap identified in late 2023. This suggests that the rapid cost escalation experienced during the pandemic is beginning to decelerate, while property values are catching up.

Capital Cities Where the Tables Are Turning

Three capital cities have now reached a point where the economics of building are increasingly viable:

Perth: Since 2021, Perth house prices have risen by about 66%, while construction costs have increased by 56%.

Adelaide: House prices are up 64% versus construction costs up 45%.

Brisbane: House prices increased by 58%, compared to a 40% increase in construction costs.

Eastern Capitals: Lagging Behind

In contrast, the eastern capitals of Sydney, Melbourne, and Canberra continue to experience less favorable conditions for new builds:

Sydney: House prices have increased 19% since 2021, while construction costs are up 32%.

Melbourne: House prices have barely moved, with growth of just 4%, compared to a 25% rise in construction costs.

Canberra: House prices up 10%, while construction costs have surged 41%.

In these regions, the higher relative cost of new construction makes it difficult for both developers and buyers to justify building rather than purchasing existing homes.

Implications for Housing Supply

This narrowing of the cost gap has important implications for housing supply. The Federal Government’s Housing Accord, targeting 1.2 million new homes over the next five years, has always been ambitious.

In cities such as Perth, Adelaide, and Brisbane, where building is becoming more economically viable, we may see increased new construction. But in Sydney, Melbourne, and Canberra, supply constraints are likely to persist until either house prices rise further or construction costs fall.

The Australian housing market appears to be at an inflection point. While buying an established home remains cheaper in many areas, the convergence of house prices and construction costs points toward a more balanced market outlook. For potential investors and developers, there are emerging opportunities — especially in the western and southern capitals — but significant challenges remain in the eastern capitals.