The Reserve Bank of Australia are predicting a potential 40% drop in house prices in an
“extreme but plausible” scenario. Whether that will happen or not, who knows? But one
thing I can definitely agree on is that housing in Australia is way too expensive.
Here’s a new house in regional Queensland in a pretty good location. It has four bedrooms,
two bathrooms, a double garage, 561 m² of land, $585,000! To me, that sounds expensive.
We’re not talking the capital city of Queensland here. We’re talking Middle Ridge in Toowoomba
(which admittedly, is one of the more expensive suburbs, but regional Queensland all the same).
The house also has a separate lounge room and an insulated “patio”. I said “patio”
because that’s how I heard a sales person say it the other day. I thought it was pronounced
patio, but perhaps I’m just not snobby enough.
Here’s another one in the same housing estate. They’re advertised as “Glamorous Villas”.
Basically, that’s code for “overpriced duplex”. They’re three-bedroom, two-bathroom
duplexes with a double garage, and they cost $569,000 each. Yes, over half-a-million dollars
for half a duplex. One half’s already sold. Sure, they’re nice, but I certainly wouldn’t
pay that much for them. If you’re a first home buyer, you can currently get a $15,000
grant plus a $5,000 regional boost, so that brings it down to $549,000. Note, you can
only get the $5,000 regional boost AFTER you’ve purchased or constructed your house. It doesn’t
actually help you to purchase a new home. But as I’ve said in other videos, in my
opinion, developers are simply tacking the value of these grants onto the prices of their
newly-constructed houses. For this reason, I don’t think these grants are actually
helping buyers at all.
So back to this four-bedroom house. Let’s assume we can get the $20,000 in grants. That
brings us down to $565,000. And let’s also assume that we’re not negotiating on price
here. Just as a note for later on, the house faces this way. The road is on the right-hand
side of this plan. Now what if we wanted to build a similar house in the same estate.
There’s a couple of options available. There’s land for sale for $260,000, but it’s a bit
smaller at 489 m². So let’s compare apples with apples and pretend that we’re buying
this land for $295,000. Again, no negotiating on price. Now, I want to build a similar house
to this one. Looking online, the only builder I could find that lists all their prices online
is Dixon Homes. I have no affiliation with Dixon, it’s just that they were the only
ones I could find that listed their prices.
Here’s a similar four-bedroom, two-bathroom house with a double garage for a touch over
$160,000. Admittedly, it only has an alfresco and not a “patio”, but they serve the
same purpose I believe. If you don’t know the difference, look it up, but from what
I understand, they’re both places where you can sit outside and eat without getting
rained on. For those of you who can’t afford an insulated patio, or alfresco, you can always
pick yourself up a portable gazebo from Bunnings for like a couple of hundred bucks.
So anyway, back to the house. The $160,000 is for their basic “Habitat” specification.
That’s perfectly livable, it just doesn’t included all the extra bells and whistles.
Basically at Dixon, you can choose between one of four specifications which determine
what inclusions you get. All their houses, in South East Queensland at least, have steel
frames and a 5kW solar power system. But as you pay more money, you get more options for
bricks and roofing for example. You get air conditioners, and stone bench tops, better
tapware, and imported European microwaves and dishwashers. Anyway, to make this a fair
comparison, let’s go with the most expensive option, a concrete tile roof with the Resort
specification for $180,000.
Okay, so we’ve got our land for $295,000. After talking to a couple of builders, I know
they have to spend at least some money on preparing the land for construction which
can cost around $10,000 to $20,000. As this estate has pretty much been prepared for building,
I would assume that it would be on the cheaper end of the scale, but you know what they say
about assumptions, right? So let’s go with the more expensive assumption of $20,000.
So that’s $315,000 so far. Now adding on the cost of the house, $180,000, that brings
us to a grand total of $495,000. Let’s also add an extra $20,000 for unexpected expenses
that I haven’t thought of here to bring us to $515,000. If we’re a new home buyer
in Queensland, we can get the previously-mentioned $20,000 in grants, plus we can also get the
new federally-funded $25,000 HomeBuilder grant, because we’re building our own home to live in.
Note, this grant is currently only available to Australian citizens, as my wife and I have
found out recently. She’s a permanent resident and not a citizen, which excludes her from
this grant. By the way, all the other grants that I have mentioned are available to permanent
residents, so it doesn’t seem to make much sense that this new grant is only available
to citizens.
Anyway, moving on. That means we have a total of $45,000 in grants to build our own home
in the same area on a similar piece of land, which brings our total cost down to $470,000.
The other house for sale, taking into account grants, costs $565,000. Obviously, somebody’s
making a fair bit of profit on this house. I suppose it makes sense. By buying this house,
you save yourself the hassle of having to go through the whole building process.
Just say, we didn’t care about getting the same size block of land. Just say we went
with the cheaper $260,000 option in the same housing estate (which I think is still way
too expensive). So that cuts $35,000 off our price for a grand total of $435,000. Just say we
don’t care about imported European microwaves, and we go with the cheaper Habitat specification
with a Colorbond Sheet Roof to save ourselves another $20,000. That brings us down to $415,000.
By building your own home, in this scenario at least, you’re saving yourself a good
$150,000. Remember, I’ve included an extra $20,000 in unexpected expenses.
So in my mind, I would never pay $585,000 for a brand new house in this area, or $569,000
for a “Glamorous Villa”. There’s no doubt in my mind that these houses are just
way too expensive. This is regional Queensland for crying out loud. Not downtown Tokyo.
What do you think? Are Australian house prices just way too expensive? Are the RBA onto something
with their prediction of a 40% housing price crash? I think they just might be.