Will townhouses really keep going up in value?

One of the most common questions is: "Ok Ed, I've seen all your data showing that townhouses have increased in value in the past. And they've gone up pretty much the same as houses previously. But what about in the future? Will they keep going up?"

The short answer? No one knows for sure because the future is unpredictable.

But if you're buying a townhouse as an investment, you want to have some idea about whether your investment will grow in value. So, "I don't know" isn't going to cut it for you or me.

And just before we get into it, here at Opes Partners, we recommend properties to investors. And we often help investors buy townhouses. That's how we get paid.

So I've got an incentive to say: "Townhouses will keep going up in value. In fact, they're an even better investment than houses … buy a townhouse (and better yet, do it through us!)"

Instead, the approach is simple. I'll outline the arguments why townhouses for and against why townhouses will/won't keep going up in value.

I'll do this as honestly as possible. Then, I'll take a step back, and you can make the right investment decision for you. 

Arguments against strong townhouse growth

Let's start with why townhouses might not go up in value that much in the future.

#1 – Some people say there is an oversupply of townhouses

More and more townhouses are being built. Today they make up a whopping 42% of all new properties being consented.

That's a big increase from a decade ago, when just 7% of new properties were townhouses.

This surge, especially in Auckland and Christchurch, makes investors nervous about oversupply.

Why? When there's too much of any property type (compared to demand):

•    House prices don't go up as fast
•    It's harder to find a tenant. They have so many rental options

An oversupply could leave investors stuck with properties that don't grow in value and can't generate a strong yield.

#2 – Kiwis are used to living in houses

The Kiwi dream is to own a quarter-acre section (roughly 1,000 square metres of land).

And the average Kiwi home has traditionally been a standalone 3-bedroom house.

Most townhouses have less than 200 square metres of land, so they don't fit the traditional idea of what Kiwis aspire to own. 

More from Opes:

• Are there too many townhouses in New Zealand? (Article)
• Houses vs townhouses vs apartments - Which goes up in value faster? (Article)
• Properties in the future – What will we want in 2034 (Podcast)

#3 – What happens when the new townhouses aren't new anymore?

Another argument is that most townhouses are new. So what happens when those townhouses age over time?

Sure, new townhouses are popular today … but what about in 10–15 years? Will older townhouses struggle to compete with newer builds?

Standalone houses often benefit from renovations or land value appreciation over time. You can give an old home a facelift or build on the back garden.

But there's less room to play with when it comes to townhouses.

Arguments for strong townhouse growth

Now that we've taken a stern look at the arguments against townhouses going up in value – let's take a fair look at the other side.

#1 – Townhouses are affordable

It's easy to see townhouses being built. What's harder to see is that people are buying them. Why?

Because houses are too expensive in New Zealand. House prices have been increasing faster than incomes. 

So, what do you do when you can't afford a standalone house? You buy something more affordable – maybe an apartment, a house in a different location, or perhaps a townhouse.

So, as housing becomes even more expensive compared to income, what might happen? A larger proportion of our country may turn to more affordable properties, like townhouses.

That's how demand for townhouses can maintain and grow as the population grows.

#2 – New Zealanders don't need as much space

Kiwi families are getting smaller. We're having fewer children. 22% of New Zealand houses have just one person living in them (2023 Census).

We don't need as much space or as many bedrooms. So the houses that we need are changing. That means less demand for bigger homes, and more demand for smaller, higher-quality homes.

We call this a move to "compact quality". Townhouses fit this need well.

Modern townhouses are all built to contemporary tastes and standards. They also have modern features like double glazing.

The townhouses you see being built represent less of a building boom and more of a great shift in how Kiwis (at least in larger cities) choose to live. 

#3 – Our population is growing.

We need to put the people somewhere.

As more people move to New Zealand (and into New Zealand cities), houses are being built closer together to fit everyone in.

It wasn't that long ago that a million people were living in Auckland. Now, there are 1.7 million people.

Many of the people moving to New Zealand are from high-population countries—China, India, and the Philippines. These people are used to living in apartments and townhouses, so these new New Zealanders add to the demand for townhouses.

We've seen similar trends in the past. In the 1970s and '60s, many people built brick "sausage flats." These days, they are known as units. These properties are still attractive for renters and home buyers because they are more affordable than larger standalone houses.

Townhouses vs houses – what goes up in value faster right now?

Historically, townhouses and standalone houses in New Zealand have increased in value at a very similar rate.

When you look at this graph, you first notice how similar the two lines are.

Existing properties go up and down in value roughly the same rate as new ones.

Yes, there is a slight difference in favour of existing property.

When you average it out, existing properties beat New Builds by about 0.6% per year (in this example).

That means if existing properties increased by 8% per year, New Builds went up by 7.4% per year.

There's very little in it.

But what will happen in the future? We don't know exactly yet, as the future has yet to happen.

For now, townhouses and standalone houses are on an even playing field. However, the housing market continues to evolve with both supply and demand.

Based on the arguments you've heard, what do you think will happen? Let me know down in the comments section.