Investing in Space: The True Value of House Extensions

Is it Worthwhile to Extend a House?

Extending a house can be rewarding, particularly in Australia’s housing market, where maximising your existing space often yields great returns. But is it always worth it? The answer largely depends on your goals, the scope of the extension, and how it aligns with your long-term investment strategy.

If you want to improve liveability and increase the value of your home, a well-planned house extension can be a worthwhile venture. However, it’s essential to consider all factors—from costs to zoning regulations—to determine if it’s the right move for your situation.

What Are the Benefits of a House Extension?

House extensions offer a range of benefits, from improving functionality to boosting property value. Here are four key advantages:

1. Increased Living Space

Whether you add an extra bedroom, extend your kitchen, or create a home office, extensions allow you to accommodate a growing family or lifestyle needs without having to move.

2. Tailored to Your Needs

Renovations and extensions can be designed to fit your preferences, meaning you can customise the space to meet your requirements.

3. Staying in a Location You Like

Extending your home allows you to remain in a neighbourhood you’re familiar with and love, avoiding the hassle and potential drawbacks of relocating to a new area.

4. Potential for Increased Property Value

An extension that adds usable square meters, like a new bedroom or living area, can significantly increase the resale value of your home.

How Do You Create Value with a House Extension?

Creating value with a house extension goes beyond simply adding square meters. It’s about making the right improvements to appeal to potential buyers or suit your long-term needs. Here are three ways to create value:

1. Focus on High-Demand Areas

Extensions that add bedrooms, bathrooms, or open-plan living spaces increase property value more than other improvements.

2. Quality of Materials and Workmanship

A well-built extension using quality materials will offer a better return on investment than cheaper, less durable options. However, be careful not to over-capitalise in your area. Some materials and finishes will not return the value when selling in certain areas.

3. Energy Efficiency

Incorporating eco-friendly features, such as solar panels or better insulation, can enhance your home’s value and appeal to eco-conscious buyers. More than that it can significantly reduce the running cost of the home while you live there.

What Are the Costs for a House Extension?

The cost of a house extension in Australia in 2024 can vary significantly depending on the type and size of the project. Generally, homeowners can expect to pay anywhere between $2,500 and $3,600 per square metre, though this figure can increase for high-end finishes or complex designs.

Factors like site access, existing building conditions, and local council regulations also play a role in shaping your final costs. It’s important to consider these variables when budgeting for your extension to ensure you clearly understand potential expenses.

Is extending a home cheaper than selling and buying brand new?

While extending a home can be more expensive than building a new one, the costs associated with selling your existing house and buying a brand-new home can make moving a far more costly exercise.

For example, if you sell an existing home in NSW for $1,000,000, you would face real estate agent fees of around 1-3%, up to $30,000, along with marketing and legal costs that may add another $5,000. Then, if you purchase a new two-storey home for $1.6 million on a smaller block, you would incur stamp duty fees of approximately $71,000, along with conveyancing and other legal fees adding another $3,000 to $5,000.

Together, this adds up to over $100,000 just in transactional costs—without considering the cost of moving, any renovations needed to make the new house suitable, or the potential compromise on land size and location.

When you compare this to extending your existing home, staying in place can often be a more financially sound decision.

Is Extending a House a Worthwhile Investment?

House extensions can offer a strong return on investment, particularly in high-demand areas or for homes that were previously lacking in key features.

For instance, adding a bedroom or increasing your home’s living space can potentially boost the market value by more than the cost of the extension itself. However, ensuring your extension is in line with local market expectations is crucial—overcapitalising can lead to minimal returns.

What Will Give Me the Best Value for My Investment When Extending or Renovating My House?

If you’re looking for the best value from your investment, it’s important to consider both practicality and appeal:

Functional Additions

Extensions that add practical, usable spaces, like extra bedrooms, bathrooms, or open-plan kitchens, tend to provide better value.

Curb Appeal

Small upgrades to your home’s façade as part of an extension can significantly increase your property’s perceived value.

