Homeowners often face a challenging decision: renovate their existing property or sell and buy something that better meets their needs.
Over the past two years, we’ve seen the value of renovations undertaken remain high, largely driven by rising construction costs.
With the cost of building expected to remain high but with the added boost of the recent interest rate cut, we’re likely to see an increase in renovation activity as borrowing costs decrease and homeowner confidence grows.
“How much value will my renovation add?” is one of the most common questions homeowners ask. Of course, quantifying the value a renovation adds to your property depends entirely on the specific project type and scope.
Projects vary enormously – adding a second floor costs more than updating a bathroom, and each will add different amounts of value. A swimming pool might cost anywhere from $30,000 to $100,000 depending on size and features, while landscaping prices range dramatically based on scope.
This makes it impossible to say “renovations add X per cent” to your home’s value – each project must be evaluated individually.
When homeowners ask how much value a renovation adds to their property, there’s a simple starting formula:
Your home’s new value = Current value + Cost of renovation
In basic terms, if you spend $200,000 renovating a $1 million home, you should expect your home to be worth at least $1.2 million afterward. This gives you a minimum 20 per cent increase in value.
But real estate isn’t always that simple. These are some reasons why this is the case:
1. The market moves independently
If you bought a house anywhere in Australia in the last two years, its value went up without you doing anything. When the market is rising, it’s hard to tell how much of your home’s increased value came from your renovation versus general market growth.
2. There’s a ceiling on what people will pay
Spending $500,000 on renovations in a street where homes typically sell for $500,000 is unlikely to double your home’s value. Each neighborhood has a limit on what buyers will pay, no matter how nice your renovation is.
3. Taste matters
Renovations that most people like will add more value than those with limited appeal. A swimming pool in a warm climate is usually more valuable than one in a cold area, and most people would prefer a pool over a tennis court at the same price.
4. Today’s renovations cost more
Finding builders is difficult right now, and construction costs have jumped more than 30 per cent in many places. This means recently renovated homes often hold their value better because they would cost more to replicate now.
5. Time has value too
Renovations take time and create disruption. People who hate the renovation process may pay more for an already-renovated home than someone who enjoys the project.
6. Location still trumps renovation
Even the most impressive renovation can’t overcome a challenging location. A beautifully renovated home next to a busy highway will still face value limitations compared to a less renovated property in a quiet, desirable street. The old adage “location, location, location” remains true even after significant improvements.
7. Different buyers value different features
Young families might pay a premium for an additional bedroom, while downsizers might value single-level living and low-maintenance features. Understanding who typically buys in your area helps predict which renovations will add the most value for that specific market.
8. Partial renovations can detract from value
Mixing old and new elements sometimes highlights what hasn’t been renovated. A brand new kitchen alongside a severely dated bathroom can make the unrenovated spaces look worse by comparison, potentially detracting from the home’s overall perceived value.
Importantly, if you renovate your home in a way most people would like, you should get back at least what you spent on the renovation. However, with rising construction costs and limited builder availability, well-renovated properties are often selling at a premium so this may lead to a significant premium to the total cost of the renovation.
