If you’re interested in making a financially and environmentally considered choice for your first home or even a new property, it’s helpful to understand the total ongoing costs of your purchase.
The deposit amount, purchase price and mortgage repayments are the most obvious and substantial up-front costs of home ownership. But there are several other costs and ongoing expenses that are often overlooked, or even forgotten, during the home buying process. It pays to know and weigh up the long-term financial, environmental1 and social costs of living in an inner-city location (established suburbs with existing infrastructure) versus a suburb on the urban fringe (greenfield housing estates or new homes) or somewhere in between.
Research we commissioned shows that while new homes in the outer suburbs are often more affordable than inner-city locations when looking at the initial purchase price, the holistic long-term costs may be considerably higher. While the research focused on Melbourne, the insights are relevant to other major Australian capital cities.
Overall costs to consider
There are many factors to consider when buying a home. Upfront financial costs such as mortgage payments may be top-of-mind in the home buying journey, but have you thought about the ongoing running and maintenance costs for a larger home compared to a smaller one? Or the travel costs you’ll incur each week depending on where you buy? The overall costs summary table below lists some of the often-overlooked costs of home ownership, including social and environmental costs.
From a financial point of view, the research found that 2- and 3-bedroom houses in growth areas (outer suburbs) can cost up to 54% and 63% more than inner city apartments, respectively. This includes the costs to the homebuyer – like running costs (energy, water) and transport costs (petrol or public transport fares) and also costs borne by government like infrastructure and services.
These additional costs for a 3-bedroom house in a growth area can be an extra 146% above the cost of mortgage repayments.
Every home buyer has different needs and priorities when it comes to housing. Our research highlights how important it is to consider the combination of financial, environmental and social costs of different types of homes, to make more informed choices that align to both budget and lifestyle preferences.
Table: Overall costs summary
| Inner | Middle | Growth | ||
|---|---|---|---|---|
| Factors | 2 bdr apartment | 2 bdr apartment | 2 bdr house | 3 bdr house |
| Financial costs | ||||
| Mortgage repayments | $34,297 | $32,867 | $30,279 | $35,012 |
| Running costs | $276 | $276 | $405 | $572 |
| Travel costs | $8,310 | $8,310 | $23,655 | $23,655 |
| Economic costs | ||||
| Loss of land | - | - | $27 | $37 |
| Dwelling servicing costs | $8,394 | $8,394 | $22,326 | $22,326 |
| Productivity losses | Not monetised | |||
| Social costs | ||||
| Time spent travelling | $1,313 | $2,065 | $3,474 | $3,474 |
| Social isolation | Not monetised | |||
| Environmental costs | ||||
| Externalities from transport | $398 | $398 | $1,217 | $1,217 |
| CO2 emissions from build | Not monetised | |||
| Total annual cost | $52,989 | $52,290 | $81,382 | $86,292 |
| Total annual cost (incremental to inner) | ($698) | ($28,393) | ($33,303) | |
Affordability
As living and housing costs in Australia have increased, so too has the challenge of saving a deposit and finding an affordable home to purchase.
The introduction of Government support schemes such as the First Home Guarantee and shared equity partnerships, like the one we have with National Affordable Housing’s BuyAssist program, have helped thousands of Australians buy their homes sooner with a smaller deposit. While these schemes go a long way to help, the decision on what type of property to buy and its location is often driven by the initial purchase price.
For most home buyers, immediate affordability is a priority, driven by the household’s annual income. The research found home buyers entering the market are often priced out of inner or middle ring suburbs for standalone houses. Buyers are more likely to find affordable apartments in middle ring suburbs, or houses in the outer-ring. Depending on your housing preference, this may mean accepting higher financial and environmental costs over the long term.
Housing Preferences
The type of home you live in, and its location, will contribute to how much you'll spend on services – typically, the bigger your house, the higher the costs for services like electricity. In addition, the further you are located from the city, the greater the environmental cost particularly if you are regularly commuting to the city. Let’s take a look at the additional financial and environmental costs to consider with different housing preferences.
Energy costs
If you’re looking at purchasing a larger house, be mindful that you may be paying up to twice as much for your energy use. Larger and older homes typically cost more to run. As a general rule-of-thumb, a Clean Energy and Community Housing report says heating and cooling account for 40 per cent of energy bills, followed by appliances and equipment (33 per cent), water heating (21 per cent) and lighting (6 per cent). There is also a larger environmental cost to consider if the house you purchase has not been designed with energy efficiency in mind.
Table: Consumption and cooling / heating by room size (adjusted to 2023 values)
| Room Size | Capacity | Avg. Annual Energy Consumption (kWh) | Avg. Annual Cost (Mel) |
|---|---|---|---|
| Small (up to 20m2) | 2.9 - 4.2kW | 1,181 | $276 |
| Medium (20m2 - 40m2) | 3.4 - 6.6KW | 1,732 | $405 |
| Large (40m2 - 60m2) | 5.2 - 8.2kW | 2,448 | $572 |
Assumption: Reverse Cycle Air Conditioner; consumes a standard annual electricity usage of 4,200kWh; air conditioner operates three hours a day over a 90-day period; Escalated based on electricity prices (ABS CPI)
Table: Annual cost to run an air-conditioner
| Inner | Middle | Growth | ||
|---|---|---|---|---|
| 2 bdr apartment | 2 bdr apartment | 2 bdr house | 3 bdr house | |
| Annual cost | $276 | $276 | $405 | $572 |
Source: SGS Economics and Planning 2023
Travel and transport costs
When you live close to the city you are more likely to use public transport to travel. The further you live from the city, the higher the likelihood you will use your car to travel for both work and leisure, due to reduced access to or limited connections in the public transport network. This not only increases financial costs for petrol, car maintenance and parking but adds to the environmental cost. The researchers also noted the personal social cost for the time it takes to travel to and from destinations.
