Soaring home prices mean that the age-old question of whether it’s better to build a new home or buy an existing one has become more relevant than ever.
In the past, the choice was often driven by the desire to create a new home to individual specifications. Factors such as location, proximity to workplaces and schools, and heritage considerations offset this.
But in recent years, as the housing shortage in the country has deepened, incentives to build or buy new construction have multiplied.
It is easier to get a loan for a new construction, for example. This is because the Reserve Bank’s loan-to-value ratios, which limit bank lending to low-deposit borrowers, do not apply to new construction.
* Why real estate prices haven’t stopped rising
* Build from blueprints and don’t change them if you are cost sensitive
* ANZ says house prices are so high it makes sense to build your own house
* Why new construction is not always the cheapest option
They are exempt and the rules do not prescribe the amount of deposit required for one. Many banks have specific loan options for building a house.
The government’s new interest deductibility policy for investors also exempts new properties, making them even more attractive.
But the question of whether it is cheaper to build and buy new or buy an existing property, which is ready to buy, remains.
After a year of widespread price growth, median home selling prices have risen significantly across the country.
According to the latest figures from the Real Estate Institute, the national national median price of homes was $ 850,000 in August. In Auckland it was $ 1.2 million, while in Wellington it was $ 875,000 and in Canterbury it was $ 619,000.
While Auckland and Wellington have the highest prices, Bay of Plenty, Tasman and Waikato all have median prices above $ 750,000 to $ 840,000, $ 800,000 and $ 780,000 respectively. The West Coast had the cheapest median at $ 300,000.
So how do construction costs compare? New figures from Stats NZ show the national average construction cost per square meter was $ 2,325, for the year ending June. This figure does not include costs of land, design or consent.
Stats NZ puts the average size of all consented homes at 155mÂ² in 2021, so the cost to build a 155mÂ² single-story house is $ 360,375. But the costs of the land, design, and permits, and other fees add up to that, and they can vary widely.
Using this formula to look at different regions, Auckland’s cost per square meter was $ 2319, which equates to an average construction cost of $ 359,445. Wellington’s cost per square meter was $ 2,604 and Canterbury’s was $ 2,089, bringing their average construction costs to $ 403,620 and $ 323,795 respectively.
Canterbury had the cheapest average cost, followed by West Coast with a cost of $ 2,118 per square meter and an average construction cost of $ 328,290, then Taranaki with a cost of $ 2,147 per square meter and a construction cost. average of $ 332,785.
In contrast, it was the most expensive in Otago, where the cost per square meter was $ 2,707 and the average cost to build was $ 419,585. Hawke’s Bay was second with a cost per square meter of $ 2,650 and an average construction cost of 4,410,750, while Wellington was the third most expensive.
AUT construction professor John Tookey explains that the actual costs will depend on the type of construction being carried out, a one-story house on a flat section costs much less than a multi-story house on a sloping section.
If someone wants to do a higher end build, the construction costs will increase exponentially and become more expensive depending on the design and the scale of the requirements, he says.
âBut the big cost is the cost of the land and the amount of work the land requires to be ready to be built. This is where the variations in construction costs appear in different regions and on different types of land.
Historically, it was more expensive to build from scratch than to buy an existing property, but Tookey says there is currently no big residual difference between the two due to high commodity prices.
CoreLogic information provides proof of this. It shows that in 2021, buyers paid a national average of $ 829,747 for what is classified as new construction, compared to a national average of $ 889,055 for existing properties.
CoreLogic’s chief real estate economist Kelvin Davidson said that even though it was a difference of around $ 60,000, last year the numbers were around $ 621,000 for new construction and $ 739,000 for an existing property, which represents a difference of approximately $ 118,000.
This means that the average price paid for new construction has risen faster than the price of existing properties in recent times, although it is still lower, he says.
âNew construction will tend to be smaller or different from existing properties, but other than that this trend is certainly consistent with the rising construction costs that we are seeing.
CoreLogic information also shows that in Auckland and Wellington new construction always costs less.
In Auckland, the average price for new construction this year was $ 997,478, compared to $ 1,270,949 for an existing property. In Wellington, the difference was even more marked, with an average new construction price of $ 763,853 compared to $ 1,071,292 for an existing property.
It was a different story in Christchurch where the average new construction cost $ 634,869, slightly more than the average price of $ 634,472 for an existing property.
Davidson says there is always an incentive to buy new construction or find land and build, but it can be complicated because the land is not easy to find and the stock of new construction available is smaller than the market. rest of the market.
âIt would not be surprising to see new construction prices continue to rise as the costs themselves rise, but also as buyer demand increases in this way. “
But Master Builders chief executive David Kelly said that while new construction prices have risen, due to rising land prices and rising material and labor costs, they didn’t do it as much as the prices of the existing stock.
It’s hard to know for sure whether it’s cheaper to go for new builds as several variables make it difficult to compare, but he believes new builds are still cheaper than existing properties.
âThe price of existing homes has just gone up so much, beyond inflation standards. So if you can get a builder and land, the price of the new build looks attractive in comparison, even with the current uncertainty of some costs.
There are also other attractions with new construction. The trend towards greater housing intensification means that more townhouses and penthouses are being built.
Kelly says this not only gives buyers a wider range of choices, but the smaller properties involved offer more reasonable prices as well.
âThere are other advantages with new construction. They meet the current building code and are healthier homes because they need to be properly insulated and often have features like double glazing. They are also less expensive to maintain and repair.
These features add to a home’s value and should be taken into account when considering the ongoing costs of owning a home, he says.