In December 2023, I wrote about how construction costs had dramatically outpaced house price growth, making it cheaper to buy an established home than build new.

At that time, nationally, capital city house prices had risen by just 11 per cent while construction costs had soared 27 per cent over the previous two years.

Fast forward to mid-2025, and while it remains cheaper to buy than build in most markets, the gap is finally narrowing.

Some capital cities are now seeing house price growth outpace construction cost inflation for the first time in years – a crucial shift for housing supply.

The national picture has improved dramatically since my December 2023 analysis.

Over the full four-year period from 2021 to 2025, construction costs have risen 35 per cent while house prices have increased by 32 per cent – a gap of just 2.3 percentage points.

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This is a remarkable narrowing from the 16 percentage point gap I identified in late 2023.

The narrowing gap is evident in the national data, which shows house prices and construction costs tracking much closer together through 2024 and into 2025.

Unlike the earlier period where construction costs surged ahead, the lines are now converging.

What’s changed since December 2023

The transformation has been particularly striking in Perth, which I highlighted as having 20 per cent house price growth against 40 per cent construction cost increases.

Now, Perth house prices have surged 66 per cent over the four-year period, significantly outpacing the 56 per cent increase in Western Australian construction costs.

Perth has not only closed the gap but reversed it – finally reaching replacement cost levels that encourage new home construction.

Adelaide shows a similar pattern, with house prices up 64 per cent compared to construction cost growth of 45 per cent.

Brisbane follows the same trend, with house prices rising 58 per cent against construction costs of 40 per cent.

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Eastern capitals still lagging

However, the story remains challenging in Australia’s largest housing markets.

Sydney house prices have grown just 19 per cent since 2021, well below the 32 per cent increase in New South Wales construction costs.

Melbourne presents an even more stark picture, with house price growth of only 4 per cent dramatically lagging behind Victoria’s 25 per cent construction cost inflation.

Canberra shows the most extreme divergence, with house prices up 10 per cent while Australian Capital Territory construction costs have soared 41 per cent.

Supply implications

These diverging trends have significant implications for housing supply.

In cities like Perth, Adelaide and Brisbane, where house prices now exceed construction cost growth, we should expect to see renewed interest in building new homes as the economics finally stack up.

Conversely, in Sydney, Melbourne and Canberra, the economics of new construction remain challenging.

Until house prices rise further or construction costs moderate significantly, these markets will continue to see limited new supply.

The Federal Government Housing Accord plans to deliver 1.2 million new homes over the next five years.

While there are many challenges to meeting this goal, the improving economics in some markets provides hope, even as the major eastern capitals remain constrained.

Despite the narrowing gap, it remains cheaper to buy an established home than build new in most markets.

However, the momentum is clearly shifting. For the first time in years, we’re moving in the right direction for housing supply.

The post Revealed: The capitals where building beats buying appeared first on realestate.com.au.

Fixing an ailing housing market is key to releasing the handbrake on Geelong’s regional economy by allowing more teachers, nurses and retail workers to buy homes, a leading urban economist said.

KPMG urban economist Terry Rawnsley revealed dwelling approvals in the price bracket between $500,000 and $600,000 had all but disappeared in Geelong over a five-year period.

Rising construction costs wasn’t the only culprit, with an increase in luxury home building contributing to the rising price of housing overall in the region between 2018-19 and 2023-24.

Mr Rawnsley said annual dwelling approvals in Geelong had dropped to around 3000 as the approvals for homes worth between $500,000 and $600,000 dropped from 20 per cent to just 1 per cent.

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They have been overtaken by a big increase in dwellings worth between $1m and $1.2m, according to KPMG analysis of ABS building approval, housing balance and residential land data.

Mr Rawnsley presented the data at a Geelong Chamber of Commerce business breakfast.

“What we’ve seen in the past three or four years is … a pretty big drop in supply coming through,” he said.

“And the price point has shifted as well, so we used to have about 20 per cent of those approvals being between $500,000 and $600,000. That whole segment has disappeared.”

