Is it cheaper to buy or build a house?

Is it cheaper to build or to buy a house? This is one of the most widely held and persistent misconceptions people have about designing and building your own house. The simple answer to the question is: “usually not”, but like most things involving architecture and construction it isn’t always that simple.

Most people have heard a story about a friend of a friend who built their new home extremely cheaply and indeed that story may even be true, but the devil is in the details. If that person is in the construction industry or they have good contacts in the industry they may have gotten some work or materials at massively discounted prices. Large developers who build hundreds of residential units usually get massively discounted wholesale prices, so throwing your order for materials in with theirs could result in massive cost savings but might limit your choice of products to only what is being used on a particular development. People with trade skills such as carpentry, tiling, etc. are often able to save a large amount of money by doing much of the work on their homes themselves. Some people with connections in the transport industry can buy materials in regions where they are less expensive and get them to the building site far more cheaply than your average person. The truth is there are many ways a particular individual could build their home far more cheaply than the average person, but only if they have specific connections or skills that the average person does not.

But what if you aren’t in the building industry or you don’t have any special contacts who can help you get unusually good deals on a wide range of building materials? Well, the vast majority of people who want to have their own home built are in the same boat and any experienced architect will tell you that typically it is more expensive to build a new home than buy an existing home. This is true throughout most of the world including South Africa. There are a number of reasons for this, and it might help to look at some of them in a little more detail:

- The price of construction is linked to inflation while the price of existing homes is more closely tied to property price growth. When property values grow well above inflation, the price of land tends to become a bigger part of the value of properties, but when property value growth lags behind inflation, the cost of construction increases in relation to land. Low property price growth in South Africa has persisted for more than a decade as part of generally poor economic conditions in the country. Although the last few months of 2020 and first few of 2021 have shown an uptick in property price growth, the long-term trend for property values has been quite disappointing. The result is that the gap between the price of building your own home and buying an existing home has actually been growing for a number of years.

- Many of the main cost drivers in construction have experienced far higher than inflation increases for many years now. Some of the main culprits are the cost of steel, cement, building sand and labour. The reasons for the massive increases in price in these items include everything from carbon tax to global shortages and wage expectations. The latter has been particularly problematic in South Africa where low wage earners, who historically accounted for much of the work in the industry, have expected annual increases far higher than inflation.

- Building regulations are constantly updated, generally becoming more demanding with regards to things like safety, energy efficiency, sustainability, etc. The result is that newer homes perform better than older homes but this increased performance comes at a higher up-front cost. An example of this is that a home built in 2010 may have only needed ordinary single glazing in the windows, but a home built with the same amount of windows today may need to be fitted with far more expensive double glazing to comply with the energy efficiency requirements of SANS10400-XA which is a building regulation first published in 2011.

- Most of the property value appreciation is usually in the price of the land, not the buildings. The difference is subtle and often irrelevant, but in this case it is important. Buildings experience wear and tear and degrade over time until costly repairs or renovations become necessary. The market naturally factors this in so a new building would be more expensive than an older version of the exact same building which is nearer the end of its lifecycle. Developable land, on the other hand, becomes rarer and therefore more expensive over time. Built-up areas in particular start to place a premium on the small amount of land that is still undeveloped. The result is that one should expect to pay much more to buy an empty property and build a home in a good built-up neighbourhood than to buy an older home in the same area.

For the reasons above, it is clear that the average person can generally expect to pay a premium for building their own home as opposed to buying an existing home. Importantly though, there are some design approaches which can reduce this premium or even result in savings. In South Africa it is still true that most people think of a house as being constructed of brick, mortar and concrete. Depending on the nature and location of the project, alternative construction methods such as timber frame or light gauge steel frame buildings could be more affordable. Many people still think of these alternative construction methods as being inferior or even ‘ugly’, but new technologies have meant that these systems can combine endless stylistic options with superior performance. If you do want to build and need a cheaper option, it is highly recommended that you speak to a qualified architect about alternative construction options early on.

Regardless of construction method, there are several very good reasons to build your own home even if the cost is higher than that of purchasing an existing property. The most notable is freedom of choice. In an existing home you get to choose very little other than perhaps the paint colour if you choose to repaint. This can be a serious problem because people have different tastes and needs so no existing house will be perfect. It might be the small windows or the ugly tiles or perhaps the layout just isn’t very practical for the way you live, but inevitably there will be something or even quite a few things that you will “just have to live with”. That is not a line you want to use when you describe your dream home and if you choose to build, you don’t have to. If you build a home, you can choose everything from a layout and combination of spaces that suits the way you live, to features like fireplaces or large windows, to the finishes which includes everything from tiles to light fittings. A good architect can design the perfect home which combines all the choices made by the client into a coherent whole that is uniquely suited to the client.

Other good reasons to build your own home include the superior performance of new construction technologies, the ability to live in new estates or areas where there simply isn’t available housing stock, being able to fully integrate off-grid technologies, building a home which incorporates the latest trends or architectural styles and taking part in the creation of a new architectural masterpiece. Any of these reasons alone might be justification enough for the cost premium that typically comes with having your own home built, but in combination with the ability to have every single aspect of the home designed to a client’s exact taste, it should come as no surprise that building is the go-to method for getting your dream home.