Townhouses offer a cheaper way to enter the real estate market, data shows

Homebuyers looking for more affordable options shouldn’t overlook townhomes, which now account for 80% of single-detached home prices, on average, in many areas.

Traditionally, townhouses have been available at a cheaper price, although prices have skyrocketed during the recent boom, so has the average asking price in the area.

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 in March 2022.

The national average for townhouses was $936,532, while the national average for all properties was $1.21 million.

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And the dollar difference has increased in recent years. In March of last year a townhouse was $125,168 less and in March 2020 it was $121,061 less.

In some areas, including Auckland, the average asking price for a townhouse was more than $300,000 lower than the average asking price of all listing types.

In 10 regions, the average townhouse asking price was more than 20% lower, and there were only two regions where it was not more than 13% lower.

Townhouses in Auckland had an average asking price of $1.09 million, compared to the average for all properties of $1.46 million. It was 25%, or $370,629, less.

The national average asking price for townhouses was 16% lower than the average asking price for all listing types in March.

PROVIDED

The national average asking price for townhouses was 16% lower than the average asking price for all listing types in March.

The average asking price for a townhouse in Wellington was $895,333, making them 16% or $166,393 cheaper, while in Canterbury the average townhouse was $691,918, and they were 14% or $109,324.

But in Nelson, Gisborne, Northland and Taranaki, townhouses were 35%, 31%, 29% and 26% cheaper with average asking prices of $659,750, $500,000, $745,375 and $560,167 respectively. .

Realestate.co.nz spokeswoman Vanessa Williams says the price gap has likely widened because townhouses have traditionally not been as sought after as detached homes and their prices therefore increased more slowly.

“Also, with interest rates being so low and money more affordable in recent years, New Zealanders may have been willing to scramble a bit more to buy a self-contained home.”

Demand for townhouses is high, however, with figures from Realestate.co.nz showing there were around 1.44 million searches on the site in March 2022, she says.

“That number has been steadily increasing since 2015. The quarter-acre dream is still alive and well, but townhouses are a more affordable option. They offer people another way to climb the ladder.

Other townhouses are being built. Cordell’s latest building cost index shows that of the roughly 49,800 permits 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 townhouses are often included in the same category, but no doubt more of the two are coming onto the market.

Auckland property developer David Whitburn says more and more developers are building smaller, non-detached houses.

Thing

Auckland property developer David Whitburn says more and more developers are building smaller, non-detached houses.

Many developers are also building smaller non-detached homes, and these tend to target the lower end of the market, he said.

“There are a lot of these builds coming in, and that brings their prices down a bit even when the quality is good.

“But the price differential between townhouses and single-detached homes doesn’t mean prices in that part of the market are falling any faster. On the contrary, it suggests that we are creating more of a different type of property at a more affordable price.

Although the market is slowing, he doesn’t think this will lead to an oversupply of townhouses, as there are government incentives, which encourage first-time home buyers and investors to purchase them.

Property Ventures property manager Mark Honeybone says demand for townhouses has fallen slightly, but that’s down to issues with access to finance, not a lack of interest in the type of property.

Lending rules allow new construction to be purchased at a lower loan-to-value ratio, and buyers prefer new townhouses to apartments, so they have grown in popularity in recent years, he says.

“These factors and their relative affordability mean that townhouses are still doing well in today’s market. They’re not as hot as they used to be, but more eyeballing them than any sector of the market I see.

While some developers are struggling, there’s plenty of stock left – though not as much on the low end as there used to be, he says.

Property Ventures property director Mark Honeybone said New Zealanders have become accustomed to townhouse living.

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Property Ventures property director Mark Honeybone said New Zealanders have become accustomed to townhouse living.

“Buyers are lining up for stock of the upcoming Alexandra Park release and prices range from just under $1 million to $3 million. This type of more expensive stock seems easier to sell than low-end stock, and that’s because a lot of these buyers are downsizing, so they don’t need as much financing.

Honeybone is optimistic about the prospects for townhouses as New Zealanders have become more accustomed to living in this type of accommodation than they were previously.

“These are the most affordable and pleasant new homes. But if the market goes down a bit more and land gets a bit cheaper, that could affect their prices more.

It’s the townhouse prices that make it a good option for aspiring homeowners, said First Home Buyers Club manager Lesley Harris.

“With prices so high, our advice is that people looking to get on the property ladder should look for alternatives to their dream first home.

“If a first-time home buyer can find a townhouse that suits their needs and at a fair price that they can afford, they should use that as their first step.”

That’s a better option than waiting to see if prices crash as the market eases, she says. “My feeling is that prices could come down a bit, but not a lot. The market will settle down and real estate will still be in demand.

With sales falling and fewer buyers in the market, there are currently more opportunities for first-time home buyers to negotiate a good deal, Harris says.

A townhouse doesn't have to be a permanent home for a first-time buyer, but it can be a great start.

Amy Baker / Stuff

A townhouse doesn’t have to be a permanent home for a first-time buyer, but it can be a great start.

“A townhouse doesn’t have to be a forever home, but it can be a great start. A buyer can keep it for a few years. Over time, its value and their equity will increase enough to allow them to move on to a bigger and better property.

But it’s important for first-time home buyers to choose townhouses in areas with good access to transportation and amenities like shopping and schools, she adds.

“Furthermore, given the issues associated with rising construction costs, any buyer signing a turnkey contract should get very solid legal advice on the contract and all of its terms. Buyers of new construction should be cautious in the current environment.