Mr Rawnsley said while a “super-cycle” in 2020-21 when dwelling approvals peaked at almost 6000 had drawn forward demand for housing with record low interest rates and incentives such as HomeBuilder, approvals in the 2024-25 financial year was half that amount.

“You still want to kind of keep it around 4000 or 5000 (dwelling approvals a year) rather than this 3000 level we’re stuck at,” he said.

The region’s growth areas such as Armstrong Creek delivered most of the affordable housing stock that was perfect for first-home buyers or the rental market.

“But just with construction prices going up so much, it’s push it into the next price bracket.

“Construction inputs are up 30 or 40 per cent so all the projects are harder to stack up.

“At the same time, until recently those interest rates have gone up 13 times, which sort of crimped the purchasing power.”

But Mr Rawnsley warned pumping up supply wouldn’t bring back cheaper housing, but it would stop the trend of declining affordability.

“The horse has bolted on that front, it’s really about stopping it getting worse,” he said.

“Trying to work on those infrastructure charges for that northern growth corridor, making sure they’re not too excessive.

“Hopefully there’ll be a bit more apartment activity in central Geelong over the coming years, which some of those apartments can be at more affordable price points.

“And also trying to help that salt and pepper development of a couple of townhouses here or there in existing suburbs at the right price point.

“You’ve got to pull different levers to try and stop this big shift to the more luxury end of the market,” he said.

Mr Rawnsley said more needs to be done to bring build-to-rent or social and affordable housing to market, while costs to build in the city’s northern growth corridor, including proposed developer contributions, need to be kept in check.

State or federal governments would need to get involved to keep a lid on planned developer contributions, whether through direct funding, or loans to councils them to deliver the crucial infrastructure in new growth areas and keep a lid on home prices.

Mr Rawnsley said Geelong’s property sector was important for the region’s economic prosperity, providing housing for the people filling the important jobs.

“Without that affordable supply, it will jack up the median prices. It’ll be harder for teachers, nurses, retail workers to live in Geelong and it will just mean that businesses won’t be able to employ more people.

“They’ll put off expansion plans, the whole economy will grow slower, there will be less vibrancy in the city and a handbrake to economic growth.”

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The property market is gearing up for a strong spring selling season on the back of a third interest cut, with the increased competition already nudging many first-home buyers out of the race.

Buyers are feeling more confident with lower interest rates boosting borrowing capacity. At the same time, households expect property prices will rise over the coming year.

That’s fuelling a fear of missing out (FOMO), and upgraders and investors seem to be flexing the hardest according to Victorian-based property buyer’s agent Cake Bakos.

“First-home buyers are certainly throwing their hats in the ring, but I’m seeing more scenarios where investors are nudging them out of the way unfortunately,” she said.

“2025 marks the year of returning investors in Melbourne, that’s for sure.”

PropTrack data shows that national home prices hit a new record high of $827,000 in July, following a rise of 0.3% over the month and 4.9% over the year.

Regional areas have outperformed their capital city counterparts in most states, up 0.4% over the month and 6.5% over the year. Capital city prices climbed 0.3% over July and are sitting 4.3% higher compared to a year ago.

Who rate cuts impact the most

While interest rate cuts directly impact borrowing capacity, Ms Bakos said a lot of people get things confused when they assume every buyer and market segment is impacted when rates are cut.

First-home buyers

Rate cuts are positive news for first-home buyers who tend to have higher loan-to-value ratios and are more sensitive to rate fluctuations, according to REA Group economic analyst Megan Lieu.

“For these particular buyers, the reduction of rates reflects an increase in borrowing capacity and an improvement in housing affordability. With lower loan rates, they are able to access a wider range of properties in the market,” Ms Lieu said.

Ms Bakos adds that a first-home buyer will also be restricted by their deposit size in relation to their ability to reach to a higher budget.

“Regardless of their loan serviceability capacity, if their deposit savings are tight, they will be capped at the same level as they were pre-rate cut,” Ms Bakos said.

Mid-market buyers

The impact of rate cuts is similar for buyers in the mid-market, in that it increases their purchasing power, improves affordability and opens a pool of properties within their financial reach, Ms Lieu said.

