DECIDING whether to build or buy a home or investment property can be a difficult choice, as Gary Kleyn reports in the final of a two-part series on property.
OVER the past generation attitudes to housing have shifted substantially along with the changing family structure and demographics.
During the 1960s and 1970s most people made the decision to build their own home and then kept it, whereas today many are buying more houses over their lifetime, with many opting to buy an existing home.
Real Estate Institute of WA policy director Lino Iacomello said around 85 per cent of first homebuyers bought an existing house because they were generally more affordable.
“They are often smaller dwellings. The majority of people who build are trade-up buyers,” he said.
During the 1960s and 1970s the most active people in the housing market were homebuyers, Mr Iacomello said.
Today there is a whole new investment market where families often trade up by building houses that are far bigger than a decade ago, complete with all the trimmings.
Mr Iacomello said, in theory, buying existing houses was cheaper because of the depreciation factor.
“It is no different than buying a car,” he said. “The house continues to depreciate over its life. Over a certain point of time the value of the property is simply the block value. In some cases, an empty block can be worth more than one which has an old house on it.”
Mr Iacomello said houses tended to increase in value because the land value appreciation was faster than depreciation on the house.
A well maintained house also reduces the depreciation value of the house.
“The real rise in the cost of housing is the land. The cost of building has been very stable,” he said.
The rise in established house prices compared to the cost to build can be drawn out of Australian Bureau of Statistics figures.
The prices of established houses in Perth climbed 45 per cent between 1989-90 and 2001-02.
By the end of last year, Perth prices had risen a further 10 per cent to be 55 per cent higher than in the base year 1989-90.
Conversely, project home prices had risen less than 2 per cent in the final six months of 2002 and around 30 per cent since 1989-90.
The difference between the increase in established house prices and project home costs can be attributed to the appreciation of the land, which is not factored into project home prices.
Buyers of established houses say it is cheaper and more convenient to purchase an existing home because all the hard work such as design and building has already been done.
Of course, a third option exists for investors – to renovate an existing house.
However, REIWA warns about the danger of spending too much on renovations.
Often overcapitalised properties that are extravagant compared to other houses in the area may take longer to sell and may sell at below the cost of the house.
© Business News 2017. You may share content using the tools provided but do not copy and redistribute.