Setting your budget: How much does it cost to build a new home?

Building a brand new home isn’t cheap, but especially in the aftermath of the 2020/21 boom.

What does it cost to build?

As a rough rule of thumb, building work in New Zealand costs from just under $3000 per sqm for a standard home and can be as high as $7000 per sqm for architecturally-designed homes. According to Stats NZ and BNZ, the average price in Canterbury in late 2023 was $2765, in Auckland and Wellington $3150, and in Otago $3420. Put another way, building costs averaged $442,132 for the whole of New Zealand in 2023 according to Canstar, with a range from $348,212 on the West Coast to $542,755 in Northland.

Each and every home, however, is different. Building on a flat site will be cheaper than on the side of a gully. The proximity to centres with tradespeople and building supplies stores will affect the cost as well.

An architect or builder can give a ballpark figure for the average cost per square metre once they have an idea of how ambitions the project is.

Build big or build small

Not everyone can afford to build Buckingham Palace, or want a massive McMansion. Some new-home buyers may prefer smaller, more intimate homes, while others who fall in between a smaller footprint and a mansion may want a more efficient floorplan to meet the family needs. But if you are set on a big home, there are ways to bring down the cost, including:

- Buy from group home builders, who can offer customised plans to suit your needs and wish list.

- Choose a cheaper spec. Consider using materials that aren’t as expensive. While Low E glass, for example, may be the desire, buyers might need to lower their sights to balance the budget.

- Go without the extras ... for now. Are there features such as decks and landscaping that can be added later when there is more money?

Building a smaller home will obviously help reduce the budget, and it’s worth remembering that the median floor size of new homes in New Zealand has steadily decreased in the last decade, from 186sqm to 126sqm for all new-builds (including townhouses and apartments) and from 204sqm to 179sqm for stand-alone new homes.

Talk to your bank about how you can best finance your build. Photo / New Zealand Herald

Mortgages

Most people who build a new home need a mortgage. Although New Zealand’s banks are happy to lend on new-builds, the rules may differ from buying an existing home.

Mortgage lenders treat different types of builds differently. If, for example, it’s an off the plan apartment where the build is complete, buyers who qualify for lending could get a standard mortgage. That usually means a 10% deposit, compared to 20% for many existing homes. New builds are exempt from the Reserve Bank of New Zealand’s loan to value ratio (LVR) rules.

Group build house and land packages often come under standard sale and purchase agreements where the buyer puts a 10% deposit down and pays the remaining 90% at settlement.

Sometimes the buyer of a group build house and land package signs a building contract and makes progress payments. In that case they need a construction loan from the bank. The reason for doing this is because it’s cheaper overall, said Mark Hooper, building consultant from Classic Builders.

Buyers don’t pay for the builders holding costs if they take the progress payments option. Instead of providing the loan in one lump sum, the money is drawn down progressively over stages as the builder provides invoices. Most construction loans are at the bank’s floating interest rate. Even with a construction loan, most banks will lend up to 90%. They will, however, scrutinise the deal more carefully because construction loans are not as straightforward as a standard sale on completion.

Canvas more than one builder for quotes. Photo / Getty Images

Before signing a contract with the builder it’s essential to visit a mortgage adviser (broker) or bank mobile mortgage manager to determine how much the lender is willing to lend. First-home buyers should not skip this step. They may qualify for KiwiSaver First Home Withdrawals and in some cases a First Home Grant when building a new home. A mortgage adviser can advise early in the process to find out how to maximise these grants and to ensure they will be available at the time of purchase.

Getting quotes

Once a buyer has checked that they are likely to qualify for a mortgage, the next step financially is to get quotes. It’s important to get an ironclad contract in place before they start and understand as clearly as possible how much they expect to spend.

Buyers should make sure they’re comparing like with like when they compare quotes. Do the quotes or the full spec with pricing cover all the same things from consents to completion, and demolition to design? Does the cost include GST? That’s a 15% difference for a start.

Using a quantity surveyor to price the project will give a more accurate price.

Other questions for buyers to ask include:

- Are driveways, landscaping and additional works included?

- What will modifications cost for changes to the original plan?

- Is there a contingency included in the budget for cost overruns?

- Is the cost of consents included?

Homeowners and buyers need to do due diligence on the builder and should always get their lawyer to check over build and/or sale and purchase contracts. Unlike sale and purchase agreements to buy existing homes, build contracts are not necessarily standard. The language used in contracts isn’t always easy to understand and an experienced lawyer can point out contract terms that may be detrimental. Lawyers can raise red flags with contracts before they are signed.

How do off-the-plan mortgages work?

Off-plan homes are sold on mocked-up plans before they’re built. Typically, buyers need to provide a deposit of between 5 and 10% at the time of signing the sale and purchase agreement. That money should be held in a trust account. Full payment is required at settlement. Sometimes issues can arise with off-plan purchases if the buyer has gone unconditional, but the lending conditions changed in the meantime and they find they can no longer borrow to settle.

How does a knockdown and rebuild work?

Sometimes homeowners buy an existing run-down home to demolish or sell to house movers. They then build on the site. When budgeting for such a build, it’s important to include the cost of demolition. Sometimes, such as with a leaky home, it’s possible to salvage the slab and driveway, which saves some money. Preparing the ground for building adds another expense over and above a new subdivision.

House and land packages

For house and land packages, the buyer puts a 10% deposit down and the remaining 90% on completion. A turnkey purchase is preferred by buyers because it is easier to secure finance. However, progress payments is the preferred option for builders because the builder does not have to carry the lending fees.

“Banks love a turnkey finance solution as there’s [less] risk to the bank [because] they basically lend on a completed property,” says Classic Builders building consultant Mark Hooper.

Prefab homes

There are some nuances when it comes to tiny homes, and pre-fab homes that have been built offsite. Banks will often only lend on land value only in these cases. That’s because traditional construction loans don’t work for a prefab home. The banks can’t take security over an offsite build, which makes them nervous. In this case, banks typically lend on the land value only. Currently Westpac and BNZ can offer mortgages for prebuilt home loans, covering prefabricated homes that are built in a factory and transported to the site.

Minor dwellings

Homeowners sometimes choose to build a minor dwelling on an existing property. Typically, they will borrow against the home to fund the build. It’s a good idea to seek specialist advice from mortgage advisers who are used to dealing with such cases.

>> Next steps: The OneRoof home building guide part 3 - designing your own home

* This article was created in partnership with Classic Builders