How Many Bedrooms Is Better?
Is there an optimal number of bedrooms for your rental property to get the best growth? JUNO economist Ed McKnight says yes.
11 October 2021
Property investors often ask: “How does the number of bedrooms affect a property’s capital gain?”
And: “If I buy a three-bedroom property, will it go up in value faster than a two, a one or a four-bedroom property?”
In a collaboration with data provider, CoreLogic, the team at JUNO magazine set out to determine whether there have been patterns of value increases over the past 20 years.
We analysed properties in Auckland, Christchurch, Wellington, and Hamilton, and compared how the value of properties has changed, both based on the number of bedrooms and the type of property.
The properties have then been electronically valued to calculate the median value of properties in January 2000 and then again today.
We’ve excluded any new-builds over the past 20 years to protect against the risk that larger or high-spec homes built recently could skew property values higher.
Our data shows that in some cases, yes, the number of bedrooms has had a consistent impact on the growth experienced by properties in our four sample cities.
Two is good for apartments
In Auckland, Christchurch and Wellington, the median value of two-bedroom apartments increased 30.1 to 37.5 per cent faster than the price of a one-bedroom apartment.
In each of these three cities, two-bedroom apartments had the highest capital growth rates compared to one, three and four-bedroom apartments.
That suggests that, historically, on average two-bedroom apartments have made a better long-term investment than apartments with another number of bedrooms.
But, in other cases, the data is less consistent.
Four-bedroom flats do better in Auckland
Four-bedroom flats increased the fastest in Auckland, whereas in Wellington it was one-bedroom flats, three-bedroom flats in Christchurch, and two-bed flats in Hamilton that appreciated most quickly.
Nonetheless, we can still spot trends.
Two-bedroom flats in Auckland and Hamilton appreciated significantly faster than one-bed units in the same cities, 31.3 per cent and 52.8 per cent faster, respectively.
And while one-bedroom flats grew faster in Christchurch and Wellington, they did so at a much slower rate, just 9.2 per cent and 1.5 per cent, respectively.
While this is a weaker trend, if I were considering two properties – the same in all respects, except one has two bedrooms and the other had one – I’d be more comfortable investing in the two-bed property.
There’s a big impact
It’s important to note that while small differences in growth rates can seem minute, they can also have a significant impact.
Take a one-bedroom Auckland flat. Since January 2000, one of these properties grew in value on average by 4.85 per cent annually.
But a median-priced two-bed flat grew in value by 6.37 per cent on average each year.
Had the buyer of a one-bed flat invested the same amount of money in the average two-bed unit instead, they’d be richer by $205,000 today.
But before you start looking at properties with only a specific number of bedrooms, there are some limitations to note.
Things to consider
We can’t use the number of bedrooms as an indicator for future capital growth in stand-alone houses, because there’s no discernible trend. In these cases, an investor looking for long-term capital gains is better looking for other factors: durability, location, and the property’s relative price.
Similarly, we can’t tell from this data whether the increase in value is caused by the additional bedroom alone. For instance, did two-bed apartments increase in value faster than one-bed apartments because of the extra bedroom, or was it because we can assume two-bedroom apartments are larger than one-bedroom apartments?
Having said that, in the cases of apartments, flats and townhouses, it does appear that two bedrooms are better than one. In other cases, the number of bedrooms doesn’t seem to matter much at all.
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