The price premium of new homes compared to old may be about to fall, CoreLogic suggests

Property / news

CoreLogic says developers and builders may not be able to keep charging a price premium for new homes

28th Mar 24, 8:30am by Greg Ninness

The price premiums new dwellings have traditionally commanded over existing dwellings may be about to shrink, according to property data company CoreLogic.

CoreLogic separated the median price data for new dwellings - those that have just been sold for the first time, from those that have been sold at least once before - existing dwellings, and compared them.

This shows new dwellings usually sell at a price premium compared to older properties, and the premium can be significant.

"This may not capture all new builds, such as some occasions where households have bought a section and commissioned the dwelling project themselves, but it's still a decent indicator of long term trends," CoreLogic's NZ Chief Economist Kelvin Davidson says.

Over the 22 years from 2002 to 2024 the price premium for new builds has shown considerable volatility, hitting a high of 15% around 2019, but had slipped into negative territory at -2% from 2009 - 2011, which meant new builds were slightly cheaper than existing builds over that time. (See the chart below).

"The percentage premium is now currently at average levels of around 6%, but it's quite significant in dollar terms, ranging from around $40,000 to about $50,000 over the past year or so," the report says.

"On February's data, existing properties sold for $768,050 [median price] versus new builds at $811,000."

However the report warns the current price premium may not last.

"Looking ahead, you'd now tend to think that the new build premium could start to erode again in the next year or two," the report says.

"For a start, as in 2009-11, with building work slowing and construction costs now much flatter, there's likely to be less heat in new build pricing."

"On that note, there also appear to be some difficulties for developers in securing pre-sales for the new build projects at present, possibly hinting at some near term discounting," says CoreLogic.

"Meanwhile, more listings coming to the market may also mean that prospective house buyers can already find what they want among the existing stock, and not have to go down the path of buying or building a new property."

"In addition, of course, mortgage interest deductibility is set to even out regardless of property age, at 80% from 1 April 2024 and 100% from the same date next year. At the margin, this also erodes the benefits of a new build relative to existing for investment buyers."

The comment stream on this article is now closed.

CoreLogic Median Price of New Residential Properties v Existing Residential Properties

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45 Comments

by Retired-Poppy | 28th Mar 24, 9:28am 1711571307

"current price premium may not last" Surprise-surprise, there goes another Spruiker driven theory that existing dwelling will be held aloft or even better by the new.

by IT GUY | 28th Mar 24, 9:32am 1711571560

And new builds tend to be dominated by postage stamp land = no cap gain as so many more will be built of the same dismal quality, Flatbush, Alfreston etc what a mess

by Cheetahlegs66 | 28th Mar 24, 12:41pm 1711582890

FlatBush is the best case of appalling medium density housing. Properties with no off-street parking subsequently parking outside the house. Roads so narrow that opposing traffic needs to stop to allow oncoming to pass. Already it's becoming a haven for crime when 20 years ago it was empty paddocks and brilliant cycling tackling Sandstone Rd through to Whitford.

by 1689 Baptist | 28th Mar 24, 2:21pm 1711588898

Flat Bush is luxuriously spacious and well thought out compared to the new suburb of Milldale.

by Pa1nter | 28th Mar 24, 10:25am 1711574700

There goes an article about it maybe happening, yeah.

Currently working on an identical building that costs double what the first one did, 4 years ago.

by Zwifter | 28th Mar 24, 11:53am 1711580016

Exactly right, come back RP when it has actually happened because just talking about maybes doesn't count. Pretty sure most people don't believe the "Second Hand" housing market doesn't follow the "New house market", I guess that graph puts paid to that idea.

by 1689 Baptist | 28th Mar 24, 2:19pm 1711588778

How do you draw that conclusion. The premium is narrowing by new build prices coming down. It is a logical fallacy to conclude that the premium will be maintained by old houses ALSO coming down.

On the contrary, when markets are corrected, the correction normally comes from both ends.

by IT GUY | 28th Mar 24, 9:29am 1711571367

Maybe the brightline revision will release more houses back into the market for FBHers then the building industry for the next few years

by Retired-Poppy | 28th Mar 24, 9:39am 1711571948

Much like the Brightline introduction - then extension, I think the revision will also deliver it's own set of unique and unintended consequences.....

by Flying high | 28th Mar 24, 10:19am 1711574373

Upvoting yerselves. Look mum I can do that too, like the big boys

by Retired-Poppy | 28th Mar 24, 10:23am 1711574616

Flying High, from your unique perspective, what is the purpose of this forum? To provide others with useful insight?

by Pa1nter | 28th Mar 24, 10:26am 1711574784

Waiting a very long time for an "I told you so" opportunity.

