What Goes Up In Value Faster?
If you want to see your property increase in value faster, some people say it’s better to buy a standalone house, others a townhouse, and still others an apartment. JUNO economist Ed McKnight has the answer.
8 October 2021
Scrolling through Facebook a few weeks back, a post came up in my newsfeed that grabbed my attention.
It was from the New Zealand Property Investors Chat Group, a Facebook group where investors quiz each other about real estate.
One Taupo-based property investor asked: “I’m looking at investing in a townhouse, but is it going to go up in value as quickly as an apartment or a standalone house?”
As can be expected on social media, a chorus of property investors quickly chimed in.
In this case, they were singing the age-old advice that houses appreciate the fastest, followed by townhouses, and then apartments.
That’s what’s typically been said in property investor circles. But is it true?
And if it is true, is the difference in capital growth meaningful enough to pay attention to?
We ask the experts
‘Not always’ is the answer to both questions, according to data released to JUNO by property data firm, CoreLogic.
The data does show that apartments have historically grown in value more slowly than townhouses and standalone houses in the country’s three major cities.
Two-bedroom apartments in Wellington appreciated at an average of 5.37 per cent a year between January 2000 and July 2020.
Over the same period, two-bedroom flats and townhouses appreciated at the higher 6.72 per cent annually, while two-bedroom standalone houses appreciated not as rapidly but still very well at 6.63 per cent each year, on average.
The trend of apartments appreciating more slowly than other building types is seen across all number of bedrooms in the three major centres, with only one small exception.
How much difference?
That leads us to question the size of the difference.
When apartments are compared with standalone houses with the same number of bedrooms, that is, two-bedroom apartments versus two-bedroom houses, the difference in capital growth has historically been between 15 to 49 per cent less growth per year.
But when you’re comparing townhouses and standalone houses, the trend isn’t as straightforward, for several reasons.
The first is that data companies collect information about individual properties from district and city councils. There are 67 of these territorial authorities throughout the country.
The issue here is that there is no consistent method that councils use to classify buildings. A townhouse could be called a unit, a flat, a townhouse, or a residential dwelling within different council systems.
In our simplified data set, the results are presented as ‘flats’ and ‘residential dwellings’.
That means there could be some cross-over, where a townhouse is sometimes recorded as a ‘flat’ and at other times as a ‘residential dwelling’. This makes it harder to draw reliable conclusions.
Putting that aside, for the purpose of this analysis, we’ll call ‘flats’ townhouses and ‘residential dwellings’ standalone houses.
Even so, the second factor making it tough to draw a conclusion in the ‘townhouses versus standalone houses’ showdown is that in some cases flats achieved higher annual capital growth than houses.
Over the past 20 years, this has been the case for two-bed flats in Hamilton, two-bed flats in Wellington and both three and four-bed flats in Christchurch.
In cases where standalone houses achieved higher capital growth, the difference is sometimes marginal, and is certainly less consistent than the trends we saw for apartments.
Take four-bed ‘flats’ in Auckland as an example, which over the period increased in value by 7.08 per cent per year, on average. That compares to 7.47 per cent for four-bedroom ‘residential dwellings’.
These four-bedroom Auckland-based flats achieved 5.2 per cent less annual growth than residential dwellings, but the growth gap is significantly smaller than the 14.6 per cent gap that was the case for four-bedroom apartments over the same time.
Apartments not a winner
So, we can confidently say that apartments get lower capital growth than townhouses and standalone houses. But we can’t be as confident in declaring a winner between standalone houses and townhouses.
The real message here is that, although received wisdom in property investment and other fields may sound logical on first hearing – that doesn’t mean it’s accurate.
A mate in the pub or a friend on Facebook may strongly assert something to be the case. But, as I’ve shown, it doesn’t mean it’s true.
JUNO’s content comes from sources that JUNO magazine considers accurate, but we do not guarantee its accuracy. Charts in JUNO are visually indicative, not exact. The content of JUNO is intended as general information only, and you use it at your own risk.
Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.