How much does it cost to knock down and rebuild?

Sometimes knockdown rebuilds can be easy decisions. You buy a block of land with a derelict house on it or there's something structurally wrong with a dwelling, and it needs to go.

But what if you're living in a neighbourhood you love but you've outgrown your house? Or maybe you're thinking of doing major renovations and wondering if you'd be better off starting from scratch and building a home that's right for you.

Before you make any major decisions, it's important to have a clear picture of the process and costs you might be facing with a knockdown rebuild. Here are some of the main factors you'll need to weigh up:

Is it better to knock down and rebuild or renovate?

This is the big question and, as with many big questions, the answer is: it depends.

In some cases, knocking down and rebuilding can be more cost-effective than undertaking major renovations. In other cases, that may not be the case.

Before you even start researching prices and getting quotes for both, there are a few things you should consider:

The age of the home

While come people simply don't like old houses, they can be highly valued by others.

From a property market perspective, if your home has hallmarks of the 'old days', such as timber floors, decorative flourishes, and solid construction, renovating could be a better option than knocking down and rebuilding. Even if it costs more, preserving the character of a home from an earlier era could make your home more valuable on the market than if you were to knock it down and build a new one.

Generally speaking, the properties most suitable to be knocked downs are obvious - think the worst house on the best street with no heritage features that you might have purchased for little more than land value.

But before you make a decision, you should check your home hasn't been deemed to be of historical significance by your local council or state or territory government. If it has, the question of knocking it down has been taken out of your hands (unless you fancy facing a hefty fine or jail time, that is).

It's generally true that houses are not built like they used to be. Preserving a home's character while adding modern amenities may be a better long-term decision.

Overcapitalising

Knocking down and rebuilding could be a better strategy if an area is highly sought after and offers little to no vacant land, such is often the case in inner-city areas and waterfront locations.

In such locations, there's generally less risk of overcapitalising by building a new home.

If you're in a less sought after area, you may be in danger of building the best house on the street, which goes against the grain of the old property market adage. After all, knocking down and rebuilding can be an involved and expensive process and it may take years to recoup the capital you sink into the project.

If you're considering a knockdown rebuild project to create a long-term home, there can be some softening of the 'rules', as location can hold considerable weight.

You need to weigh the benefits of an ideal location and a brand-new home for your family against the expense and time involved in a major building project. Sometimes, financial considerations can come second.

The land

Ask any builder and they'll tell you that some blocks are simply easier to build on than others.

Generally, a flat block with easy access where local planning laws are clear and favourable can pave the way for a (relatively) painless knock down and rebuild.

On the other hand, if the block is sloping, difficult to get to, or subject to special planning requirements, it may be better to consider a less-intensive renovation over a major knockdown rebuild.

Logistics

On top of the cost of knocking down and rebuilding, you'll need to factor in the expense of living somewhere else while the project is underway.

As painful as it might be to live in a home undergoing renovation, if you can do so, you can avoid the cost of moving and living somewhere else. Of course, you might choose to move out in any case and if you do, you'll have to factor that cost into your decision.

Building projects have an unfortunate habit of dragging on, so you'll also need to be confident you can cover the cost of living elsewhere for longer than you may initially plan.

Your lender

If you have a mortgage on a property, you'll need to speak to your lender (and your insurer) before you get too far into planning a knockdown and rebuild, or any major renovations.

Your lender will need to do its own due diligence before deciding whether it will finance you. After all, they also have an interest in the asset.

You may need to refinance, switch to a construction loan, or find a new lender for the rebuilding or renovation process.

Environmental factors

There are a couple of ways you might consider the environmental cost of a project.

Knocking down a home, putting it into landfill, then building a new one with new materials likely won't stack up as the best environmental outcome. Though, you could claw back a few green ticks if you salvage, recycle, or reuse materials from the old dwelling.

But others will argue that replacing an old home with a new one delivers a worthwhile environmental outcome if the new abode meets modern environmental requirements and boasts energy-efficient features, techniques, and technologies.

But at what cost? You and your conscience might have to wrestle with this one.

Knockdown and rebuild costs

If you're leaning towards knocking down and rebuilding, here are some of the costs you may be looking at:

How much does it cost to demolish a house?

The answer to this question is (again), it depends.

Demolition means to get rid of all structures on a block, including things that may be underground such as gas and water pipes or tree roots.

