Building a home is one of the biggest financial commitments you will ever make. Even with the best planning, costs can creep up, and for many first-home builders, an over-budget build can feel overwhelming.
The good news is that there are practical strategies to get things back on track, and knowing what to watch for early on can save you on costs down the line.
Strategies for managing home building expenses
Building a home is an expensive and long-term investment for many Australians. It is therefore important for first-home builders to be aware of all the potential expenses involved to achieve the most successful outcome and make sure their project is on track.
Why do home builds go over budget?
Before you can fix a budget blowout, it helps to understand why it happened. Here are some of the most common reasons a home build often goes over budget:
- Variations/changes made to the original design or inclusions after contracts are signed
- Unexpected site costs, such as rock excavation, poor soil conditions, or slope issues
- Rises in material or labour costs during a long build timeline
- Underestimating provisional sum items (fixtures, fittings, finishes)
- Poor communication with the builder that leads to scope creep
Identifying the root cause early gives you a clearer picture of what you’re dealing with and what actions you can take.
What is the biggest expense in building a house?
When it comes to building a house, the biggest expense is typically the cost of materials and labour.
According to the Australian Bureau of Statistics, the average cost of new home construction in 2019 was $301,900. This number does not account for the cost of land, which can significantly increase the overall cost of a build. Source: https://www.abs.gov.au/articles/characteristics-new-residential-dwellings-15-year-summary
The cost of labour is driven by the amount of work required and the complexity of the project. Different materials may also have a wide range of prices depending on their quality and availability. Keeping an eye on materials costs and making sure to only purchase what’s necessary can help to keep the project within budget.
What to do when your build is already over budget
If you’re already over budget mid-build, don’t panic, but do act quickly. Here are the steps to take:
1. Get a full cost review from your builder
Request an updated cost-to-complete from your builder immediately. You need a clear picture of what has been spent, what is committed, and what remains. Ask for a line-by-line breakdown and compare it to your original contract.
2. Prioritise your variations
Review every variation that has been approved or is pending. Some variations are unavoidable (site conditions, council requirements), but others may be discretionary. Pause or cancel any non-essential variations until you have stabilised the budget.
3. Revisit provisional sums
Provisional sums are estimates for items not fully specified at the contract stage: things like tiling, cabinetry, or landscaping. These are a common source of budget blowouts. Work through each one with your builder and find lower-cost alternatives where possible.
4. Talk to your lender
If you’re financing the build through a construction loan, contact your lender as soon as you know you’re over budget. Some lenders will allow a top-up to the construction loan if there is equity available. Acting early gives you more options than waiting until you’re in default of your loan conditions.
5. Consider what can be deferred
Not everything has to be finished at handover. Items like landscaping, decking, window furnishings, and certain outbuildings can often be completed after you move in. Deferring these to a later date frees up cash to cover the overrun on structural or essential items.
How do you manage building costs?
To ensure that all expenses are accounted for, creating a project budget is critical. This should include a detailed breakdown of all expected costs, including materials, labour, and any other fees such as permits or inspections. A budget should also factor in any unexpected changes to the costs of materials or labour, as well as any potential contingencies that may arise during the project.
Having a budget in place can also help identify areas where costs can be reduced. To get the most from your budget, research different materials and contractors and compare prices before selecting any.
If you are able to source materials yourself, rather than through a contractor, this can help reduce costs significantly. It is also important to have good communication with your builder to ensure that any changes or additional costs are known and factored into the budget.
Always build in a contingency buffer
One of the most important lessons from any budget blowout is to build a contingency buffer into your budget from day one. Industry guidance in Australia typically recommends setting aside 10% to 15% of the total build cost as a contingency.
If your build comes in under budget, you have money left over. If it doesn’t, you’re covered.
How can you reduce the cost of a residential building?
One way to save money is to choose low-cost materials when appropriate. It is possible to achieve a great look and feel without spending a fortune on high-end materials.
Another way to save money is to plan the project carefully and adjust the design if necessary in order to stay within your budget. Paying attention to the smallest details can help to keep costs down, such as selecting a more affordable alternative for fixtures or fittings.
If working with a builder, try negotiating for a better deal. Many contractors are willing to offer discounts or provide extra value for projects and can be more flexible when it comes to negotiating. It is also important to shop around for builders, as different ones may offer different rates.
How to protect yourself on future builds
If this is your first build, the experience of managing a budget overrun is a valuable one. For future projects, or to safeguard the rest of your current build, consider these protective measures:
- Choose a fixed-price contract where possible, rather than a cost-plus arrangement
- Nail down all inclusions before signing – vague specifications lead to expensive variations later
- Get independent quantity surveying advice before signing your contract
- Understand every provisional sum and prime cost item in your contract before you sign
- Keep a written record of all communications with your builder
Can I manage my own build?
For some, the idea of managing their own build can be daunting. It is important to note that taking on such a task can be complex and time-consuming, requiring a lot of knowledge and experience.
For those seeking assistance, Better Way 2 Build can help connect homeowners with the right builder for their specific needs.
When to get expert help
If your build is significantly over budget and you’re unsure how to proceed, seeking professional advice is worth it. A building consultant or quantity surveyor can independently assess your contract and costs, and a building broker can help you navigate your options, including switching builders if the situation has become unworkable.
Better Way 2 Build specialises in helping Australians find the right builder from the start, so you’re less likely to face these situations in the first place. If you’re currently dealing with a build that’s gone over budget and you’re not sure where to turn, get in touch, and we can point you in the right direction.
You should also explore our finance option here: https://betterway2build.au/finance/