Future-Proofing

Incorporating energy-efficient systems, low-maintenance materials, and universal design principles can ensure that your extension adds long-term value to your property.

Here’s an example of a property that was originally purchased in 2014 for $860,000. It was a single-storey dwelling with a single detached garage facing a rear lane. After undergoing significant renovations, which included adding a first floor, extending the rear, and upgrading the garage to a double garage, the property sold in 2016 for $1.91 million—an impressive uplift of $1.05 million.

Even with renovation costs estimated at $1,500 per square metre (approximately $400,000 at the time), the property still achieved a value increase of $650,000. This highlights how strategic renovations and extensions can lead to substantial returns by focusing on what truly adds value.

What Are the Disadvantages of Building an Extension?

While house extensions can add significant value, they also come with potential downsides:

• Disruption: Living through an extension project can be highly disruptive. The noise, dust, and inconvenience can affect your day-to-day living.
• Cost Overruns: Unexpected costs can arise due to unforeseen structural issues, design changes, or delays in the approval process.
• Limited Space: Extensions are bound by the limitations of your existing property and zoning rules, which could restrict the size and scope of your project.

Is It Cheaper to Extend or Build New?

Whether it’s cheaper to extend or build new depends largely on the size of the project and the work required. In 2024, knocking down and rebuilding even a small house typically comes with a price tag of at least $500,000, whereas a small renovation can be completed for significantly less. However, the cost per square metre for building new is often cheaper than extending, as extensions tend to be more complex and labour-intensive due to the need to work around existing structures and integrate new elements into the old.

To get the biggest bang for your buck, assessing the project’s scope and weighing both options carefully to determine what works best for your property is essential.

Sometimes, knocking down and rebuilding your home simply isn’t a viable option due to various planning restrictions or property constraints. Here are a few examples where extending might be your only choice:

Existing Footprint or Height Exceeds Current Regulations

If your current home’s footprint or height exceeds what would be allowed under today’s planning controls, rebuilding may mean losing valuable space. Renovating or altering the existing structure allows you to retain these features while making improvements.

Attached Dwellings

For properties that share walls with neighbouring buildings, such as townhouses or semi-detached homes, knocking down and rebuilding may not be permitted due to the connected structure. In such cases, an extension or renovation is often the most feasible option.

Heritage-Listed Properties

If your home is heritage-listed, you may be prohibited from demolishing it. Strict guidelines often apply to preserving the original structure, meaning you can only make changes through carefully planned renovations or extensions that respect the building’s historical significance.

Zoning Restrictions

In some instances, zoning laws may not allow for either extending or rebuilding. For example, in our recent case study What the Park? a property was rezoned as parkland, meaning no residential accommodation or extensions could be permitted on the site. Such zoning changes can significantly limit your options, so a feasibility study is essential before making any decisions about your property.

In situations like these, extending offers a practical solution that allows you to modernise or expand your home while staying within the constraints of planning regulations and property limits.

Why Are Extensions So Expensive?

The high costs associated with extensions stem from several factors:

• Labour and Materials: Skilled labour and quality materials can quickly drive up the cost of an extension.
• Approval and Design Costs: Navigating local council regulations, especially in NSW, can require thorough planning reports and approvals, adding to the expense.
• Integration with the Existing Structure: Ensuring the extension blends seamlessly with the existing house, particularly in older homes, can be challenging and costly.

Take Away

Extending your home can be a worthwhile investment if done correctly, but it’s essential to balance your goals, budget, and the potential return on investment. By making informed choices and considering both the benefits and drawbacks, you can ensure your extension enhances your lifestyle and adds significant value to your property.

Deciding between extending, renovating, selling, or knocking down and rebuilding can be challenging, with each option carrying its own set of benefits and limitations. The only way to determine what’s right for you is by gathering all the relevant information as early as possible. That’s where EzFeasy steps in, identifying all the planning aspects of either extending or building new to help determine what’s right for you, ensuring you make the best decision for your property.