PHOTO: FILE
New research indicates that the premium paid for brand-new homes might be on the verge of diminishing. Analysis conducted by property insights firm CoreLogic reveals that the median price of newly constructed homes has traditionally stood 6% higher than that of existing ones. However, recent findings suggest that this price discrepancy is narrowing.
CoreLogic’s chief economist, Kelvin Davidson, highlights several factors contributing to this shift, including higher interest rates, economic uncertainty, and alterations to investor regulations, all of which pose challenges to the new-build market. Additionally, separate analysis by OneRoof demonstrates a noticeable increase in discounting by developers, reflecting unease within the market.
Davidson emphasizes that while the premium for new builds has historically been attributed to the superior quality of these homes, recent trends in construction costs, interest rates, and financing expenses have squeezed profit margins for developers. Despite this, the return of interest rate deductibility for investment properties and adjustments to the bright-line test could mitigate the tax advantages previously enjoyed by new-build homes over existing ones.
The chart shows the change in median prices of new builds and existing properties. Graph / CoreLogic
The chart shows the change in the percentage share of new-build property purchases in New Zealand. Graph / CoreLogic
Furthermore, Davidson notes that although the decline in consents for new constructions may alleviate some pressure on pricing, it also signals a potential shortage of supply in the future. Migration figures are expected to bolster demand for new homes, albeit with a lag effect.
CoreLogic’s analysis also reveals a moderation in construction cost increases in New Zealand, with costs rising at a slower pace compared to previous years. This trend is attributed to the normalization of supply chains and a decrease in house-building activity following the peak in consents observed in 2022.
Overall, these developments suggest a shifting landscape in the housing market, with implications for both consumers and builders. Flatter construction costs provide benefits such as more accurate pricing for builders and increased consumer confidence in final pricing for home projects.