The muscles in some people's "tut-tut" fingers must be nice and warmed up by now.

by Retired-Poppy | 28th Mar 24, 10:41am 1711575673

Pa1nter, you seem frustrated. There you go, I finally replied to one of your posts.

by Pa1nter | 28th Mar 24, 10:47am 1711576061

Talking to someone instead of trying to talk about them.

I'll put two gold star stickers on your chart. Who's a big boy today.

by Flying high | 28th Mar 24, 11:14am 1711577672

I'll put two gold star stickers on your chart. Who's a big boy today.

🤣🤣🤣

I recommended to R-P that he start a political movement, he can hold stadium rallies where they chant his well worn rhetoric then go home to their nice comfortable homes and lifestyles ie not lift a finger but still feel good that they're doing something

by Noncents | 28th Mar 24, 12:01pm 1711580504

The Greens?

by balance | 28th Mar 24, 10:00am 1711573204

Properties built in the 'filing cabinet' style, characterized by high-density and uniform design, are likely to see a significant decline in value over the next few years. This trend may be driven by their frequent use as rental units, which can lead to less emphasis on long-term maintenance. Furthermore, the housing industry's focus on maximizing returns often favours these high-density developments, potentially oversaturating the market. In contrast, older homes with distinctive character, that have been regularly maintaned and improved should become increasingly sought-after.

by Averageman | 28th Mar 24, 10:15am 1711574112

Agreed, but quite a different market and wallet required.

by ChrisOfNoFame | 28th Mar 24, 11:26am 1711578415

Or maybe not.

Look at London. Huge numbers of highly desirable 'filing cabinet' style terraced houses. And less desirable ones. The difference? Location.

There are just three rules in property (as the saying goes). Overlook them at your peril. The house, and its style, really don't matter much if you're after capital gain.

by Colin Cameron | 28th Mar 24, 11:29am 1711578588

Just like the old state houses are in demand what do the RE agents say good bones.

by ChrisOfNoFame | 28th Mar 24, 11:38am 1711579081

And sections so large they can now accommodate 3 or more dwellings.

by Whatwillhappen | 28th Mar 24, 12:05pm 1711580733

Good bones..

...but in need of a lot of plastic surgery, transfusions of young blood and a bath of asses' milk.

by Averageman | 28th Mar 24, 10:13am 1711573992

Welcome to the reality of the "down" part of the cycle. For developers using other peoples money, think finance companies in the GFC. As the speculators rush the exist the lack of true capitalisation becomes exposed.

#dominos

by Dale Smith | 28th Mar 24, 10:40am 1711575641

Where do we start?

How about the fact that more new apartments/townhouses are getting built compared with existing so the premium is skewed, by only comparing price and not types built, on the low side.

Recent $m2 rates show that these higher density builds are almost twice the $m2 rate of single level dwellings ie if you half the size of a new build, it's cost is only about 10% less than the price of an existing at double the m2.

That is why it is hard for retires to downsize from older existing into smaller new.

Adding to this is that older existing stock is selling about 25% less than its replacement cost. Part of the reason for this is not just the age, deferred maintenance etc, but dated fixtures like single glazing etc.

If people can't afford to buy, developers will first clear stock by discounting if they must. No new developments will happen for awhile thus forcing the next undersupply causing all prices of old and new to lift until a developers margin is restored.

The only thing that might happen is if the Govts. Policies on land increase supply to equal demand and the consequence breaking of council and supplier bureaucratic monopolies, then the uplift in prices will not happen, at least due to supply restrictions.

by rastus1 | 28th Mar 24, 11:43am 1711579414

One of the reasons we recently sold was the cost to make our big family home of decades comfortable enough for looming retirement. You don't need much heating when everyone is at work or school.

I was also very nervous about throwing capital in a home to wake up and find 3 (possily5) story apartments going up either side and across the road.

The way intensification has been managed is a disaster.

by Dale Smith | 28th Mar 24, 11:57am 1711580228

Very good point.