“Quite a few mid-market buyers tend to upgraders, so we may see more of these homeowners take advantage of lower rates to move in larger or better located properties,” she said.

It’s these buyers who are upgrading that are likely the most empowered buyers when rate cuts are applied, Ms Bakos said.

“They generally have a significant deposit from the sale of their former home, and it is upgraders who typically push the hardest to acquire the family home.”

Ms Bakos adds that investors generally have equity to lean on, and the longer that the investor has held other property (including their home), the higher the chance that they can stretch their deposit size with this equity as rates increase.

Luxury buyers

At the luxury end of the market, different factors drive activity for buyers, according to Ms Lieu.

For starters, high-end buyers are generally less sensitive to rate cuts, although shifts in interest rates can still influence sentiment among these buyers.

“Interestingly, what we see is that high-end markets are often the first to react when market conditions improve. Price growth has been higher in this segment since the start of the year.”

Meanwhile, downsizers and retirees are often unaffected by a rate cut.

“They often pay with cash savings as opposed to borrowed funds, or at least they may borrow very little,” Ms Bakos said.

Where to from here

Looking ahead, ANZ predicts that home prices will surge faster in the next year and a half on the back of multiple interest rate cuts.

In its newly released Australian Housing Outlook report, the big four bank predicts combined capital city home prices will increase by 5% by the end of this year and 5.8 per cent by the end of 2026.

The post Investors return: How interest rate cuts are impacting different buyer segments appeared first on realestate.com.au.

With the nation in the midst of a housing supply shortage, it can seem like a step backwards to bulldoze an existing home.  

In fact, most often in Australia, demolished housing makes way for new housing, in a process known as a “knock-down rebuild”. 

Traditionally, this is usually thought of as an individual homeowner razing the current house to make way for a new one. The old dwelling might have been structurally unsound, unsuited to the homeowner’s needs, or more work to repair than renovate. 

But that’s just one type of knock-down rebuild, and it’s known as a “one-to-one”. At a moment when the nation is desperately trying to increase the supply of housing across the country, and skilled tradespeople to build those new homes are in short supply, it’s understandable that they can appear to be doing little for the nation’s housing woes. 

According to new data from the Australian Bureau of Statistics, however, only about half – or 58.2% – of the homes that are demolished in Australia for new housing are replaced by another single occupancy home. The rest make way for two or more homes to be built. 

Between July 2019 and June 2025, a total of 55,692 homes were demolished in order to build another single-family dwelling.

The second most common type of knock-down rebuild was when two homes are built on a block that otherwise housed one, with 25,480 projects approved over the period.  

Rebuilds comprising three homes made up 5,904 projects during the six-year span, while 8,367 projects were classified as “other” – the majority of these are instances in which homes are demolished to make way for apartment buildings. 

Overall, 19.2% of the total dwellings approved across Australia between 2019 and 2025 were knock-down rebuild projects, and the number of new homes produced in the wake of demolition of a single home averaged at 2.1.

Understanding the rebuild rate 

Apartment construction can largely be attributed for the reason that demolition of a single home appears to result in twice as many dwellings once construction is complete. 

That’s because for every knock-down-rebuild where a detached home makes way for an apartment building, the rebuild rate balloons to 9.5. 

For townhome projects, one knock-down results on average in three new homes. 

But when it comes to detached home approvals from knock-down rebuilds – where a single home is replaced by other standalone homes – the knock-down rate sits at 1.3. Ultimately, when detached housing is replaced by other single-family homes, the outcome is unlikely to do much towards increasing density on that land, or add more stock to the market. 

Knock-down-rebuilds, therefore, mostly contribute to the increasing housing supply when single-family homes are demolished to make way for a very different type of housing – either townhomes or apartment buildings. 

The knock-down rebuild ring 

What is interesting is that whether it’s one-to-one rebuilds or higher-density conversions, knock-down rebuild projects tend to be most popular in one specific area: the middle-city ring. 

This is best witnessed in the capitals of the states where the most knock-down rebuilds occur: NSW and Victoria. (NSW approved 77,279 dwellings as a result of knock-down rebuilds between July 2019 and June 2025. Victoria approved 70,570). 