Demolition costs can depend on the size of the existing home, what it's made out of, the block itself, and what excavation may be required. Generally speaking, they can range from around $15,000 to $40,000.

The presence of asbestos in a home can add considerably to the cost of demolishing it. Asbestos must be handled by a licensed removalist who'll need to do their thing before any other demolition work can start.

The price of asbestos removal can vary considerably, but here are the latest general rates for certain areas of a home according to HiPages:

• Roof - $3,500 to $5,500

• Eaves - $1,500 to $2,500

• External cladding - $4,000 to $,5000

• Internal cladding - $1,000 to $1,500 for a single room

Some asbestos removalists may also charge extra for its disposal.

Can I recycle any materials from a knockdown?

There are some companies that work to salvage what they can from homes about to be demolished.

Old timber, roof tiles, and some metals can be on-sold or reused, but the process of extracting them will take longer and you'd need to find a demolition - or deconstruction - company willing to recycle what it can rather than tipping the lot into landfill.

Depending on what you have in mind for your new home, you may wish to incorporate some of the original materials into your new home, but you'd have to find a builder who's on board for this. Volume builders typically won't go there, but a custom builder may be willing to do so.

How much does it cost to build a home?

The cost of building a new house has skyrocketed since the pandemic, fuelled largely by supply and labour shortages.

Such shortages led to numerous construction companies going bust as they attempted to meet fixed price contracts, which in turn caused a litany of horror outcomes for Australians trying to build their own homes.

Although constructions costs have since stabilised somewhat, the industry is still plagued by challenges and extended delays.

As of June 2024, the average cost of building a home in Australia varies from around $430,000 to $926,000 depending on where you're building, the size of your project, your design, the quality of materials used, and labour costs.

The costs of building in, say, South Australia are considerably lower than building in Sydney.

Additionally, many builders' advertised base prices are only a starting point that covers the basics and doesn't necessarily reflect what it will cost you by the time the home is completed.

You may also choose to work with an architect to design your home exactly as you want it. A custom build can add considerably to the price of your new home.

It's worth doing your homework, getting quotes, and being prepared for costs to be higher than expected, and delays to be longer than planned.

Do you need a construction loan to fund your project?

If you're considering a knockdown rebuild project or even a major renovation, you might find yourself in need of a construction loan.

A construction loan is a mortgage product designed specifically for those undergoing major works, covering expenses related to the building process.

Perhaps the biggest benefit of a construction loan is that borrowers only need to pay interest on the funds that have been used at any given time. So, if you've bought your land and you're waiting on construction to start, you'll likely only be paying interest on the value of the land and not the planned build.

Additionally, construction loans typically don't require borrowers to pay back any principal until the project is complete, freeing up cash flow during the construction period.

Important Information and Comparison Rate Warning

Knockdown and rebuild: Pros and cons

Pros

Starting from scratch

Knocking down and rebuilding gives you a say in every aspect of your home, from design, materials, finishes, colours, and all manner of minor details. You get to customise (almost) everything the way you want it.

New and modern

You'll also get to enjoy modern amenities with the latest technology and systems. This could mean lower energy bills, more convenience, and less maintenance.

Increased property value

Generally speaking, your property should be valued at more than what it was before you built.

That is unless you're in a location where older homes are more highly sought-after or in an area with relatively low land values where the cost of the build is not reflected in the overall property value.

Cons

Expense of living somewhere else

You might need to pay to live elsewhere while your house is being demolished and rebuilt. You may also need to pay for storage for your furniture and possessions during the process.

Cost

Building from scratch is expensive and you might need to pay for it all within a relatively short period of time.

With renovations, you could choose to stagger them as a series of smaller projects as the funds become available. The costs may equate over the longer term, but you mightn't have to carry the big hit to your finances all in one go.

On the other hand, a construction home loan could help ease the strain on an owner-builder's budget.

Zoning and planning

When you build, you need to make sure your new structure falls into line with local government planning laws.

Getting plans through council can take time and money, and you will need to ensure your project meets set requirements and restrictions.

Internal renovations generally don't need council approval unless they involve major structural changes or extensions.

Time

Building projects can be subject to delays for all number of reasons: supply and labour shortages, weather, builders or contractors going broke, or poor project management.

Knocking down and rebuilding may take longer than you were planning on, which could impact your budget and your lifestyle.