Once that capital cost is locked in, it can't be reversed and even if you wanted to sell to a developer, they wouldn't want to pay for it as well.

by K.W. | 28th Mar 24, 4:59pm 1711598382

I am interested in seeing what the new Govt plans are for building granny flats. There is a good opportunity to sell the family home to one of the kids, and use some of the money to put a granny flat on the back of it, so the elderly parents can downsize and still have cash left over.

by Toye | 28th Mar 24, 10:56am 1711576601

Spoilers: vendors with new and old homes will soon no longer be able to charge a premium.

by nktokyo | 28th Mar 24, 11:17am 1711577820

"May not" is an award-winning understatement.

by Nzdan | 28th Mar 24, 11:23am 1711578197

If interest rates remained where they were in 2008 to today:

Would this "price premium" still exist?
Would we have still built a similar number of houses to meet demand for shelter?

by Brutus Iscariot | 28th Mar 24, 11:24am 1711578253

Well I can say that new builds have a massive amenity advantage over existing stock. My new build is amazingly warm and dry, I haven't seen a drop of condensation since moving in and I also haven't even had so much as a sniffle in 6 months. Couldn't go back to a damp icebox villa now.

by AN Other | 28th Mar 24, 11:44am 1711579479

Come back to us after winter and give us an update please.

by HouseMouse | 28th Mar 24, 2:07pm 1711588038

I have been in a newbuild townhouse for approaching 5 years. Very warm and dry, virtually no condensation, only have to use the heat pump a handful of times in winter.

The bigger issue is it gets a bit hot in summer

by Nzdan | 28th Mar 24, 2:46pm 1711590418

I've been in a 1920's 200sqm villa for 2 years. Does get a little cold in winter although we have 2 heat pumps, fire place and the place is newly insulated. In summer however it keeps very cool.

by 1689 Baptist | 28th Mar 24, 7:23pm 1711606988

I live in a 1970s concrete block house. While not as well insulated/ventilated as a new build it is miles better than the weatherboard home I grew up. I honestly can't understand why more houses haven't been built this way.

by Cheetahlegs66 | 28th Mar 24, 12:49pm 1711583342

Got a garden with vegetables growing? Tuis singing in the trees? Hardly any human noise other than the odd car starting up, or Mum calling out that dinner is ready?

Medium density housing is the default setting when you can't access the traditional 1/4 acre due to costs-space. In the NZ context it is sad.

by agnostium | 28th Mar 24, 5:45pm 1711601146

"Got a garden with vegetables growing? Tuis singing in the trees? Hardly any human noise other than the odd car starting up, or Mum calling out that dinner is ready?"

Sounds like hell on earth (apart from the Tuis, I like Tuis).

by ChrisOfNoFame | 28th Mar 24, 11:36am 1711579010

I'd love to see the methodology for this study. I've tried in the past and it is very difficult to compare 'new' with existing. Just way too many variable at play. I really can't see the premium for 'new' changing over time when a representative comparison can be found..

Obviously the NACTF's reintroduction of 100% interest deductibility (most unfair policy ever without a CGT) will return 'investors' to both the old and new markets - and make life harder for real developers trying to provide more housing as the land-bankers return to their market distorting behavior of buying big sections with a single crappy dwelling on it. This government really hasn't got a clue. Ideological nonsense.

by Nellbell | 28th Mar 24, 5:38pm 1711600722

I would think that they have been able to stratify the houses to control for size to some extent. I don’t know how a House Price Index is calculated ( Corelogic publish an HPI), but it’s described as an index that controls for the varying sizes of houses.

by Zaphod The Flatulant | 29th Mar 24, 9:12am 1711656745

I think you'll find the "methodology" sadly lacking here. It seems they've just used "first sale" of a property for it's new build price and "second +" sales for "existing". But considering that the price for a new off the plan sales by a developer won't appear in any of their databases until after settlement most of the houses being bought today (and built tomorrow) won't be included in this data.

by Yvil | 28th Mar 24, 12:08pm 1711580893

I hope the comparison takes into account the changing size of the average dwelling over the years. (Typically getting smaller in built size more recently). If not, the comparison is moot.

by HughJorgan | 28th Mar 24, 3:11pm 1711591900

The article implies developers are making abnormal profits at the moment, which is simply not the case.

Cost wise,my pick is that labour won’t move (can go off shore), land won’t move (held by wealthy) and building materials won’t move (low volume, high price).

It is going to be a stand-off and not a lot will get built.

by kermit42 | 28th Mar 24, 11:08pm 1711620515

Interest deductibility and a shorter bright line period. Until recently, new builds had these advantages. Now the playing field is even.

by gregwani | 29th Mar 24, 10:54am 1711662878

Does the new Debt:Income rules tilt things in favour of new builds for FHBs though?

by wingman | 30th Mar 24, 5:49pm 1711774158

New builds are far superior to existing stock. Remember the leaking house crisis and 'trendy 'Miami Vice' homes? Old houses with leaking basements, ill-fitting wooden windows and little or no insulation?

The problem is that costs keep escalating with new building regulations, health and safety, a declining NZD, and shortage of land for subdivision. And of course, lots of immigration.