Across Sydney and Melbourne, the areas that attracted the highest number of knock-down rebuild projects tended to be established areas just outside of the most populated, inner-city suburbs.  

In Sydney for example, suburbs like Revesby, Ryde and Arncliffe saw some of the highest numbers of dwellings approved from knock-down rebuilds. In Melbourne, this occurred in and around suburbs like Preston, Baybrook and Altona. 

Why so much attention on the middle ring? It’s because these suburbs are home to the properties that are most attractive for knock-down rebuild projects. These are established areas that are made up of older homes that might be in need of substantial renovation. Importantly, they are not where you find most of the city’s heritage or traditional character homes, which buyers will often go to more lengths to preserve.

They also boast a level of proximity to the city, making them ripe for increased density (from developers) or the connectivity that single-family builders who aren’t willing to live in farther-out, new estates desire. 

Are you interested in learning more about knock-down rebuilds? Check out our dedicated New Homes section.

The post The knock-down trend that’s splitting suburban blocks in two  appeared first on realestate.com.au.

An ultra-modern Toorak house formerly owned by an ex-police officer and sniper-turned-security tycoon has hit the market with a $28m-$30m price tag.

The home, featuring a six-car garage, lift, 18-seat cinema with a bar and infinity-edged pool, previously belonged to one-time Victoria Police Special Operations Group member Craig Harwood and his wife Natalie.

In 2020, the couple sold the five-bedroom abode at 2 Myvore Court to its current owners.

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Mr Harwood was flown from Melbourne to Tasmania to assist with the response to Australia’s deadliest massacre on April 28, 1996.

That day, a gunman killed 35 people and wounded 23 others in the town of Port Arthur.

Mr Harwood led the Police Special Operations’ team tasked with containing the perpetrator and also took on the role of a sniper.

In the tragedy’s aftermath, he helped to destroy many of the firearms surrendered during a 12-month-long gun amnesty the Australian government implemented.

According to a 2021 article published in the Victoria Police magazine, Mr Harwood had been recognised with an award as Australia’s best sniper in the years before the Port Arthur massacre.

Following his law enforcement career, Mr Harwood founded the security firm Securecorp Australia that he later sold to a Chinese company for a reported $157.5m.

In 2012, after seeing news stories of the Sandy Hook Elementary School mass shooting in the US, Mr Harwood developed a bulletproof bookcase.

RT Edgar director Sarah Case declined to comment on the Toorak house’s former or current owners.

However, Ms Case described the residence as “Toorak glamour at its absolute finest”.

“It’s a resort style, so it’s like you’re going to a resort when you get home from work,” Ms Case added.

“It’s modern, it’s on-trend, it could be in Sydney on the Gold Coast or in Noosa, it’s very much a universal house.”

The house, built less than a decade ago, was designed by Abbotsford-based architect David Watson with gardens by acclaimed landscape designer Jack Merlo.

Features include a climate-controlled wine cellar, C-Bus home automation, a four-level void, gym, multiple living areas, a games area and library that opens to a courtyard garden.

The Carrara marble-fitted kitchen has a butler’s pantry, Wolf appliances and a Liebherr fridge.

Elsewhere, the outdoor entertainers’ zone includes a built-in barbecue and sunken firepit.

Ms Case said the “unbelievable” home theatre was among the best she had ever seen in Toorak.

The owners’ now-adult child enjoyed playing PlayStation games on the big screen while growing up.

“That’s every kids’ dream,” Ms Case said.

And a rooftop terrace with Melbourne CBD views is the ideal place to enjoy sunset drinks.

“The last two owners had an art studio up there,” Ms Case said.

“They used to paint up there on that lovely rooftop and the indoors, outdoor space with the city views, it was all filled with natural light.”

In the listing video, she showcases the main bedroom’s “really fantastic” walk-in wardrobe.

The house has attracted interest from expatriate Australian buyers relocating from Hong Kong and the UK, in addition to purchasers based in Sydney, Queensland and Perth.

Expressions of interest close at noon on September 15.

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