A household in growth areas can spend twice as much on transport costs
The research shows that drivers living in inner or middle-ring suburbs incur an average annual cost of $8,310 for their car and travel expenses. Those living and driving from outer suburbs could spend up to an average of $23,655 on car ownership and operating costs. That’s a difference of more than $15,000 annually.
Summary of annual ongoing costs
| Inner | Middle | Growth | ||
|---|---|---|---|---|
| 2 bdr apartment | 2 bdr apartment | 2 bdr house | 3 bdr house | |
| Financial costs | ||||
| Mortgage repayments | $34,297 | $32,847 | $30,279 | $35,012 |
| Running costs | $276 | $276 | $405 | $572 |
| Travel costs | $8,310 | $8,310 | $23,655 | $23,655 |
| Total annual financial cost | ||||
| $42,884 | $41,433 | $54,339 | $59,239 | |
| Total annual financial cost (incremental to linear) | ||||
| ($1,451) | $11,456 | $16,355 | ||
Source: SGS Economics and Planning 2023
As you can see from our Summary of annual ongoing costs table, the difference in household running costs and travel costs are significant between apartments and houses as you move from inner and middle-ring suburbs to growth areas. Overall, you are likely to pay $11,000 more annually for a 2-bedroom house in an outer-ring suburb compared to a 2-bedroom apartment in the inner or middle suburbs. This rises to over $16,000 for a 3-bedroom house in an outer suburb.
Environment
Is the environmental cost a consideration in your home purchase deliberations?
As the population grows and we move and build further into the outer suburbs of our cities, it’s important to acknowledge we also move into the natural habitats of wildlife, interrupting their natural passageways and exposing them to man-made stress. Did you know 50% of threatened species are found within the urban fringes in Australia (SGS Economics & Planning)? Creeping urbanisation increases the risk to already threatened plants and animals. In Victoria, threatened species coincide with the Urban Growth Boundary of greenfield areas, particularly in the Western suburbs.
Not to mention that many people consider nature good for mental and physical health, while green spaces help to cool our cities.
If you are building your own home, some energy efficient housing design practices to consider and discuss with your builder include:
- Ensuring your home is well insulated - it is one of the most important elements for an energy efficient house.
- Installing double glazed windows to support better heating and cooling.
- Incorporating recycled furnishings and fittings like reclaimed wood.
- Designing with natural light in mind.
Location
As highlighted in the Affordability section, borrowing capacity and purchase price often determine where you will buy your home (inner, middle or outer-ring suburbs). However, depending on your housing preference, you may be able to afford a property in a different suburb to what you originally planned. When it comes to location, the further you are from the city, the higher the travel costs you'll incur. Let’s take a look at the additional social costs to consider.
Time and opportunity costs
Whether you are travelling in your own car or using public transport, travelling between destinations has an additional hidden cost – your time! Living in an outer-ring suburb means you’ll likely have an opportunity cost where you’ll spend more time commuting rather than enjoying leisure time. Australian Transport Assessment and Planning (ATAP) has estimated the value of leisure time to be equivalent to 40% of an hourly wage, so this adds up!
Households in outer regions face greater commute times
There is a considerable annual travel time cost associated with living in outer-ring suburbs as these households spend longer times commuting to work.
Table: Annual cost of commuting to work
| Inner (8.2km) | Middle (12.9km) | Outer (21.7km) | ||
|---|---|---|---|---|
| 2 bdr apartment | 2 bdr apartment | 2 bdr house | 3 bdr house | |
| Annual Travel Time Cost | $1,313 | $2,065 | $3,474 | $3,474 |
Assumption: Calculated based on an average speed of 30 km/h across different transport modes with 2.5 working days in the office; Active transport is excluded.
Source: SGS Economics and Planning 2023
Community connection
SGS Economics found where we choose to live could also have potential social costs. Good access to established services such as healthcare, education, and recreational community connection opportunities can help us feel socially connected and is important to consider in deciding where to live.
Need a recap?
There are many factors to think about when buying a home. To help make the right housing choice for you and your family, it’s important to consider not only the financial costs but the social and environmental costs associated with different sizes and locations of properties. Need a re-cap of costs? Review the Overall costs summary table again.
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1 What we mean by ‘environmental costs’: When we say environmental costs, we are referring to the changes or impacts made to the natural environment when purchasing and owning a home. This could be by removal of natural vegetation during the process of building a new house, or the amount of greenhouse gas emissions created from your energy use (including from your personal vehicle, public transport to and from your home, or household energy use).