Townhouses are the future
Buyers searching for more affordable options should look to townhouses rather than standalone houses in many regions, finds Miriam Bell.
Home buyers searching for more affordable options should not overlook townhouses, which are now 80% of the price of standalone houses, on average, in many regions.
Traditionally, townhouses have been available for a cheaper price point, although as prices skyrocketed in the recent boom, the sector’s average asking price has increased too.
But new figures from Realestate.co.nz show the national average asking price for townhouses was 16%, or $184,977, lower than the average asking price for all listing types last month.
The townhouse national average was $936,532 and the national average for all properties was $1.21 million.
And the dollar difference has increased in recent years. In March last year a townhouse was $125,168 less and in March 2020 it was $121,061 less.
In some regions, including Auckland, the average asking price for a townhouse was more than $300,000 less than the average asking price of all listing types.
In 10 regions, the average townhouse asking price was more than 20% cheaper, and there were just two regions where it was not more than 13% less.
Townhouses in Auckland had an average asking price of $1.09m, compared to the all property average of $1.46m. That was 25% less, or $370,629.
The average asking price of a townhouse in Wellington was $895,333, which made them 16% or $166,393 cheaper. In Canterbury the townhouse average was $691,918, and they were 14% or $109,324 cheaper.
But in Nelson, Gisborne, Northland, and Taranaki townhouses were 35%, 31%, 29%, and 26% cheaper and had average asking prices of $659,750, $500,000, $745,375, and $560,167 respectively.
Realestate.co.nz spokesperson Vanessa Williams says the pricing gap has probably grown because townhouses have, traditionally, not been as soughtafter as standalone homes, so their prices have risen more slowly.
‘‘Also, as interest rates were so low and money more affordable in recent years, it could be that New Zealanders have been willing to stretch themselves a bit more to buy a stand-alone home.’’
Demand for townhouses is high, though. The Realestate.co.nz figures show there were around
1.44 million searches for them on the site last month, she says.
‘‘That number has been on a steady incline since 2015. The quarter-acre dream is still alive and well, but townhouses are a more affordable option. They offer people another way to step on to the ladder.’’
More townhouses are being built. The latest Cordell Construction Cost Index shows that of the nearly 49,800 consents issued in the 12 months to
February, 49% were for smaller homes such as townhouses and apartments.
Auckland property developer David Whitburn says townhouses and terraced housing are often included in the same category, but there is no doubt more of both are coming on to the market.
Many developers are also building smaller sized, nondetached homes, and these tend to be targeted at the lower end of the market, he said.
‘‘There are high numbers of these builds coming through, and that does skew their prices a bit lower, even when the quality is good.
‘‘But the price gap between townhouse and standalone homes doesn’t mean that prices in this part of the market are falling faster. Rather, it suggests we are creating more of a different type of property at a more affordable price point.’’
While the market is slowing, he does not think it will result in an oversupply of townhouses as government incentives are at play, which encourage firsthome buyers and investors to buy them.
Property Ventures Real Estate director Mark Honeybone says demand for townhouses has dropped off a little, but it is because of problems accessing finance rather than a lack of interest in the property type.
Lending rules make it possible to buy new builds with a lower loan-to-value ratio, and buyers prefer new townhouses to apartments, so they have increased in popularity in recent years, he says.
‘‘These factors, and their comparative affordability, mean townhouses are still doing OK. They are not as hot as they were, but more are looking at them than any sector of the market that I see.’’
While some developers are struggling, a lot of stock remains, although there is not as much as there was at the lower end, he says.
‘‘Buyers are lining up for stock from the next Alexandra Park release and prices range from just under $1m to $3m. That pricier sort of stock seems easier to sell than the lower end stock, and it’s because many of these buyers are downsizing, so they don’t need as much finance.’’
Honeybone is positive about the outlook for townhouses as New Zealanders have become more accustomed to living in this type of housing than they once were.
‘‘They are the most affordable, nice, new homes out there. But if the market drops a little more and land becomes a bit cheaper that might affect their prices more.’’
‘‘We are creating more of a different type of property at a more affordable price point.’’
David Whitburn
Auckland property developer, left
The prices of townhouses make them a good option for aspiring homeowners, First Home Buyers Club director Lesley Harris says. ‘‘Our advice is that people looking to get on to the property ladder need to look for alternatives to their dream first home.
‘‘If a first-home buyer can find a townhouse that is fit for purpose and at a fair price which they can afford, they should use it as their first step.’’
This is a better option than waiting to see if prices crash as the market eases, she says. ‘‘My feeling is prices might drop a bit, but not by a huge degree. The market will settle and property will still be in demand.’’
With sales down and fewer buyers in the market, there
currently are more opportunities for first-home buyers to negotiate a good deal, Harris says.
‘‘A townhouse does not need to be a forever home, but it can be a good start. A buyer can hold on to it for a few years. Over time its value, and their equity, will increase enough to allow them to upgrade to a bigger and better property.’’
But it is important for firsthome buyers to choose townhouses that are in areas with good access to transport and to amenities such as shops and schools, she adds.
‘‘Also, given the issues around increasing construction costs, any buyer signing up for a turnkey contract should get very solid legal advice about the contract and all its clauses. Newbuild buyers do need to be careful in the current environment.’’