Pros and Cons of building a new home compared to buying an existing older house in NZ - OPINION

The first decision any prospective home buyer needs to make is whether to build / buy a brand new home, or to buy an existing older home. It...

The first decision any prospective home buyer needs to make is whether to build / buy a brand new home, or to buy an existing older home. It is often a difficult decision to make, as there are pros and cons with both options. 

One of the biggest advantages in buying an existing house, is that you are more likely to be able to buy in an already established location that you want to live in. It will also often be closer to amenities, and you can move in immediately. But what we have found through our own property searches, is that many existing houses are in very poor condition and have been poorly maintained, unless they have been specifically done up to sell. Occasionally these issues are superficial, but often houses need a significant amount of work and money spending on them. Many older houses for example may need re-piling, re-wiring and re-plumbing, re-roofing, some recladding and that is on top of repainting and re-carpeting inside. It is also highly likely the kitchen and bathrooms will need ripping out. They can also be higher maintenance over time, as they may require regular exterior repainting.  Sometimes it can be cheaper or easier in the long run to demolish the old house and rebuild on the site. That way you can get the house and layout you want. However the benefit many older existing houses have is they will often have more character than a new build home, and they will often be surrounded be established trees and neighbourhood, having a more pleasant environment. This is often something missing with new housing developments, and due to the higher concentration of houses due to tiny section sizes on many new developments, there is likely to be less vegetation and large trees over time.    It is very difficult to find an empty section for sale in an existing established area. Such a section often relies on an existing property owner subdividing part of their garden from their existing house, and often these sections can be very small. New subdivisions are often developed on previously undeveloped or farmland, so can often offer larger parcels of land.

Building a new home also has it's advantages. You can get exactly what you want in a home, and often you can plan it's layout, and choose the materials. Depending on your budget, you can get your 'Dream Home', customised to how you live. New home buyers also benefit from houses having better insulation, double glazing, better living spaces and more features for modern living. Many older existing homes are cold, damp, and drafty, with poor layouts so need significant money to bring them up to modern living standards. 

But building or buying a new home often means being surrounded by other similar new homes on a housing estate, many of which are crammed onto small parcels of land to maximize profit for the developers. Some of these houses can be ugly and build very close to boundary,  affecting privacy. These developments are often also built on the urban fringe of a town or city, so are not within walking distance to shops. Also often public transport infrastructure doesn't exist, so owners are reliant on owning a car. One of the major problems with buying empty land in a brand new development, is you don't know what other houses are going to be built around you.  So it can sometimes be better to find a section where surrounding houses have already been completed. The other thing to consider is construction noise. You don't want to face years of construction noise as houses are slowly built around you,  especially if you work from home!

Another major problem with buying land over the last year, is the price of land has skyrocketed up in price. In some cases land in some locations has nearly doubled in price. Some people, including builders and  developers who have have purchased land in the last few years, have seen the current sellers market as a good opportunity to sell any land they have land banked, to make some very large capital gains. They have been able to make this capital gain by not having to do anything productive to generate that increase in land value. Instead the current ultra low interest rate environment in New Zealand, combined with the very limited land and housing supply on the market has created these crazy capital gains.

A couple of examples of how much land prices have increased in the last year or two, one section we were looking at in a new development sold in August 2020 for $325,000. The new owner decided to resell the land in March 2021, and the agent expected it to sell north of $400,000, which would have meant a massive $75,000 capital gain in just 7 months for doing nothing. However according to recent sales data, it ended up selling for $450,000. So that was a  crazy capital gain of $125,000 in just 7 months!
Another section we were interested in initially sold in February 2020 for about $250,000, and was resold by the new owner in May 2021. The agent was expecting to get $500,000 + for it. Although the official selling data hasn't been released yet, it sold within a few months, so it would have likely doubled in price, with a likely $250,000 capital gain in just over a year. These are crazy capital gains for land, and will significantly increase the price of surrounding land as these sales create new benchmark pricing expectations. Just to clarify, no improvements such as fencing or driveways had occurred since the initial sale of these properties, so they were purely capital gains on the lands value. At least the government will be getting a lot of extra tax from these land sales!   

Currently due to the New Zealand housing crisis and lack of resources, building a new home is problematic at the moment. One of the main problems as of writing this in 2021 is that there can be a very long wait to get a good builder. We have heard of people having to wait at least a year before their selected builder can start. It is obviously very important to make sure you get a good builder that you are going to be comfortable with, to build your new home, and to look at previous projects they have worked on.  The other problem is that currently new residential builds are being delayed due to a shortage of building materials and products. So this could add months onto the construction timeline. All these delays mean that there could be a significant time delay for people that are building, before they will be able to move into their new home. 

As a result of these time delays, many people who had previously purchased land and were planning to build, are also looking at existing homes as an option, as it can provide a quicker and simpler solution to move on. This is also helping to push up prices on existing homes, especially with the massive shortage of houses on the market in 2021.  This has resulted in quite a lot of land  in our area to come back onto the market again for resale. But if someone is buying an existing house that needs a lot of remedial work, finding a builder to do this quickly could be difficult in the current environment. So buyers of existing property may find themselves in a similar situation that would be if they had just built new. So houses that are in good condition are in very high demand.

The cost difference between buying an existing home, compared to a new build used to be larger than it is now. It often used to be significantly more expensive to buy a piece of land and build on it, rather than to buy an existing older house. But these days, with such massive price increases in the prices of existing housing stock,  there may not be as large a difference in price as there used to be. As the average existing house in New Zealand is approaching a million dollars, in some cases it may even be cheaper to build a better new home, and possibly in a better location. According to a recent Stuff article, apparently a new 3 bedroom house excluding land will cost approximately $350,000, according to one of the construction calculators they used. But we are skeptical about this, as it sounds very low, and is probably a very small house constructed to the building minimum standards and using the cheapest materials and fittings. Building is often far more expensive than you expect it to be and there are often unforeseen costs with building, which means that people building should always have a contingency percentage put aside. As older existing homes used to be cheaper, first home buyers often purchased existing homes for their first home. First home buyers could do them up and work on them themselves, something which older home buyers are less likely to want to do. However more and more FHBs seem to be buying new houses, especially with some Kiwibuild homes available, and other home and land packages, some which are priced at more affordable prices. 

There is another option that can have some of the advantages of building a new home. That option is to buy a 10-15 year old home. Such a home is likely to have been built to new building standards and will hopefully have double glazing. But it maybe a bit more dated in terms of the kitchen and bathrooms, and not following the latest trends. Such a home is likely to only need superficial work such as repainting, and possibly new carpet, depending on the condition of it. Things like the kitchen and bathroom can also be updated over time, but often with these houses people can move in and do nothing for several years.  We have found such houses are often quite a bit cheaper than new spec houses, and come on larger sections. But they are quickly snapped up. So there are Pros and Cons with any option.

The above blog is not intended as advice, but only as general observations and should not be relied on. It is for entertainment purposes only.